As the year winds to a close, it is worth reviewing how the different asset classes performed this year… Thanks to the nifty tools at ETF, it’s pretty easy to look at the 1 year performance of the myriad of sector ETFs out there…

To start, here are the high-level categories and their returns (yes, I’m rounding):

  • IVV (S&P 500) – up 14%
  • TLT (US Bonds) – up less than 1%
  • EFA (International Stocks) – up 25%
  • VNQ (REITs) – up 35%
  • GLD (Gold) – up 23%

Amazingly, according to the screener, only 7 of the 240 ETFs are down for the year. (I’m not including funds like SLV that did not exist on 1/1/06.) There are 340 ETFs included in the list, 120 created since January!

Maybe 2006 will be remembered as the year when everything went up at the same time…

There are of course a few catches when you look at the yearly performance of asset classes like this… for example, the end-date is arbitrary — those interested in robustness of their analysis would compare the performance of asset classes over every 12 month period, not just those that start in January and end in December.

Another interesting point is how large the volatility or draw downs would be in the given asset class. For example, Gold (GLD) is up 22% for the calendar year, but between January and May it was up 38%, only to fall by a whopping 23% in May and June. While the 22% up for the year is impressive, it is still 15% below the highs in May.

To contrast with Gold, REITs suffered a 12% loss between March and June; EFA had a drawdown of 19% between May and mid-June; TLT had a drawdown of 10%; and IVV had a drawdown of only 8.5%. With higher returns come an additional “roller-coaster” aspect of the returns…

Hindsight is always 20/20, but those who chose to diversify into international stocks, REITS, and precious metals at the beginning of the year are looking pretty smart today.