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B. G., Opalesque Geneva: Kevin Shea, CEO of Disciplined Alpha, a systematic investment manager in Boston, suggests the S&P 500 index may be due for another multi-year period of 0% returns.
Shea provided, in a monthly update seen by Opalesque, a very long-term cumulative return of the S&P 500. The up-to-date chart uses data from FactSet and starts on January 31st, 1928. As one can see in the chart, there are multi-year periods when the stock market generated 0% annualised returns (in red), and there are multi-year periods when the stock market generated above-average returns (in green).
One could argue that the S&P 500 is due, or even overdue, for a multi-year period of 0% annualised returns, he notes. While it is unclear when this multi-year period will begin, it could be prudent not to bet against 96 years of data. In such a multi-year period of 0% returns for the S&P 500, investors may wish to avoid holding assets that historically have had high correlations with the S&P 500. It is worth noting that many products that are marketed as solutions to diversify a long portfolio, in reality, have correlations with the broad equity market of .85 or .90.
Some long/short equity strategies have much lower correlations with the S&P 500 and may be better positioned for such a time period, he concludes. "In our case, this is due to the Regime Model. While the S&P 500 Index generated 0% annualised retur...................... To view our full article Click here
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