Investors were happy to turn the calendar page from 2008 to 2009; unfortunately, the first month of 2009 offered little hope. In fact, investors re-wrote the history books and recorded the worst performing January since the inception of the S&P 500 Index.
Perhaps more disturbing, however, is the fact that correlations (i.e., to what degree asset classes move together) continue to move in lock-step fashion. For example, as pointed out by Bianco Research, the least-linked sector has been moving in tandem with the S&P 500 Index with a 90% correlation over the past six months. When markets move this much in short (January) or longer-term (2008) periods, with increasing correlations, there are few places to hide.
Volatility, which measures the range of movement up/down, also seems to be adding fuel to the fire. Basically, higher volatility indicates greater market uncertainty. The CBOE Volatility Index, or the "VIX", measures overall equity market volatility. In 2008, the VIX hit an all-time high of 80.86 on October 27. It was steadily declining until January 2009, when it rebounded to a spike of 56.65 on January 20. Broadly speaking, equity markets dislike record-breaking statistics, either positive or negative. Status quo behavior allows equity markets to bask in the comfort zone of certainty (think Goldilocks - 'just right'). Markets like these teach investors some valuable lessons; in particular, humility. However, despite difficult conditions through January the Heartland Funds challenged market gravity and bucked these trends by beating their respective benchmarks. As investors feverishly attempt to predict the bottom, we remain committed to a defensive positioning. See our performance results.
Furthermore, we are intrigued and encouraged by unprecedented valuations during this stock-pickers market. Amid the parade of negative economic news, we prefer to find the silver lining. As such, searching for ugly-duckling stocks in a non-Goldilocks market may one day reap generous rewards.
Past performance does not guarantee future results. Value-based investments may be subject to the risk that the broad market may not recognize their intrinsic worth. An investment in the Funds involves risks, including loss of principal.
S&P 500 Index is an index of 500 U.S. stocks chosen for market size, liquidity and industry group representation and is a widely used U.S. equity benchmark. All indices are unmanaged. It is not possible to invest directly in an index.