2015 was a challenging year for traders and investors, as most asset classes finished in the red for the year amid remarkable bouts of volatility. The S&P 500's performance in 2015 exemplifies the degree of difficulty encountered in trying to make money from trading or investing over the year. The S&P 500 rose to record highs in the first half of 2015 but surrendered its gains over the summer before rebounding in the fourth quarter. As a result, its performance in 2015, could not be determined until the final trading session of the year (it ended down 0.73%).
On the other hand, 2015 was the best year since 2011 for short sellers, as some of their targets had significant declines within weeks or months. The point is, astute traders can make money from most market environments, and if trading mainstream markets or assets do not generate profits, then one has to venture afield into relatively obscure markets or assets. This certainly proved to be the point in 2015.
Here then, is our list of hits and misses, or winners and losers, in seven different financial categories: stock markets, U.S. stocks, bonds, currencies, commodities, exchange-traded funds, and finally, people.
1. Category: Stock Markets
Hit: Jamaica Stock Exchange (JSE) Market Index (+97.4%)
Miss: Brazil Ibovespa Index (-13.3%)
There was a significant divergence in the performance of major stock markets in 2015, as some markets like the Shanghai Composite posted double-digit gains, while others like Canada's S&P/TSX Composite recorded double-digit losses.
In terms of 2015 performance for all markets, the clear winner was a small frontier market, Jamaica's JSE index, which almost doubled in the year on growing corporate profitability, an economic rebound and overseas interest. (Note that Venezuela's IBC index soared 278% in 2015, but has not been considered here because of runaway inflation, capital controls, and an artificially inflated exchange rate for its bolivar currency).
Although minnow markets like those of Ukraine and Greece endured significant plunges, the wooden spoon was taken by Brazil's Ibovespa index, which tumbled more than 13% in its fifth successive down year amid a commodity selloff, political turmoil and a corruption probe.
2. Category: U.S. Stocks (large cap)
Hit: Netflix Inc (NFLX, +134.4%)
Miss: Chesapeake Energy (CHK, -77.0%)
The largest U.S. streaming service, Netflix was the best-performing stock on the S&P 500 in 2015 as it expanded its library, developed great content in-house and added more subscribers. The stock's gains were accompanied by the skepticism; generally centering around the potential competition that has always surrounded Netflix. Netflix forms a part of the FANG quartet (Facebook, Amazon, Netflix, and Google) that had average gains of 83% in 2015. However, the company's market cap of $47.61 billion at end-2015 was much smaller than that of Facebook, Amazon, and Google, while short interest in Netflix was ten times higher (12.2% of float compared with an average of 1.26%for the other three).
On the minus side, energy producer Chesapeake Energy was the worst performer on the S&P 500 in 2015, losing more than three-fourths of its market value as the sustained decline in the price of natural gas forced the company to eliminate its dividend and cut drilling budgets. Despite its efforts to conserve cash, Chesapeake's heavy debt load has many investors questioning its ability to survive long-term, judging by the fact the company's bonds were trading at 30 cents on the dollar at year-end.
3. Category: Bonds
Hit: Canadian government bonds (+3.6%)
Miss: Canadian high-yield bonds (-12%)
2015 was a dreadful year for Canadian investors. The Canadian benchmark S&P/TSX index fell 11.1% in the year, the third-worst performance of 24 developed markets. With the Canadian dollar's 16% plunge against the greenback among the worst performances of 16 major currencies, the S&P/TSX was down a whopping 25.3% in USD terms in 2015. The rout is extended to fixed income instruments as well, where Canadian high-yield bonds, especially in the energy sector, fell 12% to rank at the bottom of the charts for bonds issued by G-10 industrialized nations. But there was one unexpected bright spot in this litany of woes. Fuelled by two interest-rate cuts with potentially more to come, Canadian government bonds returned 3.6% (in local currency terms) in 2015, the best returns of government debt issued by nine developed economies.
