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The past 36 years were a great environment for asset returns, with tremendous bull markets for both stocks and bonds. Stocks provided average annual returns of almost 12%, while bonds returned almost 8%. Those who owned a traditional 60% U.S. Equities (S&P 500®), 40% Bonds (Barclays Agg.) portfolio experienced average annual returns of 10%.
Some have argued that the Federal Reserve’s Quantitative Easing Program from 2008 to 2014 had an enormous impact on the financial markets. During this six-year period, stocks delivered average annual returns of about 18%, and bonds had annual returns of 5.5%. The 60/40 portfolio would have delivered an average annual return of 13%.1
Alternative Strategies Can No Longer Be Overlooked
It will be difficult to repeat those returns in the future – growth has slowed around the world, and with interest rates close to zero, there is no room for bonds to experience the price gains that come from falling rates.
Alternative strategies can provide a source of the additional alpha investors may need.
[Watch video: what to consider when funding a strategy to meet your objectives]
Investors must also bear in mind that since many alternative strategies have low sensitivity to the bond and stock markets, we believe they can help investors diversify more effectively, and potentially reduce the volatility of their overall portfolios.
Given the unpredictable future, with conditions likely to be very different from what we have seen in the past, mitigating volatility will be even more important for investors.
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Now and Going Forward Part II
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1 Sources: Bloomberg & Morningstar Direct, as of 6/30/16. U.S. Equities are represented by the S&P 500 Index, U.S. Bonds are represented by the Barclays U.S. Aggregate Bond Index. The 60/40 Portfolio is comprised of 60% S&P 500 Index and 40% Barclays U.S. Aggregate Bond Index. QE Return refers to the return of the respective asset class between the period 11/25/08-10/31/14. Indices are unmanaged, cannot be purchased directly by investors, are shown for illustrative purposes only and do not predict or depict the performance of any investment. Past performance does not guarantee future results.
- 1. Effective 12/2/13, The Fund will limit the market value of its total short positions to not more than 40% of its net assets at the time a short sale is entered into.
- 2. Special Risks: Fixed income investing entails credit and interest rate risks. When interest rates rise, bond prices generally fall, and the Fund’s share prices can fall. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Value investing involves the risk that undervalued securities may not appreciate as anticipated. Short selling may increase volatility and risk of loss and is considered a speculative investment practice. Derivative instruments entail higher volatility and risk of loss compared to traditional stock or bond investments. Mid-sized company stock is typically more volatile than that of larger company stock. It may take a substantial period of time to realize a gain on an investment in a mid-sized company, if any gain is realized at all. Commodity-linked investments are speculative and have substantial risks, including the loss of principal. The Fund may also invest through a wholly-owned Cayman Islands subsidiary, which involves the risk that changes to the laws of the Cayman Islands could negatively affect the Fund. Diversification does not guarantee profit or protect against loss.
- A. Daily net asset value and dollar change of the fund is as of the previous business day's closing. Fund net asset values are updated at approximately 7 p.m. ET daily. ↩
The S&P 500® Index is a capitalization-weighted index of 500 stocks intended to be a representative sample of leading companies in leading industries within the U.S. economy. The index includes reinvestment of dividends but does not include fees, expenses, or taxes.
The Barclays U.S. Aggregate Bond Index is designed to measure the performance of domestic investment-grade bonds in the United States.
Indices are unmanaged, cannot be purchased directly by investors, are shown for illustrative purposes only and do not predict or depict the performance of any investment. Past performance does not guarantee future results.
Alternative asset classes may be volatile and are subject to liquidity risk. Fixed income investing entails credit and interest rate risks. When interest rates rise, bond prices generally fall, and a Fund’s share prices can fall. Diversification does not guarantee profit or protect against loss.
Mutual funds are subject to market risk and volatility. Shares may gain or lose value.
These views represent the opinions of the Portfolio Managers at OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.