Ideas & Insights

The Importance of Asset Class Diversification

Calendar Year Returns for Select Indexes (%)
Every asset class has its own risk/reward characteristics; absolute returns and market leadership can vary drastically from year to year. The below table ranks select asset
classes from highest to lowest by absolute return for the last 15 years.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Emerging Emerging Emerging Emerging 10-year Emerging 10-year Emerging 10-year Municipal Dividend Emerging Municipal
U.S. Smallcap U.S. Smallcap
Markets Markets Markets Markets U.S. Treasuries Markets U.S. Treasuries Markets U.S. Treasuries Bonds Payers Markets Bonds
26.85 38.82
25.95 34.54 32.55 39.82 24.36 79.02 29.02 18.63 24.41 3.30 21.98 37.75 1.28

Int’l Dev Int’l Dev Int’l Dev Int’l Dev Inv. Grade U.S. High Yield Emerging Int’l Dev Inv. Grade Corp.
Dividend Payers S&P 500 Dividend Payers S&P 500 U.S. Smallcap DJIA
Markets Markets Markets Markets Corp. Bonds Bonds Markets Markets Bonds
12.42 32.39 15.36 1.38 21.31 28.11
20.70 14.02 26.86 11.63 13.74 58.21 19.20 17.90 0.86

10-year 10-year Municipal Int’l Dev Municipal Inv. Grade Corp. U.S. High Yield Int’l Dev 10-year U.S.
U.S. Smallcap Dividend Payers Dividend Payers U.S. Smallcap DJIA S&P 500
U.S. Treasuries U.S. Treasuries Bonds Markets Bonds Bonds Bonds Markets Treasuries
18.33 19.56 18.32 16.35 29.65 13.69
6.72 9.86 -2.47 32.46 10.70 0.84 17.13 25.62 -1.64

Inv. Grade U.S. High Yield U.S. High Yield Inv. Grade U.S. High Yield
Dividend Payers S&P 500 DJIA U.S. Smallcap S&P 500 Dividend Payers DJIA DJIA DJIA S&P 500
Corp. Bonds Bonds Bonds Corp. Bonds Bonds
18.14 4.91 19.05 27.17 16.00 29.06 10.04 0.21 16.50 21.83
9.01 -26.16 15.12 9.81 -2.08

U.S. High Yield U.S. High Yield Int’l Dev Municipal Int’l Dev
U.S. Smallcap U.S. Smallcap DJIA Dividend Payers S&P 500 S&P 500 DJIA S&P 500 Dividend Payers DJIA
Bonds Bonds Markets Bonds Markets
4.55 18.37 8.88 -30.97 26.46 15.06 8.38 11.96 15.44 -3.48
11.13 15.81 23.29 9.05 -0.39

U.S. High Yield U.S. High Yield Inv. Grade Corp. 10-year Emerging
S&P 500 Dividend Payers S&P 500 S&P 500 DJIA DJIA DJIA Dividend Payers U.S. Smallcap S&P 500
Bonds Bonds Bonds U.S. Treasuries Markets
10.88 3.77 15.79 5.49 -31.93 22.68 14.06 10.84 14.65 -4.38
4.98 7.44 5.05 -0.97 11.60

10-year Municipal U.S. High Yield Municipal Municipal 10-year Emerging Int’l Dev 10-year
U.S. Smallcap S&P 500 DJIA U.S. Smallcap Dividend Payers Dividend Payers
U.S. Treasuries Bonds Bonds Bonds Bonds U.S. Treasuries Markets Markets U.S. Treasuries
-33.79 2.11 10.24 4.89 -1.64 -5.94
7.65 3.51 11.85 3.36 12.91 9.36 -2.27 1.51 8.18

Inv. Grade Municipal U.S. High Yield Int’l Dev Municipal Municipal U.S. High Yield 10-year U.S. High Yield
DJIA S&P 500 Dividend Payers U.S. Smallcap U.S. Smallcap U.S. Smallcap
Corp. Bonds Bonds Bonds Markets Bonds Bonds Bonds U.S. Treasuries Bonds
5.31 -37.00 11.13 -4.18 -4.41 -11.01
2.79 4.84 1.87 8.21 6.78 -2.55 2.45 1.27 7.50

Municipal U.S. High Yield Inv. Grade Int’l Dev Inv. Grade Inv. Grade Int’l Dev 10-year Inv. Grade Emerging U.S. High Yield Inv. Grade Municipal Int’l Dev
U.S. Smallcap
Bonds Bonds Corp. Bonds Markets Corp. Bonds Corp. Bonds Markets U.S. Treasuries Corp. Bonds Markets Bonds Corp. Bonds Bonds Markets
-1.57
4.48 2.74 3.08 -43.06 -3.57 5.87 -11.73 3.59 -2.75 -1.82 -4.47 1.04 5.45 -13.36

Inv. Grade 10-year Emerging 10-year Municipal Emerging Inv. Grade 10-year Int’l Dev Emerging Municipal Inv. Grade Corp. Emerging
DJIA Dividend Payers
Corp. Bonds U.S. Treasuries Markets U.S. Treasuries Bonds Markets Corp. Bonds U.S. Treasuries Markets Markets Bonds Bonds Markets
1.72 -5.16
3.54 1.72 -53.18 -12.98 2.38 -18.17 1.99 -12.40 -4.48 -14.60 0.25 2.31 -14.25

Source: Morningstar. Past performance does not guarantee future results. It is not possible to invest directly in an index. Diversification does not assure a profit or protect against loss. This table is not indicative of the
performance of any AAM product. See reverse for Indexes used, index definitions and additional important information.

