Bear rating is the fund's
performance during all bear market months from 11/07 to now, not just during extended market declines.
It also has the best
performance during bear market months.
As promising as that may seem, a 2008 white paper from Vanguard looked at active manager
performance during bear markets between 1973 and 2003.
Not exact matches
Performance varies greatly for bonds of different credit qualities, but even
during the worst
bear market for bonds, the 40 - year period of rising rates from 1941 to 1981, the worst 1 - year loss for the Bloomberg Barclays US Aggregate Bond Index was just 5 %.
Putting aside the
performance of bonds
during the
bear market beginning in 1980 (both because the starting yields on Treasuries were so high but also because the
bear market was relatively mild as the decline began from relatively low levels of valuation), what's interesting about the above chart is how dependably bonds protected a portfolio
during equity
bear markets.
Now contrast these returns with
performance during equity
bear markets.
It turns out that when you compare the
performance of bonds with the direction of inflation
during bear markets, the relationship strengthens.
During global
bear markets this weak «
performance breadth» is standard stuff.
Exhibit 1 compares the
performance of actively managed equity funds across the nine style boxes
during the 2000 - 2002
bear market, the financial crisis of 2008, and 2015.
The poor
performance of the target date funds, especially
during the two major
bear markets since 2000, highlights one of the core tenets of Swan Global Investments» philosophy.
While active fund
performance is generally very poor on average, it appears to be slightly less poor
during bear markets in this sample.
But before we discuss the
performance of low quality stocks
during the
bear market, we need to look at the period leading up to the
market's peak.
Chart 2 below at right illustrates this by focusing on the
performance of SMI's Upgrading strategy
during the late 1990s and early 2000s, including the
bear market of 2000 - 2002, with the S&P 500 also shown for reference.
Tracking the fund's
performance in the
bear market is particularly important because the true test of a portfolio is often revealed in how little it falls
during a bearish phase.
The quality factor tends to outperform the overall
market during bear markets; this superior
performance pattern was present
during the 2008 - 2009 downturn.
Basically, BMDEV indicates the typical percentage decline based only on a fund's
performance during bear -
market months.
Calculating BMDEV for the 3500 or so existing funds
during that period, ranking them by decile within peer group, and then assessing subsequent
bear market performance provides an encouraging result... funds with the lowest
bear market deviation (BMDEV) well out - performed funds with the highest
bear market deviation, as depicted below.
They have also broken out the
performance of value stocks
during Japan's long - term
bear market over the 1990 to 2011 period, when the stock
market dropped 62.21 percent.
Putting aside the
performance of bonds
during the
bear market beginning in 1980 (both because the starting yields on Treasuries were so high but also because the
bear market was relatively mild as the decline began from relatively low levels of valuation), what's interesting about the above chart is how dependably bonds protected a portfolio
during equity
bear markets.
We can use these characteristics and our dataset of bond
performance during equity
bear markets to run a what - if analysis on possible outcomes.
Over the longer term, however,
performance was significantly better because their lack of financial companies and highly leveraged firms served them well
during the last
bear market.
It turns out that when you compare the
performance of bonds with the direction of inflation
during bear markets, the relationship strengthens.
And overall, the relative
performance of active funds is generally better
during bear markets than in more prosperous times.
One can see the classic trend following pattern: capital protection
during bear markets, some lagging
performance during strong bull
markets (by definition there is a bit of a lag to jump on board of a trend).
During Frieze, opening today on Randall's Island, there will be more than 20 such solo shows, including some by major
market players: Ed Ruscha will be shown at the Gagosian Gallery booth, and work by Danh Vo, the Vietnamese -
born performance artist will be at Marian Goodman.