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Gail MarksJarvis: Lick your wounds: Neither stocks nor bonds were kind in 2015

McClatchy-Tribune Information Services

January 4, 2016


After a dismal stock finish to 2015, your natural conclusion might be: Why did I bother?

If you glance at the markets and stock funds in your 401(k), IRA or college fund and subtract the money you plopped into the accounts during the year, you likely will see a sum that looks a whole lot like where you began 2015. Actually, you’ll be lucky if that is the case, because many funds and the majority of stocks were losers.

A savings account or CD might have done more for your wealth than the stock markets.

The Standard & Poor’s 500 finished the year down 0.73 percent to 2,043.9.

The Dow Jones industrial average suffered its worst year since the 2008 financial crisis, declining 2.2 percent to 17,425.

Only the Nasdaq ended the year up. Its 5.7 percent gain to 5,007.4 was disappointing compared to average annual returns of 10 percent in the S&P index.

Bond funds weren’t comforting either. The average bond fund investing in a broad mix declined about 2 percent during 2015. Worse, the average fund investing in U.S. government bonds that take five to seven years to mature gained only 0.30 percent, according to Morningstar.

If a mutual fund in your portfolio was a delight, it’s probably because your fund manager put a heaping portion of technology stocks in, especially the darling FANG of last year — Facebook, Amazon, Netflix and Google, since renamed Alphabet.

Investors were desperate to find fast-growing companies in 2015 as the global economy slowed and companies struggled to make sales, especially to overseas customers. FANG stood out because those component companies were growing significantly. As investors glommed on, Netflix was the winner, climbing 134 percent. Amazon wasn’t far behind at 118 percent.

Yet while you may adore your fund manager for having the foresight to take a bite with FANG, the smart picks of 2015 might not hold in the future, and funds that rely on a few hot stocks can get soaked when the tide turns. If you doubt that’s possible for beloved stocks, consider Apple. The stock climbed 40 percent in 2014, and then in 2015 turned into a loser as investors were disappointed by everything from iPhone to Apple Watch sales. The stock is down about 20 percent from its high price in April.

You might also recall that a few years ago, energy stocks were winners as oil climbed to over $140 a barrel. Now oil has crashed below $37 a barrel, and analysts warn that many energy companies won’t survive. The world is awash with oil at a time when the globe is facing sluggish growth and is expected to stay lackluster in 2016, according to International Monetary Fund economists.

In 2015, energy stocks as a group plunged 24 percent, and individually, many fell 30 or 40 percent. The biggest loser among them was Chesapeake Energy, with a decline of 77 percent.

Worries about energy are infiltrating the bond market too, where junk bond funds have declined 4 percent on average, according to Morningstar. Financially stressed energy companies have been large borrowers in the high yield — or junk bond — market, and investors worry the companies won’t be able to repay bond investors as the energy sector worsens.

Meanwhile, troubled energy companies are not buying equipment, and so industrial companies that sell equipment to them also feel the pain. For example, Caterpillar stock has declined 25.7 percent in 2015 as it missed out on sales to energy companies and struggled to sell into a weak global economy. Mutual funds that specialize in industrial stocks lost more than 3 percent in 2015, said Morningstar.

The energy plunge hurt unsuspecting retirees as master limited partnerships, or MLPs, dropped 36 percent — a shock since analysts previously claimed that pipelines and other infrastructure in MLPs would be immune to an energy crash. Another retiree favorite for dividends — utility funds — lost 9 percent in 2015, according to Morningstar.

Meanwhile, investors who were scared away from health care stocks after the Affordable Care Act passed missed the sweetest of investments in 2015. Health care funds were the winners of 2015, with an average return of 9.5 percent. They were lifted — in part — by biotechnology stocks which climbed more than 12 percent.