Abnormal Normalization


What if I told you that no matter what major North American benchmark you chose, you’d have the same performance?  That sounds implausible right?  Then you would be quite surprised to discover that the normalized performances of a range of popular indices all show similar returns since the Covid lows of March 23, 2020.

Faithful readers of my work know that I’m a fan of normalized charts – those that index the starting points for various price series to 100 on a common date.  They allow us to make quick comparisons about the relative performances of a disparate mix of securities or indices over a given period of time.  Earlier this week I used normalized charts to show how the S&P 500 Value Index (SVX) had nearly the same total return as the S&P 500 Growth Index (SGX) after lagging for most of the past two years.  I decided to extend that analysis to a wider range of popular indices, and was amazed to see that they too had nearly the same performance over that period.  See for yourself:

Normalized Graphs Since March 23rd, 2020

S&P 500 (SPX, white), NASDAQ 100 (NDX, blue), S&P/TSX 60 (SPTSX60, red), S&P 500 Value (SVX, purple), S&P 500 Growth (SGX, aqua), Dow Jones Industrials (INDU, orange), Russell 2000 (RTY, yellow)

With Expanded Legend Below

Source: Bloomberg

Indeed, all these indices are up about 75-80% from their March 2020 lows.  Let’s first acknowledge that returns of that size in a span of just over two years are exceptional by any standard.  We then have to consider that some of these indices leapt out to fast starts only to fall back to the pack, like RTY and NDX, while others simply chugged along, like SVX and SPTSX60.  Over that time period, one could argue that buy and hold types would have preferred the relative stability of the slower moving peers, though more aggressive traders would have naturally gravitated toward the more volatile former leaders.  Bottom line, however, for the most part we’re all in the same boat now.

I then extended the charts to include a range of flagship international indices.  I was again surprised to find that with the glaring exception of Hong Kong, the main indices in Japan, Australia, the UK, Germany and France also have somewhat clustered returns in the 50-60% range.  These disparate economies have different policy regimes yet still ended up in about the same place as well (though France and Germany indeed share a central bank). Their underperformance vis-à-vis the US is not completely surprising because the US saw the most aggressive combination of fiscal and monetary stimuli among that bunch.

Normalized Graphs Since March 23rd, 2020

S&P 500 (SPX, white), NASDAQ 100 (NDX, blue), Nikkei 225 (NKY, purple), DAX (yellow), FTSE100 (UKX, aqua), S&P/ASX 200 (AS51, orange), Hang Seng (magenta), CAC 40 (green)

 With Expanded Legend Below

Normalized Graphs Since March 23rd, 2020

Source: Bloomberg

We can extend this type of analysis to a wide range of investments.  We’ll close with a mix of stocks and commodities that are in the news and popular with investors.  Despite some recent stumbles, the clear winners are GameStop (GME) and Tesla (TSLA) and Bitcoin.  Remember that GME was essentially given up for dead, so even though the stock has fallen sharply from its meme-crazed highs, it is still up quite substantially from its pre-meme torpor.  TSLA’s nine-fold jump seems tepid by comparison, but it is clear how much that stock benefitted in the post-Covid investment climate.  On the other hand we see that Amazon has largely coughed up most of its gains, while Peleton (PTON) is somehow worse off than before the pandemic.  Gold has been a relative laggard, and is certainly a much worse an inflation hedge than oil itself. 

Normalized Graphs Since March 23rd, 2020

S&P 500 (SPX, white), TSLA (blue), Bitcoin (XBTUSD, red), Gold Futures (GC1, purple), Oil Futures (CL1, yellow), GME (aqua), PTON (orange), AMZN (magenta)

 With Expanded Legend Below

Normalized Graphs Since March 23rd, 2020

Source: Bloomberg

Indeed, one’s investment choices truly matter, and particular when one considers stock selection versus passive indexation.  But for those who buy and hold index funds, the results have been astoundingly similar.

Disclosure: Interactive Brokers

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