A tough year for the investment community. We've had a number of good years from 09 - 14 and as the saying goes, all good things must come to an end. Thankfully, I was defensively positioned in the PA. I wrote to a friend on my FB post back in Jan:

In terms of investment themes, I do think we will be entering into a period of higher volatility which this book sort of indicates as well since power is more transient. We've just been in such a low vol environment for such a long time and recent shocks in oil, fx etc should trickle into other parts of the market. Timing is always hard on these things but I currently just have a slightly cash/gold allocation than normal. Think it was Howard Marks who pointed out years ago he was worried about social unrest after the economic downturn and I'm keeping an eye out for this as well which ties into one of the themes of this book.

Finance people love baseball analogies and some think we are now close to the 8th or 9th inning, heading back into a recession. I am not quite as bearish but would definitely bet on a higher vol regime and the VIX (30 day S&P vol) trading > 20 on average next year after trading in the teens in the past 3 years. I think downside liquidity could be severely tested in 2016. Yes, bank leverage has declined since the boom years in 05-06 and there is less levered carry vehicles like SIVs, CDOs, etc so arguably money is in "stronger hands" but trading banks have reduced risk / headcount as well and there can be poorly designed ETFs (the new investment vehicle of choice) just like there were poorly designed market value structures during 08 that exacerbated downward spirals.

A review of 2015 by sector and current allocations:

US Equity (22% allocation): A flat year. Tech, healthcare were the leaders while energy took a major beating. Think 2016 will be another tough year for equities as growth is constrained and we are in the later part of the cycle where multiples come down rather than up.
In [78]:
pc.plot(kind='bar', title='YTD Return (%)') plt.ylabel('Pct Change (%)')
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International Equity (6% allocation): With the eyes of the world on it, China had a big run-up at the start of the year then an equally disappointing collapse in the later half to close flatish. Everyone's worried about the China slowdown and there may be opportunities to add China's big consumer companies like BABA, BIDU, Tencent, JD at much cheaper levels this year. Europe continued its slow decline and gains in the ETF were mainly from the currency short.
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pc.plot(kind='bar', title='YTD Return (%)') plt.ylabel('Pct Change (%)')
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Credit / Rates (17% allocation): Credit spreads widened with Loan ETFs down 4~5% and trading at ~10% discounts to NAV. On rates, everyone started the year expecting the fed to hike mid~late of this year. The Fed missed the Sept window but we did finally get the rate hike in December. While some like Marc Faber are calling this hike terrible in the face of a recession, I personally think it was due. The market has become accustomed to the Fed doing everything in its power not to rock the boat which distorts valuations when you keep rates low for so long and have the market expect a Greenspan/Bernanke/Yellen put whenever the S&P drops a few percent. 8% of my credit allocation is in a ETF comprised mostly of senior short-term floaters with minimal credit risk (TSI) that I would consider low beta.
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pc.plot(kind='bar', title='YTD Return (%)') plt.ylabel('Pct Change (%)')
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Precious Metals / Bitcoin (1% allocation): Precious metals like gold and silver still had a terrible year despite the heightened volatility. Bitcoin, on the other hand, had a bit of a resurgence and conversation really starting picking up the underlying blockchain technology, in particular on its potential to transform clearing and settlements which takes weeks to months for some securities. I have high hopes for the space, just hope the current Bitcoin I hold isn't the Netscape Navigator of internet browsers.
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pc.plot(kind='bar', title='YTD Return (%)') plt.ylabel('Pct Change (%)')
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Alternatives / Opportunistic (6% allocation)
Cash (48% allocation)

2015 was a tough year and would expect 2016 to be much of the same. Broadly speaking, expected returns across asset classes are still compressed and expected variance is high. To use a poker analogy, sometimes when the action gets too hot, the correct move is to nit it up and wait for better spots to put in your money.

Here's to a healthy 2016!

2015 Market Recap