2015 was the year with nowhere to go

The idea behind asset allocation is simple: When one market struggles, it's OK because an investor can jump into another that is thriving. Not so in 2015.

In fact, if you judge the past year by which U.S. investment class generated the largest return, a case can be made that it was one of the worst years for asset-allocating bulls in almost 80 years, according to data compiled by Bianco Research LLC and Bloomberg. With three days left in 2015, the Standard & Poor's 500 Index gained 2.2 percent with dividends, cash is up less, while bonds and commodities show losses.

After embracing everything from Treasuries to high-yield bonds and technology shares amid seven years of zero-percent interest rates, investors found themselves with nowhere to run at a time when the Federal Reserve's campaign of stimulus drew to an end. Normally it isn't like this. Since 1995, practically every year has seen some asset deliver returns exceeding 10 percent.

"It's been challenging from the point of view that the equity market and bond market are probably more joined at the hip than normal," said Hayes Miller, who helps oversee $35.8 billion for Baring Asset Management LLC.

Bianco Research keeps track of the S&P 500, 30-year U.S. Treasury bonds, three-month Treasury bills, and the Thomson Reuters/CoreCommodity CRB Commodity Index to gauge performance in stocks, bonds, cash and commodities. The four are the most common asset classes considered by investors when an allocation strategy is designed, according to Jim Bianco, the founder.

While the depth of losses in equities and commodities is nowhere near as bad as in 2008, the correlation of declines highlights the challenge for money managers who seek to amplify returns by rotating among assets.

"The Fed stimulus lifted all boats, and then the Fed withdrawing the stimulus is holding the boats down," Bianco said. "If the argument is right that the economy is going into 2016 weak and earnings are negative, those conditions will continue and therefore on the asset allocation level, I don't expect anything to break out just yet."

With nothing going up, exchange-traded funds, or ETFs, that invest in different asset types as a way to diversify risk have struggled.

Among 35 such ETFs tracked by Bloomberg, the median loss for 2015 is 5 percent. The iShares Core Growth Allocation ETF, which has a mix of 60 percent in stocks and 40 percent in bonds, has slipped 0.5 percent, and the First Trust Multi-Asset Diversified Income Index Fund is down 7.4 percent.

Uncertainty over the timing of the Fed's first interest rate increase in almost a decade and its potential impact on the economy weighed on markets throughout 2015, according to Michael Arone, a chief investment strategist at State Street Global Advisors.

"The Fed has finally broken that cycle by beginning policy normalization, and hopefully this will provide the market some clarification and resolve in a more solid direction," Arone said. "If the market feels comfortable at the pace at which the Fed moves interest rates and the economy is recovering, risk assets like stocks could perform well."