New data released by Fidelity International has shown that no asset class has been the best performer for two years running in the past 20 years.
The news illustrates how difficult it can be to predict future asset class performance based on previous years. For example, while US equities were the best-performing asset class in 2016, Japanese equities performed twice as well the year before in terms of returns.
Similarly, in 2008 government bonds performed best, while emerging markets performed worst; the following year, these asset classes swapped places.
In some cases, canny investors may be able to capitalise on that reversal of fortune.
Top three asset classes by performance
Worst three asset classes by performance
Commenting on the data, Fidelity International investment director Tom Stevenson said that these findings demonstrate the importance of asset diversification.
‘Trying to predict the best-performing asset class, year in year out, is a fool’s errand,’ he said.
‘Indeed, over the last 20 years no asset class has managed to hold onto its title of being the best performer over consecutive years. A balanced portfolio, split between equities, bonds, real estate, commodities and cash, really can help smooth investment returns and lead to better long-term outcomes for disciplined investors.’
He adds: ‘What’s really interesting is that the relationship between risky assets such as equities and commodities and defensive assets like bonds and cash is not symmetrical. Over the past 20 years there have been a number of years when risky and defensive assets have balanced each other out, leading to a neutral overall return. There have been some years when everything has risen together.
‘But what the past 20 years has not delivered is a single year in which everything has fallen together. This is really good news for a hands-off, long-term investor because it means that they can sensibly invest in a well-balanced portfolio and just forget about it.’
Performance of asset classes over the past 20 years
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