Outside the US
Outside the U.S., it was a mixed bag, and currency exposure was key. For U.S. investors, the rising dollar ate into returns from holding international stocks, but fortunately, investors had the opportunity to hedge their currency exposure if they wanted.
Stocks in Europe performed well thanks to the European Central Bank's unprecedented quantitative easing program. The iShares Currency Hedged MSCI EMU ETF (HEZU | D-42) returned 7.6%.
Likewise, the Bank of Japan's ongoing QE program helped lift the iShares Currency Hedged MSCI Japan ETF (HEWJ | D-41) to a 9.3% gain.
On the other hand, emerging markets struggled immensely amid a host of concerns related to China's slowdown, geopolitics and crumbling currencies. The Vanguard FTSE Emerging Markets ETF (VWO | C-86) lost 15.8%, while the iShares Currency Hedged MSCI Emerging Markets ETF (HEEM | F-52) shed 10%.
Within emerging markets, performance was largely negative, but with a big range. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR | F-54) slipped 2.4%, while the iShares MSCI Brazil Small-Cap ETF (EWZS | B-97) tanked 41.7%.
Junk Bonds Hammered
In fixed income markets, the Fed's first rate hike in a decade only had a modest impact on Treasurys. The U.S. 10-year bond yield climbed from 2.17% at the start of the year to 2.27% at the end.
The two-year yield rose from 0.66% to 1.05% and the 30-year yield rose from 2.75% to 3.02%.
The iShares Core U.S. Treasury Bond ETF (GOVT | A-97) ultimately didn't do much, ending with a 0.9% return for the year.
At the same time, high-quality corporate bonds fared only slightly worse. The iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD | A-77) fell 1.3%.
The bigger action was in the corporate high-yield bond market. The threat of higher defaults due to the downturn in the oil and gas industry plagued the energy-heavy junk bond market all year long. At 700 basis points, high-yield spreads are at their steepest level since the eurozone sovereign debt crisis in 2011.
Prices for the largest junk bond ETF, the iShares iBoxx $ High Yield Corporate Bond ETF (HYG | B-68), sank to their lowest levels since the financial crisis. Even including hefty interest payments, investors in the fund lost 5%.
Sampling Of 2015 Market Returns
|Category||Index Or ETF||Return|
|U.S. Dollar||U.S. Dollar Index||9.3%|
|Japan||iShares Currency Hedged MSCI Japan ETF (HEWJ)||8.9%|
|Europe||iShares Currency Hedged MSCI EMU ETF (HEZU)||7.6%|
|U.S. Large Caps||SPDR S&P 500 ETF (SPY)||1.3%|
|U.S. Treasurys||iShares Core U.S. Treasury Bond ETF (GOVT)||0.9%|
|Investment Grade Bonds||iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)||-1.3%|
|China||Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR)||-2.4%|
|U.S. Mid Caps||SPDR S&P MidCap 400 ETF (MDY)||-2.5%|
|U.S. Small Caps||iShares Russell 2000 ETF (IWM)||-4.5%|
|Junk Bonds||iShares iBoxx $ High Yield Corporate Bond ETF (HYG)||-5.0%|
|Emerging Markets||iShares Currency Hedged MSCI Emerging Markets ETF (HEEM)||-10.0%|
|Gold||SPDR Gold Trust (GLD)||-10.7%|
|Emerging Markets||Vanguard FTSE Emerging Markets ETF (VWO)||-15.8%|
|Commodities||S&P GSCI Spot Commodities Index||-26.1%|
|Crude Oil||West Texas Intermediate Crude Oil Futures||-30.5%|
Contact Sumit Roy at [email protected].