Research Affiliates explores why asset classes labeled “broken” after weak performance often aren’t structurally impaired but simply experiencing normal cycles. The paper pushes back on narrative-driven investing, showing that what looks like permanent decline is often just mean reversion setting up. In many cases, these unloved assets go on to outperform meaningfully.
A Quick Survey Of “Broken” Asset Classes
Research Affiliates
John West, Amie Ko
Research
11 Pages
Key Takeaways
Mean Reversion Dominates: 88% of cases, or 43 out of 49 observations, delivered positive returns over the next 5 years, averaging roughly 80% cumulative gains.
Post Slump Outperformance: After being labeled broken, asset classes outperformed US equities by about 45% over 3 years and 101% over 5 years.
Rebounds Happen Fast: Most assets recovered within 1 year, with returns ranging from 14% to 68%, while even the slowest rebound still reached 86% in 5 years.
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