Saying it has been a strange year does not place 2020 in any measurable context. Given a continued pandemic/lockdown, any prospects for economic growth reversing the output gap in the short-run is low. Yet, here we are with the major US equity benchmark (SPX) up 9.74% for the year after a 7.19 percent gain in August. Bonds have posted a good year with the US Aggregate up 6.44 percent.
The dispersion in returns is very surprising. The large versus small cap differential is over 20 percent. The US versus international benchmarks, developed and EM, have underperformed by around 10 percent. The growth versus value return difference is more than 35 percent. Strategies such as holding dividend stocks or low volatility have not generated favorable returns. The differentials in US equity sectors have also been significant with information technology gaining over 35 percent this year and outpacing all others. This one sector represents 45% of the gain in the SPX benchmark.
The cost of making wrong asset allocation decisions has been very high. Strategies that should have helped during a crisis have been return drags. This may change over the next four months, but active prudence has not been rewarded. For those who have kept it 60/40 simple, it has been a great year.
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