The Building Blocks Chart is a pictorial depiction of the relative performance of asset classes over calendar-year periods. What’s the likelihood that last year’s winners will repeat? Should the investor avoid asset classes exhibiting recent poor performance?
As the table illustrates, the relative performance of asset classes can shift dramatically from year to year. Investors have a choice as to whether they will attempt to predict the winning asset classes for the forthcoming year, or maintain exposures to all asset classes so they avoid the possibility of extreme performance results. But, as the chart makes clear, it is difficult to identify any exploitable investment pattern. Winners seem not to persist; and, conversely, a strict contrarian approach – investing in the previous year’s losers – also seems not to assure long-term profitability.