Over the long-term, equities have provided investors with the best annualised returns compared with other mainstream asset classes. Data from FE Analytics shows that over the last 20 years UK equities have provided an 8.47 per cent annualised return, compared with 8.4 per cent from property and 7.39 per cent from global government fixed interest securities.
Annualised returns of asset classes over 10-yrs
| Asset Class |
Sub class |
Index |
10-yr (%) |
| Alternatives |
HFRI Fund Weighted Composite |
4.84 |
|
| Commodities |
S&P GSCI Commodities TR |
5.13 |
|
| Equity |
North America |
FTSE North America |
3.76 |
| Asia Pacific |
FTSE Asia Pacific |
8.31 |
|
| European |
FTSE Europe ex UK |
6.02 |
|
| UK |
FTSE All Share |
5.6 |
|
| Global emerging markets |
FTSE All-Wld Emerging |
- |
|
| International |
MSCI ACWI |
4.59 |
|
| Fixed interest |
UK government |
FTSE British Government All Stocks |
6.13 |
| UK corporate |
Merrill Lynch Sterling Non-Gilts |
5.48 |
|
| Global government |
Citi World Government Bond Index |
6.94 |
|
| Global corporate |
Merrill Lynch Global Broad Market Corporate |
6.07 |
|
| Money market |
LIBOR GBP 3m |
3.64 |
|
| Property (physical) |
(UK properties only) |
IPD UK All Property |
6.59 |
Source: FE Analytics
Focusing on the UK market, equities have provided 5.6 per cent annualised returns over the last 10 years, compared with 6.13 per cent from UK government bonds. UK corporate bonds have posted 5.48 per cent a year over this period.
"Fixed interest instruments have performed better than or as well as equities over the medium- and long-term," said Amandine Thierree, fund analyst at FE.
"However during the past 10 years equity markets have experienced more crises than fixed income markets and central banks have often responded by lowering their rates or injecting liquidity, mechanically increasing bond prices."
The research challenges the commonly held perception that riskier equities will always outperform other asset classes over the long-term.
Kerry Nelson, managing director of Nexus IFA, says that the research poses an important question about how much to allocate to equities.
"The data shows that you can take the risk in equities and get some reward or potentially stay in dull, boring bond funds and potentially get the same reward," she said. "I find it hard to believe that equities will perform as poorly in the next 10 years as they have in the last 10 but we may still have a minimum of 18 months of hardship ahead. Perhaps investors should think about taking a more balanced approach and investing less in equities than they had planned."
Alternative asset classes have also been profitable for investors over the long-term. Our data shows that over the last 20 years the HFRI Fund Weighted Composite Index – which measures the performance of a basket of hedge funds and alternative strategies – has posted an annualised return of 11.14 per cent.
However, Thierree says that this type of investment has shown a gradual decline in recent years.
"Hedge funds are quite consistent but something changed dramatically in 2002," she said. "From 1992 to 2002 they returned 17.80 per cent annualised while from 2002 to 2012 they returned 4.84 per cent annualised. The index shows negative/flat performance over the 2002 to 2005 period."