2018 is coming to an end and investors are probably pretty happy about this fact. The TSX is down 7.1% over the year-to-date period (-6.3% QTD). The S&P 500 is hanging on by a thread as we write this, up 1% year-to-date and down 7.3% QTD. North America is not the only regions and asset classes having a hard time though, almost everything is this year:

2018 was essentially the year diversification did not work. Of the 38 assets listed here, you had an 8% chance of being invested in the right assets and for that to even matter, your allocation would have needed to be heavily tilted to those assets. Maybe diversification within some regions helped? Not really. On the TSX, only one sector was materially positive over the YTD period (Tech). Looking shorter-term in the QTD period, it is also clear that there has been a bit of a flow of money into defensive names. So, diversification might have helped a little in the recent downturn, but your timing would have needed to be good (great) and you would have needed to sell out of the one industry that made anyone money on the TSX (Technology).

Same sort of story for the S&P 500 in the US:

There were a few more areas in the green in the US but there have not been many places to hide in the last three months. There does not even look like a whole lot of a defensive trade occurred in the recent downturn with staples barely above water and telecom services in the negative. Utilities were the only real positive defensive name.

The above does highlight an interesting issue with recent changes to the S&P 500 classifications. Telecom Services is no longer really a defensive sector as it is 37% composed of Facebook, Alphabet and Netflix. So, looking at returns by sector, one who would expect the telco sector to be supporting their portfolio may be surprised to see it actually down. This is not your old-school telco exposure anymore.

Overall, it has been a tough year in the markets. Not only has performance been poor in a broad-based manner but the level of noise seems to be elevated as well, making the year that much more difficult (Canada tariffs, China tariffs, continual Brexit drama, oil and energy, the list goes on). So, if you did not shoot the lights out in 2018, don’t beat yourself up. Investing is a marathon not a sprint and not every year can or will be positive. In order to earn the historical long-term ‘7% to 10%’ annual returns from investing in markets, an investor needs to accept the shorter-term volatility that is not seen in summative statistics. Returns don’t come free and staying diversified and thinking long-term can be one of the best tools an investor has to succeed when investing.  

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