Which Asset Class performed During Trump 1st term & what is expected?

 

Every new year starts with a debate about which asset class to focus on the angel for the client’s allocation of funds. Every year different asset classes perform and wealth is created through the same. One needs to know which asset class has performed at various times and what one should look ahead.

Don’t underestimate the knowledge level of the client. They are more informed and their gut feeling and analysis are stronger since it is their hard-earned money. At the same time, financial planners and MFDs also have to plan a decide what will be the course of action for 2025 based on the historical analysis of different asset classes covering different time series and market cycles. 

  As we enter into 2025 we have domestic issues like low government spending, stretched valuations, falling revenues and rising costs. At the same we have threats of exports getting hit by tariffs which will further impact profitability and revenues hence asset class behaviors will change compared to what we have witnessed in last 4 years.  This analysis is a guide map for deciding your asset allocation plan for your wealth creation and wealth preservation.

  The Era of Trump- The Tariff Phase  

 2017:

• Best-performing allocation:
  Equity: 70%, Debt: 20%, Gold: 10%
  A high allocation to equity performed the best, reflecting strong equity market growth during this year. Bullish market conditions favored riskier assets.

• Worst-performing allocation:
  Equity: 20%, Debt: 60%, Gold: 20%
  Again, high debt allocation underperformed, as equity markets dominated returns this year.

 2018:

• Best-performing allocation:
  Equity: 34%, Debt: 33%, Gold: 33%
  Similar to 2016, a balanced allocation outperformed. Increased market volatility likely made diversification more effective.

• Worst-performing allocation:
  Equity: 70%, Debt: 20%, Gold: 10%
  A high equity allocation underperformed due to possible corrections or heightened market risks in the equity segment.

 2019:

• Best-performing allocation:
  Equity: 70%, Debt: 20%, Gold: 10%
  Equity dominance returned, with a high allocation to equity providing the best returns. This indicates strong equity market recovery or growth.

Worst-performing allocation:
Equity: 20%, Debt: 60%, Gold: 20%
High debt allocation was again the lowest-performing, reflecting the continuing underperformance of fixed-income instruments relative to equity.

Trends Across 2017–2021

 1. Equity Performance:

• Equity-heavy portfolios (70% allocation) performed exceptionally well in bull markets (2017, 2019, 2021).
• However, during periods of volatility (2018, 2020), high equity exposure underperformed, reflecting its sensitivity to market corrections.

 

2. Diversification Benefits:

• Balanced allocations (34% Equity, 33% Debt, 33% Gold) outperformed during volatile years (2018, 2020), underscoring the value of diversification in mitigating risks.

 3. Role of Gold:

• Gold proved to be an essential hedge during uncertain periods like 2018 and 2020, offering stability when equity markets faltered.
• In bullish equity years (2017, 2019, 2021), gold had limited value, as investors preferred riskier assets.

 

4. Debt Underperformance:

• High debt allocations (60%) consistently ranked at the bottom, as fixed-income instruments offered lower returns in a low-interest-rate environment.

 

 Key Insights:

1. Market Dynamics:
• Equity allocations performed well during years of bullish equity markets (2017, 2019).
• Balanced allocations excelled during volatile or uncertain years (2016, 2018).
2. Diversification:
   A balanced mix of equity, debt, and gold was consistently among the top-performing allocations during years of uncertainty, highlighting the importance of diversification.
3. Debt Underperformance:
   High debt allocation consistently underperformed, suggesting that it may act as a drag on portfolio returns during periods of equity growth.
4. Gold's Role:
   Gold contributed positively during periods of market uncertainty (2016, 2018) but was less impactful during strong equity years (2017, 2019).

Comparison of Returns by Asset Class

Year	Equity (Nifty 500 TRI)	Debt (Crisil Bond Index)	Gold (Gold ETF)
2014	Strong	Stable	Weak
2015	Weak	Stable	Stable
2016	Moderate	Moderate	Strong
2017	Strong	Moderate	Weak
2018	Weak	Stable	Moderate
2019	Strong	Moderate	Strong
2020	Moderate	Strong	Strong
2021	Strong	Weak	Weak
2022	Moderate	Weak	Moderate
2023	Moderate	Moderate	Moderate

If we look into the broader range of performance of different asset class find:

Equity (Nifty 500 Total Return Index)

Performance Highlights:

1. 2014–2017:

   • Equities performed exceptionally well, driven by post-2013 reforms, accommodative monetary policy, and global liquidity.
   • 2017 saw one of the strongest rallies due to synchronized global growth and strong domestic earnings momentum.

2. 2018:

   • A challenging year due to global trade tensions, rising crude oil prices, and tightening liquidity.
   • Equity returns were modest to negative, reflecting heightened volatility.

3. 2019–2021:

   • A strong rebound in 2019 due to central bank easing and corporate earnings recovery.
   • 2020 saw a sharp correction during the COVID-19 crash but a remarkable recovery fueled by fiscal stimulus and liquidity.
   • 2021 was a stellar year, driven by post-pandemic recovery, pent-up demand, and liquidity injections.

4. 2022:

   • Volatility returned due to geopolitical tensions (e.g., Russia-Ukraine), high inflation, and rate hikes.
   • Returns were positive but lower than previous years.

5. 2023:

   • Moderately positive as markets adjusted to tightening liquidity, but equities remained a strong performer overall.

Average Annualized Returns (Last 10 Years):

• Approximately 10-12% CAGR, with significant upside in strong years (2017, 2021) and downside in volatile years (2018, 2020).

Conclusion:

• Diversification: Investors should consider diversifying across these asset classes to balance risk and return.
• Risk Appetite: Risk-tolerant investors might lean towards equity for higher potential returns, while risk-averse individuals could focus on debt and gold.
• Market Timing: Gold and equity perform well in specific conditions (e.g., during crises or bullish phases), so understanding economic trends can enhance investment decisions.