Mutual Funds Confirm Closer Correlations
Third-quarter mutual fund performance confirmed a theme we discussed in last month’s AAII Journal: Asset class correlations have moved closer together. Every mutual fund category that we track for the Quarterly Mutual Fund Update had a positive return last quarter, except for contra stock market funds. (Contra funds are designed to move inversely to stock prices.) Furthermore, the price changes in domestic stocks, international stocks, emerging stocks, bonds and commodities were more in sync than they historically have been.
(As you may remember, correlation describes how close the total return of one asset, such as large-cap stocks, is to that of another, such as commodities. In a perfect world, you want investments that zig when your other holdings zag.)
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