What Factors Affect Asset Class Performance?

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  • Written By: Geri Terzo
  • Edited By: Shereen Skola
  • Last Modified Date: 03 December 2019
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Asset classes are investment categories that can be influenced by changes in such factors as the economy, financial markets, and investor sentiment. In certain cases, the factors driving activity in the markets is rather clear, while other times it may be more difficult to ascertain. Some of the common items that can affect asset class performance include corporate profitability, the pace at which an economy is growing or shrinking, and political conditions in a region.

Depending on the investment category, the degree to which factors can affect asset class performance vary. Stocks, which trade in the equities group, are often driven by the conditions in which corporations can earn profits, or income. When investors are confident that businesses will continue to expand and generate sales, they are more likely to direct money to this particular asset class. In exchange, investors generally hope to be rewarded with a rising stock prices and possible dividends, which are distributions that companies sometimes make with excess profits. A company's ability to meet income and sales expectations as set forth by corporation management teams is another factor that can affect asset class performance for equities.


Bonds trade in the fixed income investment category, and are typically sensitive to a unique set of factors. The two major components on a bond security are the price and the yield, which move inversely to one another. For instance, when the price on a fixed income instrument is rising, the yield, or interest rate, declines.

Inflation is a factor that can influence asset class performance in bonds in a negative way. When investors purchase bonds, they receive a series of interest payments in addition to the reimbursement of the face value of the debt security. As inflation rises, the value of a currency falls and this diminishes the worth of the investors' income once the bond matures, or reaches its expiration date.

Analyst ratings could impact both equity and fixed income securities. Professional analysts often assign ratings, similar to grades, that reflect the potential of individual financial securities or investment categories. These results could benefit a stock or bond if the rating positions the security in a way that fits into an investor's strategy. Analysts might also assign a positive or negative outlook on an entire investment category, which can affect asset class performance. For instance, if an analyst warns that a regional economy is slowing with corporate profits likely to be hurt, investors might interpret the news as a signal to redirect capital from stocks to a safer investment category.


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