In the generally positive investment climate in the first half of 2014, it was not easy to lose money. Still, some areas and/or specific investments succeeded in doing so – like these, for example:
- Retail – Virtually all sectors related to retail spending are down, perpetuating what was arguably a poor 2013 holiday season. The Leisure Products sector leads the downhill slide, off 13.37% YTD in 2014. The Internet and Catalog Retail sector is down 6.91% YTD in 2014 after posting impressive gains the past few years.
Among the larger names, Overstock.com (NASDAQ:OSTK) and Land’s End (NASDAQ:LE) are doing particularly poorly, down 49.33% and 19.67% respectively. Amazon.com (NASDAQ:AMZN) is also down 17.33% YTD.
The Specialty Retail Sector is down 5.02%, Multiline Retail is down 0.80%, Personal Products are down 5.49%, and Textiles, Apparel and Luxury Goods are down 4.95%. Within this group, American Apparel, Inc. (NYSE:APP) has had a particularly rough time, down 29.28% YTD with more stores closing than opening over the last few years and a controversial founder that was recently ousted.
We may be in a recovery, but consumer demand has not followed suit yet, arguably because wage growth remains stagnant. People are sticking with the staples and not venturing into significant discretionary spending yet. However, retailers must think recovery is just around the corner – this sector provided the highest number of gains in the recent jobs report.
- Health Care Technology – The IT and information systems consulting component of health care has not followed other health care sectors, being down 7.64% YTD. The downward slide is “led” by Medidata Solution, Inc. (NASDAQ:MDSO, down 33.46% YTD), Quality Systems, Inc. (NASDAQ:QSII, down 25.07%) and HealthStream, Inc. (NASDAQ:HSTM, down 28.16%).
- Japanese Stocks – Japanese stocks have taken a large hit. The losses to date are over 8% of the total market, as optimism soured on economic policies designed to combat stubborn deflation and poor growth.
Other market sectors and segments have stayed positive but underperformed compared to the rest of the market such as:
- Small Cap Growth Funds – 2013 was a great year for small cap growth funds, with an average return of 41%. Unfortunately, 2014 has been less kind, with average growth around 1% – the Russell 2000 Growth Index is actually down 0.17% YTD. So far this year, the blue chips and larger cap stocks have been leading the charge.
- Aerospace and Defense – Reduced government spending has held the growth in this sector to 1.14% YTD. With the current Washington dysfunction, predicting this sector is a toss-up right now.
Outside of sectors, there are individual assets that stand out as bad performers. Examples are as diverse as iron ore on the commodities side, down 31.33% YTD due primarily to recently reduced demand from China, and the computer peripherals company Voxeljet AG (NYSE:VJET), down slightly over 65% for the year.
Should you bail on these underperformers? The answer will vary by the specific investment, but it is important to look at the underlying factors. Are they losing market share to competitors, or is the entire industry shrinking? Have they recently reorganized like American Apparel, and is there reason to believe a new team will pull the company back? Has the company just suffered from ridiculously optimistic earnings expectations? Are government or regulatory issues a factor?
Just because an investment is underperforming doesn’t mean you should jettison it – for example, stock funds in precious metals were down by almost half in 2013 and have recovered by nearly 28% in 2014 YTD – but the burden is on a poor investment to make you think there is a reason to hang on to it.