Impact of March and April returns on your investments
It’s spring in the northern hemisphere and the changed conditions in global markets are attracting much attention. While no-one knows whether these “green shoots” will last, they are a good reminder of how quickly the investment climate can change.
Like Ulysses lashed to the mast and resisting the siren call of capitulation, buy-and-hold investors have braved extreme torment in this bear market. But by early March, the pain threshold had been reached for many. Indeed, it was only a couple of months ago, as the US market sank to 12-year lows, that The Wall Street Journal reported investors had now “grown numb to a market that knows no direction but down”.1
A buoyant March had belied an assessment just earlier that month that sentiment toward risk assets had become hopeless. Even by the end of March, plenty of commentators were suggesting this had all the ingredients of a “suckers’ rally”.2
Now, after another month of strong gains in April and with May holding ground, even some normally bearish commentators are starting to say this rally has legs, due to tentative signs of an improvement in the major economies and an easing in credit markets. 3
Others remain sceptical about the longevity of this change, arguing it may just be a “relief” rally as more settled conditions trigger an easing in the extreme risk aversion that was the dominant theme a few months ago.
Who’s right? It doesn’t really matter. For the individual investor it is enough to know that all the competing views of these experts are reflected in prices and that markets tend toward finding their own equilibrium.
In the meantime, it’s worth reflecting on the fact that just as March represented the best ever month of returns for Dimensional’s Australian equity trusts, April represented among the best ever months for several global trusts. And this was despite a strong rally in the Australian dollar over the month.
For the Global Value and Global Small Company Trusts, the April returns of 12.65 per cent and 9.00 per cent respectively were the strongest one-month returns since their inception. At 9.50 per cent, returns from the Emerging Markets Trust were the second strongest in its history.
While no-one should ever try to read too much into such short-term returns, the size of the March and April rebound is a perfect illustration of the difficulty of timing markets and the importance of staying disciplined.
The fact is markets can turn very quickly and big gains can come in very short bursts. Trying to time entry and exit points can leave investors missing some of the best days and best months.
See the table below for details of the top monthly returns. These are net of fees. The separate value, small and large company trusts are shown here, but these returns also apply to the Core Equity trusts which are a combination of value, small and large companies in the on trust.
1‘Stocks Frustrate Investors’, The Wall Street Journal, March 4, 2009
1‘Searching for Value’, Buttonwood, The Economist, March 28, 2009
2‘Entrenched Bear Begins to Have Doubts’, David Bassanese, The Australian Financial Review, May 2, 2009
Tags: investment, performance, returns