Equities that surged in 2017 took a mighty tumble one year later, and investors worldwide paid the price, according to the annual Global Portfolio Barometer study, released on Wednesday by Natixis Investment Managers’ Portfolio Research and Consulting Group (PRCG).
The study reported that equity market losses accounted for two-thirds of portfolio losses in 2018 after driving 2017 gains, and losses weren’t mitigated by fixed-income investments.
Natixis analyzed “moderate-risk” or “balanced” model portfolios in seven nations and regions, including France, Germany, Italy, Latin America, Spain, the United Kingdom and the U.S. The study found that Italian investors, who had the most conservative equity allocations among all nations studied, were the least affected by the equity market tumble, followed by Latin America, the U.K., France, the U.S., Germany and Spain.
The good news for U.S. investors was that their nation’s equity market fared better than most other equity markets worldwide. However, U.S. investors that also invested in global equities felt the same pain as investors abroad, with those stocks declining 14 percent for the year.
As a result, the combined falling equity markets in the U.S. and global stocks hurt U.S. investors the most, compared with investors internationally.
Natixis found significant differences in asset allocations among moderate-risk model portfolios in different countries, depending on investor risk tolerance and risk exposure. Moderate-risk portfolios in the U.K. and the U.S. were mostly bullish, with equity weights in portfolios over 50 percent, whereas Italians allocated just 23 percent to equities.
Fixed-income allocations did not help mitigate losses and contributed negatively to portfolios in all regions except France. The turnaround at the end of the year was too little, too late. The same was true of alternative strategies.
When Natixis computed the diversification benefit of all the portfolios in the 2018 sample, the result showed a strong negative correlation with portfolio risk and a moderate positive correlation with returns. The most diversified portfolios had lower risk and higher returns than the least-diversified portfolios.
Natixis stressed, however, that diversification does not guarantee a profit or protect against a loss.
Marina Gross, executive vice president of Natixis’ Portfolio Research and Consulting Group, viewed the equity slump as a sign that the long bull market was at last coming to an end.