Mutual funds that invest in a wide array of investment styles are increasingly moving in tandem with the S&P 500, The Wall Street Journal reports, citing a report from Merrill Lynch.
Small stocks are now 94% correlated to the S&P 500, up from 62% in 2000, and emerging-markets stocks are 96% correlated, up from 32% in 2000. Even commodities, which traditionally have moved in the opposite direction of stocks, are today 33% correlated, a big difference from a negative correlation of 14% six years ago.
This is making it increasingly difficult for investors to assemble a diversified portfolio of stocks and funds. The only uncorrelated assets are bonds and cash, and these are providing meager returns. Only the riskier bond asset classes of high-yield and convertible debt offer healthy returns.
So why the higher correlation? One reason is globalization and the increasing interdependence of world economies.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.