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Asset allocation quilt – the winners and losers of the last 10 years

Deep in the winter, there’s nothing like snuggling up with an asset allocation quilt. Investing’s most colourful data dump ranks the main asset classes (and sub-asset classes) by annual return. The result is a patchwork of good and sorry fortune. 

As you scan its riot of colour, the asset allocation quilt always poses the same question: could you have picked these winners and losers in advance?

Is there a predictable pattern coded into this crazy Super Collapse-style tile game? Or is it all so random that a passive investing strategy is best?

Go passive and you won’t ever see your initials in the Hall of Fame. But neither will you lose all your lives…

Asset allocation quilt 2021

Our American chums have this asset allocation quilt business all sewn up.

But we decided it was time for a British cut!

So here’s the rankings for the main equity, bond, and commodity sub-asset classes from 2012 to 2021 (plus 10-year annualised returns to boot) from the perspective of a UK pound sterling investor:

A table of annual returns for 12 sub asset classes over the last decade.
  • We’ve sourced annual returns from publicly available ETFs that represent each sub-asset class.
  • The data is courtesy of justETF – an excellent ETF finder, screener, and portfolio building service.
  • Returns are nominal1. Returns take into account the Ongoing Charge Figure (OCF), dividends or interest earned, and are reported in pounds.

Stitch up

Aside from being the worst pullover pattern ever, this quilt’s standout feature is the exceptional performance of the S&P 500 over the past decade.

Indeed US equities achieved a podium place in eight out of ten years.

That record is:

  1. Amazingly consistent
  2. Potentially consequential for the next 10 years

The relentless rise of the S&P 500 has led directly to expectations of doom for US returns. Think of a ‘you’ve had it too good, for too long’ morality play, backed by numbers.

Like many we’ve sounded the alarm about this for a while. I recently rebalanced the Slow & Steady portfolio, taking some profit from US gains.

Global equities have also been a consistent performer – not too surprising given the asset class is more than 50% weighted towards those same all-star US stocks. Global equities have not claimed the top two positions these last ten years, but they have lodged in a narrow band between third and sixth place.

The upshot is a fine advert for diversification. Global equities benefited from US exposure. But the other weightings didn’t drag them down too badly – and they might someday be a lifejacket if US shares start to sink under the weight of their expectations.

Meanwhile the UK equity experience has been a very British tale of class division. Except here the little guys beat the big boys! The mid-cap FTSE 250 firms trounced the international large caps of the FTSE 100.

The FTSE 100 is one of the poorest performing markets of the past decade. Sadly its sleepy constituents also dominate the passive investor’s go-to UK index: the FTSE All-Share.

Is there a case then for upping your exposure to the more domestic FTSE 250? It’s tempting.

But if you do it simply on the basis of the last ten years then beware of mean reversion – the market’s tendency to backhand anyone who reads too much into recent results.

King of the swingers

The Emerging Markets reputation for wild volatility is woven into our quilt in violet checks.

Almost every year, this geographic catch-all has either shot out the lights or shot itself in the foot.

Technically, most of us should probably have more Emerging Markets than the typical 5-11% slice present in leading global tracker funds.

That’s because in theory our asset allocation should align to the world economy.

But China alone accounts for 18% of the global GDP pie, according to this infographic.

I’m in no rush to up my allocation.

Rocket fool

Fans of violent volatility will also love the broad commodities2 asset class picked out in orange.

This one looks like a failed rocket programme. Stuck on the launchpad for the first four years, broad commodities bursts into life with a meteoric 30% lift-off in 2016.

It then does an immediate 180-degrees and tombstones straight back down in 2017.

A couple of hiccups later and commodities goes stratospheric again – rising over 40% in 2021 like a pillar of flame.

I suspect the asset class will remain on top of the world for about as long as the next Virgin Galactic flight.

Over the decade, broad commodities are the only asset class to hand in a negative nominal annualised return (-1.3%).

Subtract inflation for the real, wealth-sucking, return.

Trading places

Take notice of how the multi-coloured mayhem settles into a more familiar pattern when viewed via the rightmost ten-year annualised returns.

Bonds are towards the bottom of the heap, gold does even worse, and we should expect commodity future funds to deliver bond-like returns (with equity-style volatility) so that looks about right, too.

Equities sit atop the ten-year column just as prime slabs of capital should.

But the divergent outcomes among the different equity sub-categories show why we need all sorts in our mix.

Long-term investing is a game of sliding blocks. The S&P 500 could easily trade places with the Emerging Markets or even the FTSE 100 in the next decade.

The common thread here is expected asset class behaviour. Over time equities should do well but we don’t know how the sub asset-classes will stack up. Meanwhile, the other asset classes are there to patch up the holes when bad years for equities leave our portfolios needing stitches.

