2015 Benchmarks Likely Unchanged

Steve Kanaval  |

If you manage money for a living your year- end benchmark is the most important number of the year. Normally, these benchmarks are major Indexes like the S&P 500, the Russell 2000 or the Nasdaq 100. These are the measuring metrics for nearly all managers. An example is fairly simple whereas the portfolio manager returns 10% and the index returns 5%. The manager gets paid based on how he/she performed over this "no risk" index. So this PM would get paid based on the 5% overage (x) the amount of assets managed. So if he manages $10m (x) 5% (.20*) = $75k. So this over -performance number above and beyond his/her benchmark is critical.

Each year-end benchmark "mark to market" happens on December 31 at the close of the markets for the year. The numbers for 2015 are due in 5 trading days, and if were to close at these levels. The entire year of 2015 would be unchanged. That means any manager who had a + number for the year will get paid accordingly.

During years where markets end unchanged many managers have assets pilled from them unless they are up double digits. It is an unusual phenomena, but happens each time markets finished near unchanged. It happened to me in 1990 when the Indexes were down -3% and I returned +5% for a net gain, but the client pulled a large portion of his assets from my portfolio. I didn't understand at the time, but years later he explained that the single digit returns were not worth the time for a large fund. I guess I understood.

In 1991 our Fund returned 50% and the bench mark was 38% higher netting our payout +12% and the client was exceedingly happy, which made little sense to me when my net return in 1990 was not that much different on a net basis. I learned that the benchmark is your friend - as long as it is not unchanged- like it will be in 2015. The optics associated with managing money can be confusing. So PM's beware !! Clients pull money in flat years.

Below are the returns of the S&P 500 Since 1980. Happy Holiday and watch the Year end mark......Note also that since the market crash of 2008 stocks are up 100% in 7 years from that bottom. Stocks over performed every other asset class during this period. Go figure. Note also that during 2000 through year-end 2003 markets were down 40%.

1980 +31.74%

1981 -4.70%

1982 +20.42%

1983 +22.34%

1984 +6.15%

1985 +31.24%

1986 +18.49%

1987 +5.81%

1988 +16.54%

1989 +31.48%

1990 -3.06%

1991 +30.23%

1992 +7.49%

1993 +9.97%

1994 +1.33%

1995 +37.20%

1996 +22.68%

1997 +33.10%

1998 +28.34%

1999 +20.89%

2000 -9.03%

2001 -11.85%

2002 -21.97%

2003 +28.36%

2004 +10.74%

2005 +4.83%

2006 +15.61%

2007 +5.48%

2008 -36.55%

2009 +25.94%

2010 +14.82%

2011 +2.10%

2012 +15.89%

2013 +32.15%

2014 +13.48%

2015 +0.00% ?

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