Every year, new global trends emerge, old ones play out, and the financial markets adjust. This can offer new opportunities for investors to make money if their forecasts are accurate, their investments are timely, and they choose their assets well.
For some asset classes, there has been a bull market: equity mutual funds and stocks have performed well in recent years. One mutual fund, the Matthews India Fund, is up by over 66% this year. For large individual U.S. stocks, Southwest Airlines is the best performer, having more-than doubled in 2014.
In other classes, individual investments stood out from the pack. The Vanguard Extended Duration Treasury Index Fund has returned 39% in the year-to-date, versus just over a 5% return in the Barclays U.S. Aggregate Bond Index. And while the commodities market has lagged, coffee has been a notable exception. ICE Coffee C futures are up over 61%, versus a 24% decline in the S&P GCSI — a widely-tracked commodities index — so far this year.
Yet, just because an individual investment has performed well in the past does not necessarily mean it will perform well into the future. Prices cannot rise forever. This makes sense intuitively: if the price of coffee rose indefinitely, coffee drinkers would refuse to buy it and prices would have to fall to entice consumers to buy coffee again. Similarly, if the price of oil were to fall indefinitely, at some point producers would stop producing until prices rebounded.
Additionally, for many investments, investors must deal with extreme volatility. While recent initial public offerings (IPOs) Radius Health and GoPro are up more than 200% since they were first priced, investors would still have had to enter the market for shares at the right time. Exiting an investment is equally as important. In order to earn a return, investors have to assume risk. In many cases, this risk takes the form of buying-in, or cashing-out, of an investment at an unfavorable price.
Nonetheless, each of these investments has distinguished itself from the market at-large. Investors who started the year with positions in Matthews India Fund, the iShares MSCI India Small-Cap ETF, or Southwest Airlines have reaped the benefits of a good year. But now its next year, and beyond, that counts.
In order to identify the best investments of 2014, 24/7 Wall St. reviewed data from a number of sources. Figures on mutual fund and ETF returns are from Morningstar. We excluded ETFs that aim to provide leveraged, or inverse-leveraged, daily returns from our consideration. To determine bond fund returns, we screened for bond funds exclusively. Figures on large-cap stocks are from Finviz, and represent securities that are part of the S&P 500. Data on IPOs are from Renaissance Capital, and returns on IPOs assume the investor bought shares at the IPO price. Commodities data is from the Stevens Continuous Futures Database. Figures are adjusted by Stevens to weigh contracts based on outstanding volume and to roll contracts over at applicable end-of-the month dates. Year-to-date returns are all as of December 8, 2014.
These are the best investments of 2014.