Asset Class Returns for 2015

It’s important to remember there are two reasons for diversification.  The first is it reduces risk, and the second is it exposes you to whichever asset class is doing well each year.  Since we don’t know which asset class will be the best performing ahead of time, think of diversifying across asset classes as fielding a baseball team, wherever the ball is hit to on the field there is someone positioned there to make a catch.

This year the rebound in real estate from the 2007-2009 crisis made REITs the top performing asset, while emerging markets added to their run as the bottom performer.  (Commodities were down so much they didn’t even make it onto the chart)


Source: Novel Investor (CLICK FOR FULL SIZE CHART)

Spoofing and Front Running

This type of trading now represents 70% of the volume –  but it adds liquidity!  (Yeah right)

That the firm took matters into its own hands shows how deeply the electronic bait-and-switch scheme has penetrated the global marketplace—and how slow regulators have been to root it out. The firm’s efforts, disclosed in a court filing in November, enabled Citadel to detect suspicious orders and, in a blink, pull back from trading.

Source: Spoofing fight draws Chicago’s Citadel, Vertex – Finance News – Crain’s Chicago Business

Hedge Fund Flows Collapse in 2015

Hedge funds continue to lose assets under management from a lack of outperformance.  The thesis for investing in hedge funds has come under scrutiny in the past few years as investors realize that the excess returns generated by the funds are eaten up by their fees.  Last year was supposed to be a stock pickers market, a perfect time for active management to shine, but the average equity hedge fund return as measured by the HFRX Equity Hedge Index was a loss of 2.16%.

Hedge fund inflows declined by roughly 40% in 2015 compared to the previous year, as the under-fire sector continued to post poor performance.

Data firm eVestment estimated a net $66.6 billion inflow for the industry in 2015 to the end of November. This compared to $111.4 billion for the same period in 2014.

Source: Chief Investment Officer – Hedge Fund Flows Collapse in 2015