2014 … A Mixed Bag of Investment Results
At first blush, 2014 appears to have been another good year for the equity markets. And it was, at least here in the United States for large cap companies, as the S&P 500 Index rose 13.7%. U.S. small companies rose a more modest 4.9% for the year, following a furious rally of almost 10% in the fourth quarter. But that’s the extent of the good news, as International Developed, Developing Markets and Commodities all posted negative results. The primary culprits were a 45% decline in the price of oil and a strong U.S. Dollar. The U.S. dollar appreciated 12% against both the Euro and the Yen, rose almost 8% compared to the Canadian Dollar and 40% versus the Russian Ruble (rubble?). The only major currency that did not weaken versus the U.S. Dollar was the Chinese Renminbi, where the relationship between the two remained constant.
Growth Oriented (Equity) Benchmarks
International Developed markets actually rose 6.4% in their local currencies last year, but for U.S. based investors, the strong dollar reduced it to a negative 4.9% return. Developing markets rose 5.6% in their local currencies in 2014, but again, for U.S. investors that positive result was reduced to negative 2.2%. Normally currency movements don’t have such a large impact on global investment results, but 2014 was an exception.
The President of the European Central Bank (Europe’s equivalent to the Federal Reserve), Mario Draghi, has vowed to sharply increase the bank’s balance sheet in the coming months to $3 trillion or more Euros in an effort to fight deflation, spur lending activity and jump-start the European economy. In Japan a similar effort is underway to stimulate their moribund economy.
Income Oriented (Bond) & Cash Benchmarks
During the fourth quarter, global bond markets continued to build upon gains made in the first nine months of the year as interest rates continued to fall worldwide. The yield on the 10-year U.S. Treasury dropped about 0.8%, finishing the year at 2.2%. As low as yields are in the U.S., they are even lower in Europe and Japan, and many investors in those countries are excited to purchase our bonds for their high yields! And lastly, returns on cash were zero again in 2014.
“Wealth is the ability to fully experience life.” Henry David Thoreau