March 2019 IssueLong scroll reading

The Ten-Year Bull

By Charles Boccadoro

“Happy days are here again! The skies above are clear again. Let us

sing a song of cheer again, Happy days are here again!”

Jack Yellen

February marked the tenth full year of the current bull market, which began in March of 2009. For those of you that held steady through the great recession or have just been lucky or wise enough be invested over this period, you’ve been well rewarded.

Through much of its first years, this bull market had little love, especially in late 2011 when it looked like we were headed back into bear territory. There have been a couple modest retractions since: the taper tantrum of 2013, January 2016, and this past December.

But for the most part, it’s been a fairly steady upward ride, including periods of extremely low volatility and many consecutive months of positive returns (eg., Historically Low Volatility).

Examining fund performance across full, down, and up market cycles, is one of the principal reasons we established the MFO Premium screening tools. There have been five market cycles since 1960, as described in Mediocrity and Frustration. Here is a sampling of outputs of risk and performance metrics since March of 2009.

The five basic indices … 90-day T-Bill, US aggregate bond, US 60/40 equity/bond, SP500, and all-country x-US:

That’s right! More than 16.5% annualized for the S&P. About 6.5% more than its long-term average. It translates to a 367% increase since inception. The rolling 3-year average never dropped below 8.8% annualized.

You suffered through the 16% “correction” in late 2011, being underwater for 10 (more) months, but traditional alternatives offered little: cash paid nothing, bonds only half what you’ve gotten used to since 1980 … on an absolute basis, and foreign equities have received little love in comparison. Fortunately, for those with a more tempered risk appetite, the US 60/40 balanced index rose nearly 200%.

Has it made up for the preceding bear?

Below find the same indices over the full cycle and a look back at the calendar-year returns:

The  answer is? Likely yes. The annualized return over the cycle is more than 7.5%, still below the long-term average, but excess return (APER), which is return above cash, is 7.1% annualized, about 2% above the long-term average. Excess returns for bonds is also about 50 basis points over its long-term average. Investors in all-country ex-US based funds lost another decade plus, unfortunately.

The top five sector equity funds, based on top-quintile absolute and risk-adjusted return versus peers, during the bull are presented below … tech and retail funds like T Rowe Price Global Technology PRGTX and Fidelity Select Retailing Portfolio FSRPX delivered eye-watering annualized returns of 25%, nominally, or a whopping 800% total. (Names highlighted in dark blue are MFO Great Owl funds.)

Here are the full-cycle (thank you VintageFreak) and calendar-year returns for those same five funds:

Similarly, below please find the top actively managed mutual funds … among them, T Rowe Price New Horizons PRNHX rewarded with 700% return … more than 6% per year above peers.

The top performing ETFs included funds by Invesco (3!), State Street, and WisdomTree, including two “value” ETFs (in name at least) … delivering upwards of 600%:

Finally, setting the MFO Risk metric to 3 (“moderate”), below are the best performers during this bull run. The venerable T Rowe Price Capital Appreciation PRWCX takes top honors, tripling its investors’ returns … it now exceeds $31B in assets under management (AUM). The list includes much smaller but just as seasoned Bruce BRUFX , which delivered more than 13% annualized.

While this bull is still modest compared with either of the two bull markets in the ’80s and ’90s, both of which racked-up 800% absolute return, it may no longer be “mediocre.” In any case, as David often reminds us, now seems like a good time to be sure you’ve allocated consistent with your risk tolerance and investment horizon … better now than when the market falls.

This article has been revised from original to reflect performance through February 2019 and to include more full-cycle comparisons.

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About Charles Boccadoro

Charles Boccadoro, BS (MIT), Post Graduate Diploma (von Karman Institute, BELGIUM). Associate editor, data wizard. Described by Popular Science as “enthusiastic, voluble and nattily-dressed,” Charles describes himself as “a recently retired aerospace engineer.” He doesn’t brag about a 30 year career that included managing Northrop Grumman’s Quiet Supersonic Platform and Future Strike Systems projects, working with NASA and receiving a host of industry accolades. Charles is renowned for thoughtful, data-rich analyses and is the driving force behind the Observer’s fund ratings and fund screeners.