Greece, China, a more than likely rate hike in September and other macroeconomic and geopolitical concerns have investors and advisors everywhere asking the same question: when will this bull market end? The answer is no one knows (if someone has hard and fast answer for you, be afraid, be very afraid of this person). The right questions to ask are: how should I prepare for the next market downturn? And, which asset classes offer the most protection and diversification?
To answer those questions, a review of past market crisis periods sure seems like a good place to start. How did stocks and bonds and hedge funds react the last time there was surprise Fed rate hike? How did Real Estate and Gold and Private Equity do during recessionary periods? These are key questions to answer, but where to find the data among the thousands of research papers and index provider websites out there?
We decided to do our own comprehensive analysis, and have a little fun, in developing an infographic that examined seven traditional versus seven alternative asset classes in five bear market periods: the surprise Fed Rate hike of 1994, the Long Term Capital Management (LTCM) debacle in 1998, the internet bubble, the 9/11 tragedy and the credit crisis of 2007.
The data shows that alternative investments perform better in times of market stress and upheaval (of course, past performance is not necessarily indicative of future results). This should come as no surprise to astute market observers, but some of the data is very illuminating in terms of which alternative investments provide the diversification, and which aren’t all that alternative after all. We hope this research sparks the right conversations with advisors and their clients – data driven conversations about the performance of different asset classes in bear markets, before we’re in the next one.
Jeff Malec is a partner and managing director of RCM Alternatives, a financial services firm which pairs investors and financial advisors with managed futures focused alternative investments through managed accounts and private funds.