Happy Anniversary to the Secular Bull Market.
Here we are in 2017. Is there wisdom in experience?
Did you know that we are at the 8 year anniversary of the secular market bottom that we hit in March of 2009…..WOW! It just seems like yesterday when we all watched the market take a dive along with our investment accounts.
However, I hope that we have taken some knowledge from this experience and become a little wiser.
As markets stand today, we creep around all-time highs that appear to be going higher. As an aside, did you know that this recovery is the third longest in history? So, if this is the case, then why are clients continuing to be disappointed that their funds have not kept pace with the latest market growth?
Let me share something I recently read from one of the largest investment companies in the world, Fidelity.
“Our investors need to know that alpha is rarely generated in bull markets. Data shows that there is virtually no correlation between a managers’ upside capture rate and their ability to outperform. In fact, the correlation is 0.11. However, there is almost a perfect negative correlation with downside capture rate and positive alpha; that number is -0.87, meaning the lower a Fund’s downside capture ratio, the higher its excess return. The problem with this is that there is no accurate way of knowing why, when or how the next bear market or correction will occur.”
Relationship of upcapture to excess return
So what does this all mean?
Basically, what they are saying is when markets are performing well outperformance is rarely seen from your investment fund. It still goes up as the market does, but just not as much.
But in rocky markets
However, in bad markets, having your investment managed will make a massive difference in how much less your investment will decrease when compared to the market.
Relationship of Down Capture to excess return.
Keep this in mind as you consider options like ETF strategies that have had a great deal of their success in positive markets but have not had the experience of dealing with poor markets. We all know that history has a way of repeating itself and preparing for a correction in the market may be as simple as making sure your investments fund is well positioned for the road ahead. Make a point of calling your financial advisor to make sure you are in the best position possible moving forward.