If you're looking to escape this correction, you've got relatively few places to hide.
The Standard & Poor's 500 stock index has fallen nearly 10% since its all-time high on Jan. 26. You can choose your causes — the threat of a trade war with China, worries about rising interest rates or simply an overpriced market — but the pain felt by your clients is real.
The Dow Jones Industrial Average was down 712 points as of 3 p.m. Friday, after President Donald J. Trump ordered his team to consider additional tariffs on Chinese imports, prompting an aggressive response from China that it would counter protectionism "to the end, and at any cost." The tensions overshadowed the latest U.S. jobs report, which showed hiring cooled by more than forecast in March.
For advisers, finding a place of safety — or opportunity — has been problematic, in large part because most advisers haven't been alive long enough to see similar problems.
"It's been a long, long time since a major trade war. The last one was the Smoot-Hawley Tariff of 1930, which rang the death knell of the economic expansion and ushered in the Great Depression," said Sam Stovall, chief investment strategist for U.S. equity at CFRA.
And while the U.S. has seen Federal Reserve rate hikes, the last major Fed campaign to raise rates was from 2004 through 2006, when the central bank pushed rates from 1% to 5.25% in a series of 17 hikes. So far in this cycle, the Fed has nudged rates up six times.
Bonds, the traditional panacea in a bear market, have been of limited use, in part because interest rates have risen this year. The Vanguard Total Bond Market ETF (BND), the nation's largest bond ETF, has fallen 1.69% in 2018 and 0.78% since the start of the market correction, according to Morningstar Inc. The top-performing bond ETF since the correction began: The tiny $4.8 million VanEck Vectors ChinaAMC China Bond ETF (CBON), which is up 5.79% so far this year and up 2.53% since the start of the correction.
In general, however, international bond ETFs have performed better than their U.S. brethren, in part because the value of the U.S. dollar has fallen on international currency markets. Vanguard Total International Bond ETF (BNDX), for example, has gained 1.16% during the stock-market correction. This, too, is unusual: Investors often run to the U.S. dollar in times of economic uncertainty.
While some alternative funds have held up well, most types of alternative funds have had a wide range of outcomes — which is a polite way of saying that you had many opportunities to choose the wrong fund or ETF. Consider multicurrency ETFs, which invest in foreign currencies. The average non-leveraged multicurrency fund has gained 0.30% since the correction began. The top-performing fund, PowerShares DB G10 Currency Harvest Fund (DBV), gained 1.79%, while the worst performer, PowerShares DB U.S. Dollar Bearish ETF (UDN), fell 1.34%.
Similarly, long-short equity funds have lost an average 5.7% since the correction began, with returns ranging from a 0.16% gain for ProShares Long Online/Short Stores ETF (CLIX) to a 16.13% loss for Amplify YieldShares Oil Hedged MLP (AMLX).
For most investors, the best remedy for market corrections isn't bonds or alternatives or even cash: It's time.
While the S&P 500 is down this year, it's gained an average 9.49% over the past decade, assuming reinvested dividends. Short-term moves are dramatic, but typically not fatal.
"Investors are like fainting goats during these times," Mr. Stovall said. "Their limbs freeze and they fall over." Eventually, however, they get back up.
Bloomberg News contributed to this story.