Global Investment Returns Yearbook 2023

We believe that a long-term perspective and an understanding of the laws of risk and reward are important. Our analysis of long-term returns shows that stocks have outperformed bonds and notes in every country since 1900, reflecting these fundamental principles.

While bonds have delivered returns comparable to those of stocks since the 1980s, the inflation shock of 2022 has led to record lows in real bond yields in many countries, including the United States, the United Kingdom, Switzerland and across developed markets.

We are also reminded that inflation does nothing for the stock market. While stocks can produce superior returns over the long term, they are not and have never been the hedge against inflation that many observers believe.

Risk premiums exist for a reason

The historical risk premiums in stock and bond yields relative to debt securities exist for a reason, namely as a necessary payment for volatility and drawdown risk. Our report documents periods of stress that bonds and stocks have experienced over time, following a long period of high and stable real returns. The Almanac shows how portfolio diversification can mitigate such risks.

However, leveraging diversification is also a long-term concept that may fail you in the short term. The recent success of the 60/40 stock/bond strategy is a painful example of an over-reliance on the recent negative correlation between the two assets rather than properly consulting the history books.

Equity premium versus bills (bars) and versus bonds (line)

Futures, stocks and bonds, 1871–2022

Revaluation of raw materials during stagflation

This year’s focus chapter looks at the harmful impact of inflation on bond and stock returns, and the role of commodities in this mix. Focusing on the hot topic of stagflation, rather than just inflation, gives investors more to worry about. There is growing consensus that things will return to normal as low inflation returns, and there is worrying news. A closer look at history shows how rare this actually is.

Rising commodity prices, particularly energy, will of course be a key driver of a sharp rise in inflation in 2022. However, we examine the role that commodities play as an asset class. Our finding is that while investments in individual commodities by themselves generate very low long-term returns, futures portfolios generate attractive risk-adjusted long-term returns due to the power of diversification.

Cumulative return of the investment of 1 USD since 1871.

The significance of the starting date is obvious because commodities experienced a decade-long bear market in the late 19th century, and stocks generally trended upward following the 1873 downturn.

Credit Suisse is in trouble due to poor performance of its bond portfolio. Money laundering accusations also led to the resignation of chairman Antonio Horta-Osorio, although the official reason was repeated breaches of Covid-19 restrictions. Due to rising interest rates, short-term financing is also denominated in Swiss francs (Swiss francs). franc) is more expensive. The bank is now taken over by Union de Banque Suisse. It’s uncertain what will happen to the research department that funded and published the study for more than a decade.

This is likely to be the final version of the China Securities Research Institute’s Global Investment Return Yearbook, or we may find it under a different sponsor name.

Graphs from the press release: Copyright © 2023 Elroy Dimson, Paul Marsh and Mike Staunton, London Business School.