The idea behind asset allocation is simple: when one market struggles, it's OK because an investor can jump into another that is thriving. Not so in 2015.
In fact, if you judge the past year by which U.S. investment class generated the largest return, a case can be made it was the worst for asset-allocating bulls in almost 80 years, according to data compiled by Bianco Research LLC and Bloomberg. With a couple days left in 2015, the Standard & Poor's 500 Index gained about 2.2 percent with dividends, cash is up less, while bonds and commodities show losses.
After embracing everything from Treasuries to high-yield bonds and technology shares amid seven years of zero-percent interest rates, investors found themselves with nowhere to run at a time when the Federal Reserve's campaign of stimulus drew to an end. Normally it isn't like this. Since 1995, practically every year has seen some asset deliver returns exceeding 10 percent.
Worst Years in Asset Allocation Since 1926
| Year | Stocks | LT Bonds | Cash | Commodities | Best |
| S&P 500 | 30 yr Treasury | 3M Bill | CRB Index | Return | |
| 1931 | -43.42% | -5.32% | 1.09% | -20.59% | 1.09% |
| 1937 | -35.02% | 0.22% | 0.29% | -10.40% | 0.29% |
| 1953 | -0.96% | 3.63% | 1.83% | -3.12% | 3.63% |
| 2001 | -11.89% | 3.70% | 3.85% | -16.34% | 3.85% |
| 2015 YTD | 2.19% | -2.04% | 0.11% | -23.42% | 2.19% |
"It's been challenging from the point of view that the equity market and bond market are probably more joined at the hip than normal," said Hayes Miller, the Boston-based head of multi-asset North America who helps oversee $35.8 billion for Baring Asset Management LLC. "We've had high cash exposure relative to norm because we felt cash provides one of the only good diversifiers against the risk-off trade."
Bianco Research keeps track of the S&P 500, 30-year U.S. Treasury bonds, 3-month Treasury bills and the Thomson Reuters/CoreCommodity CRB Commodity Index to gauge performance in stocks, bonds, cash and commodities. The four are the most common asset classes considered by investors when an allocation strategy is designed, according to Jim Bianco, the founder.
While the depth of losses in equities and commodities is nowhere near as bad as in 2008, the correlation of declines highlights the challenge for money managers who seek to amplify returns by rotating among assets. Among other things it's a recipe for pain among hedge funds, according to Bianco. The industry is heading for its worst annual performance since 2011, with closures rising, data compiled by Bloomberg and Hedge Fund Research Inc. show.
"The Fed stimulus lifted all boats, and then the Fed withdrawing the stimulus is holding the boats down," Bianco said by phone. "If the argument is right that the economy is going into 2016 weak and earnings are negative, those conditions will continue and therefore on the asset allocation level, I don't expect anything to break out just yet."
