Wednesday, February 04, 2009

Asset Class Returns As At 30 Jan 2009

It pays to keep a monitor on month to month performance of differing asset classes, especially in the current volatile times, as that will give us a leg up to get the pulse of risk aversion and shifts in investors investing strategy. For the first month of 2009, the best performing asset class was High Yield Bonds (+6.3%). That is extremely interesting. If we looked at the 12 month performance of High Yield Bonds, it is still down 17.5% (which means if we were to take out January's superior performance, High Yield Bonds would have recorded a yearly loss of some -23.8%. HYB got whacked royally in particular over the last 6 months as investors sold down HYB in preference for the safe Treasuries. Investors feared that many HYB corporates are either going to collapse or will have grave difficulty in finding fresh funding, and maybe that business conditions will be so bad that these HYB corporates will find it tough to service even the interest. The fact that buying has re-emerged in HYB in January indicates that there is some investors willing to re-look HYB, and that the bulk of the bad news may have been discounted or may have been more than priced into these HYB. Anyhow you look at it, its a good sign on less risk aversion.

REITs, in particular US REITs continued to be the worst performing asset class as invetsors totally ignore the yields and anticipate that many of the properties should be written down a lot more than what they are in the books. Commercial properties owned by REITs do not get much media attention as not many of them get sold down in the current market place. Even stretched owners with commercial properties will be able to get their banks to extend their grace period in these troubled times. Still, the continued selling in REITs indicate the overwhelming gloom surrounding the real estate arena in the US. Look for some gung-ho investor to start making a public offer for some of these REITs (ala YTL) as an indication of liquidity and confidence flowing back into the industry.


The fact that the only positive performers were all bonds indicate that risk aversion is still high. Stay tuned to developments.

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