Take it steady,

The Accumulator

  1. That is to say they are not adjusted for inflation. []
  2. Broad commodities are represented here by a diversified commodity ETF that gains exposure via commodity futures rather than the spot price. The broad commodities category includes energy, agriculture, livestock, industrial and precious metals []
{ 17 comments… add one }
  • 1 JimJim January 19, 2022, 12:03 pm

    Nice to see a British version of this, and timely with the article here about the 250… https://www.ukdividendstocks.com/blog/is-the-ftse-250-expensive-at-three-times-its-dot-com-peak
    I am fortunate that I have ridden the 250 wave over the last 10 years with an unbalanced portfolio weighted towards it, and equally unfortunate in my lack of faith in the S+P.
    I can’t complain.
    Thanks for the quilt, I hope it becomes a regular yearly feature.

  • 2 Chiny January 19, 2022, 12:20 pm

    Fascinating stuff and I expect I’ll return to it nervously, every time I have some funds that need investing.

    I’ll echo the earlier poster in hoping this becomes a January feature – appreciate the work involved.

  • 3 James_Smith January 19, 2022, 12:29 pm

    Nice to see a British version,
    That one is interesting as well https://www.bankeronwheels.com/the-long-game-historical-market-returns-2022-expectations/

  • 4 Attilio January 19, 2022, 12:45 pm

    Great summary!! Which Global Equities ETF you considered in your table?

  • 5 David C January 19, 2022, 1:38 pm

    Much appreciated, likewise.
    Intrigued by your comment that “in theory our asset allocation should align to the world economy”. Don’t most indexes, and hence most trackers, align to the world’s stock-market capitalisations? Which is not the same thing as the economy at all, although perhaps in theory it ought to be. I assume that a big chunk of China’s economy is outside quoted stocks, with enterprises owned by state bodies, cities etc. The UK’s National Health Service is a big chunk of GDP, but not investable (yet!). And there are grumbles about increasing chunks of US industry being owned privately where the retail investor can’t get a piece of the action. But I have no idea how much any of this matters.

  • 6 Al Cam January 19, 2022, 5:54 pm

    Thanks for this nice UK variant of the chart; appreciate the work taken to generate it!
    Re: “Indeed US equities achieved a podium place in nine out of ten years.” Is it not rather eight from ten?

  • 7 The Accumulator January 19, 2022, 6:43 pm

    @ David C – You’re right, geographic market-cap trackers are aligned with stock market capitalisations rather than economic punch. The US and UK are both over-represented by stock market capitalisation. It’s impossible to align with the real economy but there are some interesting articles out there on how you might go about it.

    @ Attilio – It’s iShares MSCI ACWI UCITS ETF (Acc)

    @ Al Cam – cheers! And you’re spot on about 8 out of 10 years. In my defence, I was going colour blind by the time I finished the table 😉

    @ James and Jim Jim – thank you for the links. + Chiny – Yes, think this will be an annual feature. I’ve done the hard work now getting the first 10 years worth of data.

  • 8 Mousecatcher007 January 20, 2022, 4:01 pm

    A very useful graphic. Thank you.

  • 9 MrOptimistic January 20, 2022, 5:39 pm

    17% annualised over 10 years from the S&P 500. Jeez, that’s what overthinking has cost me.

  • 10 The Investor January 20, 2022, 7:57 pm

    @MrOptimistic — At least you recognise it rather than obfuscating, or prophecizing an 80% crash to make things ‘right’.

    That’s a credit to you. 🙂

  • 11 Grumpy Tortoise January 21, 2022, 8:34 am

    A fabulous infographic TA and very useful for novices such as myself. I wonder what a Cash category would look like over a similar 10 years?

  • 12 The Accumulator January 21, 2022, 9:15 am

    Thanks Grumpy. Cash would be a nice baseline to have in the table. I thought about doing it using some kind of money market fund or ultra-short bond ETF. I’d guess it’d be above commodities, somewhere around gold.

  • 13 Zero Gravitas January 21, 2022, 12:41 pm

    Interesting that the domestic focused FTSE250 has done so well over ten years.

    Beating everything outside of the US despite some large economic shocks.

  • 14 David C January 21, 2022, 5:50 pm

    1% wouldn’t be a completely terrible approximation as a baseline for cash over the last ten years. In most individual years you could have done worse, but annualised over the 10 years almost anything would have been better. Published statistics for “average interest rates” are pretty useless as a comparator (why would you leave your money in an average account?). so I wish I had more accessible records for my “shopping around the building societies, with judicious use of regular savings accounts and fixed rate cash ISAs” approach, but I reckon 2-4% pa for up to 2015 or 2016, and 1-2% since would be in the right ballpark (I think it was “funding for lending” that really killed retail savings interest rates, not the post-GFC base rate cuts). So yes, I agree with “somewhere around gold” (and better than money-market funds – at least, mine has been returning 0% – before platform charges).
    Incidentally, on reflection, “in most individual years you could have done worse” seems like a good argument, if you needed another one, for a chunky cash buffer if you’re decumulating.

  • 15 NewInvestor January 22, 2022, 9:33 pm

    Thank you for this. Is there any particular reason why global small cap (or US small cap) as sub-asset class is not shown?

  • 16 ka February 4, 2022, 8:54 pm

    REITs global or UK? thanks

  • 17 The Accumulator February 4, 2022, 9:54 pm

    @ new investor – just had to draw a line somewhere 🙂

    @ Ka – global reits

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