U.S. Markets closed

iShares: A Look Back at 2012 ETF Calls


As we kick off 2013, it’s time again for my annual look back at the investment calls I got right and wrong during the previous year.

Back in December 2011, I expected 2012 to be characterized by sluggish but positive US economic growth, a modest contraction in Europe, a rebound in emerging markets and little risk of inflation.

As such, from a big picture perspective, I advocated that investors overweight equities relative to bonds, with an emphasis on high-dividend mega cap stocks, smaller developed markets and emerging market equities. On the fixed income side of the portfolio, I remained a fan of corporate bonds, particularly investment grade.  And nearly every week last year, I also made more specific calls about certain segments and markets.

Though 2012 played out largely how I expected, as I explain in my recent Market Perspectives paper, my calls weren’t perfect.

Among the calls I got right, global equities did outperform bonds last year. And on the equity side, larger was better with US mega caps outperforming large caps, which in turn outperformed small caps. Meanwhile, an equally weighted basket of smaller developed “CASSH” countries outperformed global stocks, emerging markets modestly outperformed developed markets and my central theme on the bond side—credit over duration—was correct.

Many of my more specific country and sector calls also turned out to be right.  For much of the year, for instance, I liked Germany, and by mid-December, German equities had risen nearly 28% in 2012 alone. Similarly, for much of 2012, I held an underweight view of India and through September, it had fallen 10%, underperforming the broader emerging market index by about 6%.

On the other hand, I wasn’t always right. I should have been more enthusiastic about high yield, which I held a neutral view of for most of the year and which did exceptionally well in 2012. At the same time, I was wrong about Russia and Taiwan, two emerging markets I advocated overweighting for much of 2012. But though I downgraded Taiwan in November, I’m remaining overweight Russia in 2013 for a number of reasons that I highlight in my January Investment Directions monthly market commentary.

So what else do I expect for 2013? I’m sticking with many of the calls I made last year, including an overweight to equities over bonds and to emerging markets over developed ones. Stay tuned to see how my 2013 calls play out.

Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist.