Thoughts in Charts: Beware of the 1-Year Returns

Trailing returns can be a fickle beast. We are about to see dramatic examples of why rolling returns can often convey a deceiving message, especially when it involves an unprecedented time period like 2020. The intense market drop in March of last year began moving back upward just about the time the 1st Quarter ended. That means that this quarter, the published 1-year returns will begin at market lows.

 

If you had new cash, and invested during the crisis, then enjoy those 1-year numbers. They look pretty amazing, even for the hardest hit asset classes. If you were invested through the entire year of 2020, please take those numbers with a grain of salt.

 

In the chart above, I used a US real Estate ETF. This isn’t actively managed, and it’s designed to represent the general US Real Estate market. In early April, this ETF will publish something around a 50% increase for the 1-year trailing return. If you tick back the performance period to encompass the whole 2020 experience and the first three months of 2021, however, the 15-month return is really more in the 1% range.

 

If you were fully invested last year, one trick to use in assessing how distorted the trailing 1-year number is by looking for the calendar returns for the same investment. They usually are published on the same factsheets, and they can help you sort out the full story.

 

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