Not FDIC Insured May Lose Value Not Bank Guaranteed Advisors Asset Management, Inc. (AAM) is an SEC-registered investment advisor and member FINRA/SIPC. 1
 AThe
BriefImportance of Asset
History of the U.S. Class
Financial Diversification
Markets

Asset Class Correlations (4/1/2004–12/31/2018)

Index Definitions
Inv Grade 10-year U.S. High
Dividend U.S. Int'l Dev Emerging Municipal DJIA represented by the Dow Jones Industrials Average, which
DJIA Corp. U.S. Yield S&P 500 is a price weighted average of 30 actively traded blue-chip
Payers Smallcap Markets Markets Bonds
Bonds Treasuries Bonds stocks. DJIA covers all industries with the exception of
transportation and utilities.
DJIA 1.00
Dividend Payers represented by the Dow Jones U.S. Select
Dividend Index, which is an unmanaged index of 100 stocks
Dividend Payers 0.85 1.00 used to measure performance of dividend-paying U.S. equities.

U.S. Smallcap 0.84 0.79 1.00 U.S. Smallcap represented by the Russell 2000 Index, which is
an unmanaged, capitalization weighted index comprised of the
2000 smallest companies in the Russell 3000 Index. It serves
Int'l Dev Markets 0.82 0.67 0.76 1.00 as a benchmark for U.S. smallcap stocks.
Emerging Markets 0.70 0.55 0.68 0.87 1.00 Int’l Dev Markets represented by the MSCI EAFE (Europe,
Australasia, Far East) Index GR USD, which is a free float-
Inv Grade Corp. Bonds -0.28 -0.11 -0.32 -0.23 -0.16 1.00 adjusted market capitalization index that is designed to measure
the equity market performance of developed markets, excluding
10-year U.S. Treasuries -0.28 -0.09 -0.30 -0.24 -0.16 0.93 1.00 the US & Canada.
Emerging Markets represented by the MSCI Emerging Markets
U.S. High Yield Bonds 0.63 0.55 0.67 0.74 0.72 -0.21 -0.18 1.00 Index GR USD, which is a free float-adjusted market capital-
ization index that is designed to measure the performance of
Municipal Bonds 0.01 0.08 -0.01 0.11 0.15 0.43 0.46 0.32 1.00 large- and mid-cap securities in emerging countries.

S&P 500 0.97 0.84 0.90 0.87 0.76 -0.29 -0.28 0.71 0.06 1.00 Inv Grade Corp. Bonds represented by the Bloomberg Barclays
U.S. Aggregate Bond Index, which is an unmanaged, broad
Source: Morningstar. Past performance does not guarantee future results. It is not possible to invest directly in an index. based index composed of U.S. dollar denominated, investment
grade, fixed-rate taxable bonds with at least $250 million par
amount outstanding and at least one year to final maturity.
Every asset class has its own risk/reward characteristics. Absolute returns and market leadership can vary 10-year U.S. Treasuries represented by the Bloomberg Barclays
drastically from year to year. The correlations between several indexes shown above have been low or U.S. Treasury 10+ Year Index, which is an unmanaged, market
capitalization weighted index of all Treasuries in the Barclays
negative, which indicates that an investor may potentially smooth portfolio volatility by investing across Capital U.S. Aggregate Bond Index with a maturity of 10 years
or more.
several asset classes.
U.S. High Yield Bonds represented by the Bloomberg Barclays
U.S. Corporate High Yield Index that consists of USD-
Speak to your financial advisor for more information about how diversification may benefit your portfolio. denominated, non-investment grade, fixed-rate, taxable corporate
bond market. Securities are classified as high-yield if the middle
rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.
The index excludes Emerging Markets debt.
All investments involve risk; principal loss is possible. It is not possible to invest directly in an index. Past performance does not guarantee future Municipal Bonds represented by the Bloomberg Barclays
results. Diversification does not assure a profit or protect against loss. Municipal Bond Index, which is a market value weighted index
Correlation is a statistical measure of how two variables move in relation to each other with coefficients ranging from +1 to -1. A correlation coefficient of +1 of investment grade municipal bonds with maturities of one
year or more.
implies that as one variable moves, the other will move in exact lockstep. Alternatively, a correlation coefficient of -1 implies that if one variable moves, the other
moves in the same amount in the opposite direction. If the correlation is 0, the movements of the variables are completely random. S&P 500 Index is an unmanaged market capitalization
weighted index used to measure 500 companies chosen for
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