Credit Suisse Global Investment Returns Yearbook 2019

[cphill]

I bumped into this year's Global Investment Returns Yearbook from Credit Suisse.I think it is particularly useful to people that have "global" index portfolios because a lot of the data we see is highly geared towards the US (e.g. S&P 500). But this report does a great job at showing how the whole world looks in terms of equity returns.

Some interesting passages:

To this point, in documenting the long-run history of real interest rates in 23 countries since 1900, the study shows that, when real rates are low, future returns on equities and bonds tend to be lower rather than higher.

The working premise that the authors still believe investors should factor into their long-term thinking and modelling is an annualized equity premium relative to cash of around 3½%

While EMs and FMs together account for 55% of world PPP GDP, some 40% of world GDP at market exchange rates and 68% of the world’s population, their combined weighting in global equity indexes is still remarkably small, at around 12%; see panel d. DMs account for virtually all the rest (88%).

As we explained in the 2012 Global Investment Returns Yearbook, currency hedging will at best reduce risk by a small margin and, at worst, may prove counterproductive. … the better strategy for risk reduction is diversification across EMs, and between EMs and DMs. …

We should be cautious about generalizing from the USA, which, over the 20th century, rapidly emerged as the world’s foremost political, military, and economic power. By focusing on the world’s most successful economy, investors could gain a misleading impression of equity returns elsewhere, or of future equity returns for the USA itself. For a more complete view, we also need to look at investment returns in other countries.

The 119 years from 1900 to 2018 were not especially kind to investors in government bonds. Across the 21 countries, the average annualized real return was 0.9% (1.1% excluding Austria’s very low figure). While this exceeds the average return on cash by 1.2%, bonds had much higher risk.

I also really like looking at the long term performances in certain countries (e.g. USA, UK) and compare it with the whole world in the last pages (starts at page 31).

 

[clfan]

@cphill Nice take on broadening one's horizon...could you elaborate what each of these terms would suggest for future investments? I'm having trouble understanding what's going on.

 

[cphill]

@clfan

could you elaborate what each of these terms would suggest for future investments? I'm having trouble understanding what's going on.

could you clarify a bit more and help me understand your question?

 

[clfan]

@cphill The question was what each of the statements suggests for the future. Invest less im the US market? Invest more in the US market? Diversify more? Stay away from government bonds because they have low returns?

 

[cphill]

@clfan

The question was what each of the statements suggests for the future.

I don't know what will happen in the future. but for me the report shows that:

• you can have good enough returns with a global weighted portfolio. they aren't as impressive looking as the USA but they are good enough returns. At least good enough for me to sleep at night and not worry about them.
• the USA has really impressive long term returns. it is understandable people are often bullish on it.
• future returns might not be as high as past returns due to low interest rates, high valuations. They will be higher than cash, bonds for sure. But they just might be lower than before and it is important to adjust expectations.
• on the bonds side it confirms how bonds are currently going through non impressive returns, specially short term bonds. people still need fixed income though, it just might mean lower returns for a balanced portfolio.

anyhow, the things I paid attention to, were likely issues I already have an opinion on and I just got confirmation on from somebody more knowledgeable than me (so confirmation bias!).

Worth skimming through the report yourself to sidestep any biases I might already have.

 

[clfan]

@cphill Thanks for your answer. Of course no one knows what will happen. But well balanced across the world seems reasonable.