4. Category: Currencies
Hit: The greenback (Dollar Index +9.8%)
Miss: Brazilian real (-33%)
Growing conviction about monetary policy divergence between the U.S. and the rest of the world sent the dollar higher against every major currency in 2015, with the Dollar Index up 9.8%. The dollar's rise substantially boosted returns for overseas investors who held U.S. assets. For instance, the S&P 500 outperformed Canada's S&P/TSX index by just over ten percentage points in 2015. But due to the Canadian dollar's decline, a Canadian investor in the S&P 500 would have enjoyed a performance differential of 25 percentage points over the S&P/TSX in Canadian dollar terms. On the flip side, American investors with foreign assets saw their returns whittled away or eliminated altogether by the greenback's relentless advance. Dollar strength was also one of the reasons for the collapse in commodity prices, which played havoc with the currencies of commodity-exporting nations. The Brazilian real bore the brunt of this currency selloff, losing a staggering one-third of its value as foreign investors fled Brazil en masse, spooked by its widening political crisis and a credit rating downgrade by major rating agencies. (For more, see: 3 Economic Challenges Brazil Faces in 2016.)
5. Category: Commodities
Hit: Cocoa (+13%)
Miss: Nickel (-42%)
Commodities were crushed across the board in 2015, as evidenced by the 23% plunge in the Thomson Reuters CRB Index of 19 commodities. Crude oil plummeted 30% for its biggest two-year decline on record, industrial metals fell to 2008 levels, and precious metals lost their luster. In comparison, agricultural commodities had a few winners (sugar, cotton, palm oil), with the top spot taken by cocoa. Cocoa proved to be the best-performing commodity in 2015 after dry weather due to El Nino impeded the growth of the crop in West African nations like the Ivory Coast and Ghana that produce over two-thirds of the world's cocoa. In the decliners category, nickel beat out plenty of contenders for the bottom spot, plunging 42% on concern about slowing demand from China. Iron ore was a close second, tumbling 39% in 2015 after a 47% swoon in 2014, as the world's largest miners raised output even as Chinese demand stalled.
6. Category: ETFs
Hit: Market Vectors ChinaAMC SME-ChiNext ETF (CNXT, +45.9%)
Miss: Market Vectors-Coal ETF (KOL, -54.8%)
We have used some subjectivity here. The list of the best-performing ETFs in 2015 (based on Morningstar's comprehensive ETF database) is dominated at the top by inverse and leveraged ETFs (mainly commodity based), which are generally only suitable for traders with a high risk tolerance. Excluding these, one of the top performing funds in 2015 was an ETF from the Market Vectors family (which are offered by Van Eck Global) that tracks an obscure index of Chinese small and medium-sized enterprises. On the opposite side, and again excluding leveraged and inverse ETFs, one of the worst performers, was the Market Vectors-Coal ETF, which slumped almost 55% in 2015. Record low coal prices led to declines of over 90% in the stock prices of coal producers like Arch Coal and Peabody Energy.
7. Category: People
Hit: Satya Nadella (CEO, Microsoft)
Miss: Martin Shkreli (CEO, Turing Pharmaceuticals)
In a field where there is no shortage of luminaries, we think the financial Oscar goes to Microsoft CEO. Satya Nadella, who has managed to jumpstart the software behemoth's resurgence by focusing on cloud services and subscription-based products. By the end of 2015, Microsoft was trading at a 15-year high and was only 7% away from its 1999 record level. The company added $72 billion to its market value in 2015, which was about $100 billion below the $171 billion added by Amazon.com, the second-best performer on the S&P 500 in 2015 with an 118% surge. Nevertheless, Nadella gets the nod over Amazon's visionary founder Jeff Bezos, in our opinion, because he has boosted Microsoft's fortunes after being at the helm for less than two years.
The "Miss" column is headed by Martin Shkreli, CEO of privately-held Turing Pharmaceuticals, who attracted a firestorm of criticism for increasing the price of treatment for a rare parasitic disease 55-fold shortly after acquiring the rights to it. Shkreli's actions had the unwelcome effect of attracting intense scrutiny to the biotech sector's pricing techniques, resulting in claims of price gouging and demands for putting an end to exorbitant price hikes for drugs. On Dec. 17, 2015, Shkreli was arrested on fraud charges in connection with his tenure at another drug company called Retrophin Inc. (For more, see: Martin Shkreli Arrested For Securities Fraud.)
The Bottom Line
While there was no shortage of misses in 2015, a year when most mainstream investments fared poorly, a number of hits came from relatively obscure markets and investments. Which goes to prove that not following the herd and getting off the beaten path can occasionally be very rewarding.
