Monday, April 1, 2013

Asset Allocation's Ugly Side

I just read an article in the Wall Street Journal about how commodities have not done well this year in the face of the market rally.  Stocks, Commodities Break Up the Band

A traditional asset allocation portfolio would usually have an allocation to commodities.  It would also usually have an allocation to foreign stocks (emerging and developed) and bonds along with US Stocks.  

When an investor adds bonds to a portfolio they expect they will drag on returns during a market upturn.  They accept that for the supposed protection during market declines.  I have written in the past about how bonds are likely to go from being a risk reducer to a risk enhancer in portfolios so I won't rehash that here.  When they add commodities they typically hope that commodities will rise with stocks and might provide some protection during a market decline.  While US stocks have gone up quite a bit this year the traditional asset allocation portfolio is having some problems so far.  Here are the year to date returns of some ETFs that track these other asset classes:

Commodities---iShares S&P GSCI (GSG): .34%
Bonds- Barclays Aggregate Bond (AGG): .07%
Intl Developed- iShares MSCI EAFE (EFA): 3.73%
Emerging Market- iShares MSCI Emg Mkt (EEM): -3.56% 

S&P 500:   10.61%

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