Crisis Investing: How 14 Different Asset Classes Performed in Times of Distress
July 9th, 2015 by Jason B. Vanclef
1994: SURPRISE RATE HIKE
In 1994, the economy was recovering from a significant recession and treasury yields started to rise from the lows of the previous year. The Fed and Alan Greenspan surprised markets by tightening monetary policy with the first rate hike in five years.
Returns: Large cap (-7.75%) and small cap stocks (-9.84%) got crushed. Managed futures (4.07%), commodities (3.15%), and gold (0.28%) did okay.
1998: LTCM GOES UNDER
Long-Term Capital Management started off with promise as it brought in annualized returns (after fees) of 21%, 43%, and 41% in its first three years with high leverage and normal macroeconomic conditions. LTCM directors Myron Scholes and Robert Merton would share the Nobel Prize in Economic Sciences in 1997. Promptly after, the hedge fund would lose $4.6 billion in four months in the aftermath of the Asian financial crisis, requiring a bailout from the Federal Reserve and various banks.
Returns: Stocks and REITs get crushed. Bonds (0.78%) and managed futures (5.61%) survive.
2000: DOTCOM BUBBLE BURSTS
Fledgling internet companies with no profits and limited revenues went public, reaping huge gains on IPOs. Prices went up and up, but eventually came crashing down in March of 2000 with the Nasdaq losing up to 70% of its peak value.
Returns: Large cap stocks (-40.33%), small cap stocks (-35.29%), private equity (-25.40%), and international stocks (-46.53%) get hammered. REITs (49.48%), bonds (19.65%), global macro (44.69%) all did well. Gold (0.47%) remained virtually unchanged.
2001: 9/11 TRAGEDY
Coordinated attacks on the United States shock markets, and the NYSE and Nasdaq remain closed until September 17th. Upon re-opening, the Dow drops 7%.
Returns: Almost all asset classes struggle, but gold (3.73%) got the highest return.
2008: GLOBAL FINANCIAL CRISIS
Lehman Brothers goes under and the Greenspan real estate bubble crashes and burns. Excessive speculation, lenient mortgage lending, and the proliferation of derivative financial products such as credit default swaps contribute to the problem. The Fed has $29 trillion in bailout commitments while 8.8 million jobs and $19.2 trillion in household wealth are lost.
Returns: Again, most assets get crushed. It is no surprise that worst off are REITs (-63.77%). Gold continues to shine, gaining double digits (16.33%).