“Teach your tongue to say I do not know, and you shall progress.” – Maimonides (1135-1204 Spain)
Investment management is the combination of science and intuition, anticipating what others anticipate, about a future set of events that are inherently unknowable.
That’s what I will attempt to do in this market letter: Anticipate what others may anticipate about capital markets performance and behavior in 2014. Before I progress any further, I do need to disclose that I do not know. Having established some faith and confidence here, let’s pay a quick visit to 2013.
I prefer to look at returns on investable indexes (Exchange Traded Funds) rather than benchmarks because they are more realistic in the sense that they reflect management fees.
So according to iShares, Nasdaq Biotechnology Index was the top global performer with 65.61% return, followed by DJ US Select Investment Services Index 65.37%. The bottom feeders were Gold Miners Investable Markets Index -52.21% and Silver Miners Index -51.46%. Wow! Gold itself (GLD) brought a whopping -28.32% loss. So much for being a safe investment.
As you can tell, best results came from the US, as its S&P 500 Index returned 29.6% (capital gains only). The rest of the developed world such as Germany and rest of the Europe were also mostly positive as the Eurozone got out of recession in Q2.
Even though it was a good year for the residential housing market, the same can’t be said for the returns on Real Estate Investment Trusts (REITs).
Bonds? Ouch! 2013 was a markedly bad year for bonds. The 20 year treasury index lost over -15% due to the tapering and rate increase expectations.