Last year proved to be such a revealing and difficult lesson in the rewards and risks wherein high rates of return were not always necessary in accompanying proportional high levels of risk along with negative or low returns not requiring volatility.
The risk-return chart of 21 securities; 5 of which were commodities, 2 for bond indices and 15 for indices pertain to the percentage of price change over the course of a 12-month ending this January. The findings are as follows:
Equities versus volatility versus currency return
The Nikkei-225 was up by an astonishing 53 % and 20 % volatility over the last three months, however with the yen at a losing end with 25 % against most major currencies, investors without a currency hedge would have seen many of those returns reduced significantly. NASDAQ by far is the most enticing equity indices in terms of performance relative to the volatility with a 33 % price increase and 12 % volatility respectively.
The German DAX-30, on the other hand offered the best combination of price performance, volatility as well as currency returns in the last year, considering the Euro’s appreciation against all major currencies.
China’s Shanghai composite index as well as Honk Kong’s Hang Seng indices were on the downside return axis and was still showing lower volatility as compared to precious metals gold and silver. This in turn highlights the fact that the recoveries in Asian indices were relatively indifferent in comparison to the more aggressive but short-lived gains in precious metals. The false rallies in the precious metal seen last year were the telltale signs of the summer lows albeit the limitations set forth.
Bond yields, soaring returns and high volatility
Yields on the U.K and the U.S. from the Fed spiraled last summer despite the Fed’s wrong impression of the markets the month’s succeeding along with the delinking of interest rates from asset purchases, bond yields were substantial after the limited tapering followed by a 21 % rally that shortly followed.
The high volatility and low return in commodities
Out of the 21 securities, silver showed the worst performance return and the highest in volatility, while gold narrowly followed behind in risk and return with a 24 % decline as well as a 20 % volatility. U.S. Crude WTI and natural gas, two of which commodities out of four have to avoid declines last year (the other two being palladium and cotton) but natgas fared as among the most volatile of all 21 securities trailing behind bonds.