It was a very good year for many asset classes, equities in particular. Here we take a look at the 2017 performance of key asset classes and investment strategies, as represented by the exchange traded funds.
Key Asset Classes
- Emerging market equities (EEM, 37.3 percent total return) was the best performing of eight ETFs representing major asset classes selected from the First Bridge ETF database. EEM outperformed U.S. equities (SPY, 21.7 percent) and Ex-U.S. Developed equities (EFA, 25.1 percent) in 2017, although as expected, it was also more volatile than those ETFs.
- In the U.S., small cap equities (IWM, 14.6 percent) underperformed large caps (SPY, 21.7 percent) in 2017. Last year, investors in small cap ETFs were not compensated for taking on the higher risk (volatility) relative to large cap ETFs.
U.S. Smart Beta
- The chart below shows how different smart beta strategies performed against SPY, which tracks the S&P 500.
- Traditional market cap-weighted exposure, as represented by SPY, outperformed smart beta strategies, including low volatility (SPLV), value (RPV) and dividend (VYM) strategies.
- Equal weighting (RSP,18.5 percent) underperformed traditional market cap weighting. This is not surprising given that equal weighting tends to tilt an index towards smaller cap stocks so larger cap stocks performed better in 2017.
Disparity Within Asset Classes
The table below looks at the performance of ETFs within broad asset classes.
- Within the bonds asset class, emerging market sovereign bonds (EMB, 10.3 percent) outperformed U.S. broad market (AGG, 3.6 percent) and corporate bonds (LQD, 7.1 percent).
- In global equities, traditional market cap-weighted regional exposure, e.g., emerging markets (EEM, 37.3 percent) and Ex-U.S. developed equity (EFA, 25.1 percent) outperformed smart beta strategies such as global dividends (VIG, 22.2 percent) and infrastructure (IGF,19.3 percent) themes.
ETF Data Source: First Bridge Data, as of 12/29/2017.
Aniket Ullal is the founder and CEO of First Bridge Data, a provider of independent ETF data and analytics to institutional clients. Previously he had product management responsibility for S&P’s U.S. indices, including the widely followed S&P 500 and S&P/Case-Shiller indices. He is the author of ETF Investment Strategies (McGraw-Hill; 2013).