Periodic Table of Investment Returns

The Power of Patience - Rocky Start to Year Just a Blip for Longer-term Investors

Witnessing the “red ink” generated by most asset classes in early 2022, it can be easy to forget how well investors have fared over longer periods. 

Markets have certainly been challenged in recent years, most notably by the Covid-19 pandemic, but nonetheless have demonstrated considerable resilience, aided by government fiscal stimulus and solid profits from the world’s largest technology companies. Low interest rates also played their part, although we have seen this tailwind run out of puff, causing bond markets to deliver uncustomary weak returns in 2021. 

The volatile nature of financial markets is highlighted by Mercer’s “Periodic Table” of investment returns. Produced annually, the Table colour-codes 16 major asset classes and ranks how each performed, on an annual basis, over the last 10 years. An interactive version of the Table is attached, as well as a standard printable version. 

A glance at the Table, with its scattered palette, quickly highlights how problematic it is to unearth patterns; or at least patterns that could be of use to us going forward.  Last year’s stars sometimes prove to be a winner again the next year, but at other times sink to occupy the lower ranks.  If only investing were easy! 

View the interactive table here

Demystifying the Mosaic

Looking across 2021 and the past decade, a number of observations can be made from the Periodic Table:

  • 14 of the 16 asset classes generated a positive return last year – bettering 2020 (12 positive returns) but not as remarkable as the 100% outcome achieved in 2019. 
  • Leading the way in 2021, for the third time in the last four years, was Global Private Equity with a stellar return of 48.4%.  Amid a busy year for merger and acquisition activity, and investors seeking out alternative sources of return, the asset class delivered handsomely for those with a means to access it and the ability to tolerate its higher risk and lower liquidity characteristics. 
  • Global Listed Property featured in a creditable, but distant, second place in 2021 (+29.0%).  The rebound for the asset class was welcome, having placed last in the table in the previous year as Covid-19 concerns weighed on investor sentiment in the retail and hotel sectors.  Meanwhile its counterpart, Global Listed Infrastructure, finished closer to mid-table (+17.0%). 
  • Developed Market Global Equities was another asset class that produced impressive returns in 2021, up between 24 and 28% depending on whether foreign currency was hedged or unhedged.  The US market was a particular area of strength, supported by Europe.  Meanwhile, in a notable divergence, Emerging Market Equities were far softer (+2.5%) with Turkey and China amongst the main culprits. 
  • Countering a recent trend, New Zealand Equities fell well down the leader board last year.  The sector sneaked into positive territory with a 0.2% return.  Despite a resurgence from Sky TV and big gains from Skellerup, tumbles from the likes of A2 Milk and Meridian Energy ensured a sluggish year for our local market.  More widely, the relatively defensive characteristics of NZX companies served as a partial handbrake. 
  • Bringing an end to a 10-year run, Australian Equities (+16.2%) outperformed New Zealand Equities in 2021, and by a significant margin.  “Value” type stocks came back into favour across the Tasman, particularly benefiting companies in the Communications and Financials sectors. 
  • After a fraught decade, Commodities roared back to life in 2021 with a healthy 26.3% gain.  Rising inflation provided a helpful backdrop for this asset class, as did supply chain disruptions.  Energy was the strongest sub-sector, while precious metals were more muted.
  • Other positive contributions last year came from the relatively steady performers of NZ Direct Property (a healthy +19.0%) and Defensive Hedge Funds (a more subdued +4.3%). 
  • New Zealand Fixed Interest (-6.2%) and Global Fixed Interest (-1.2%) took out the booby prizes in 2021.  Meagre yields on bonds were offset by capital losses.  Interest rates lifted as central banks around the world signalled that tighter monetary policy should be expected going forward.  Such a return outcome for fixed interest would have come as a surprise to some investors - neither sector had previously finished in the bottom two spots over the past decade. 
  • As so often proves to be the case, Cash was a relatively unattractive place to be in 2021, albeit superior to fixed interest.  Safety-conscious investors with a bias to bank bills and term deposits would have seen their capital erode on a real (after inflation) basis. 
  • Across the decade, the award for single highest annual return found a new recipient - Global Private Equity - thanks to its 2021 result.  Meanwhile, the -22.8% return of Commodities in 2015 remained the lowest.
  • As a group, last year’s asset class returns spanned a top-to-bottom range of 55%.  This was the widest of any year in the last decade, and compares to the period average of 33%.   

Table Takeaways

Diversified funds, including those offered via savings plans such as KiwiSaver, tend to have exposure to a collection of the asset classes contained in the Periodic Table.  Looking at the past calendar year, such funds with a growth orientation, particularly focusing on offshore asset classes, generally performed better than others.  Meanwhile, funds with a conservative and/or domestic orientation would have eked out more modest returns. 

“When an investor focuses on short-term investments, he or she is observing the variability of the portfolio, not the returns – in short, being fooled by randomness.” - Nassim Nicholas Taleb

The Periodic Table, and indeed the above quote, remind us that investment markets are inherently volatile.  We can never predict with a high degree of confidence what the future will hold over the short to medium-term.  Therefore, for most individuals, the power of investing is harnessed through securing asset class diversification, taking on the risk you can tolerate and adopting a longer-term perspective.  While a rock band may be an unlikely source of investment inspiration, Guns N’ Roses essentially had it right – all we need is just a little patience.

This article does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances.

25 Feb 2022