More and more investors are looking at the returns they have made over the last five and ten years and discovering what poor times they have been for buyers of US, UK and European equities.
Most conventional portfolios have been built around the cult of the western equity. Ten year returns on the main share markets have been around zero. Pension funds, charities, and wealthy families would have been better off staying with cash deposits or government bonds.
Many spend substantial sums on active managers. Their claim is that they can beat the markets, and find returns even when times are hard or markets are heading south. Our research shows that there are a few managers who can invest in UK shares and beat the All Share, or invest in US shares and beat the S&P, but the overwhelming majority of active managers underperform over 3, 5 and 10 year periods. More importantly, even the few who do win, are not able to make up for the fact that the main share markets have done so much worse than cash, over 1 year and over 10 years, and time periods in between those two.
That’s why we say you need to concentrate on Big Picture investing. The decisions which make the difference are over whether you should be invested in equities at all, or whether it makes sense to be in property or commodities or private equity. What money you do spend on advice should be on that. You cannot avoid having an asset allocation. Every day markets trade your asset allocation is tested by the markets. It can help having someone to watch over that for you.
Big Picture investing can be long-term. If you want the prospect of good growth and do not mind volatility – investment management speak for losing money over shorter time periods – then you should have bought Asian equity over the last decade. We think the next decade could well prove similar. If it’s risk with the possibility of better rewards you want, then buy and hold Asian equity, where the growth is more likely.
If you are more cautious, cash can be a good bet for some time periods. Today, given the low returns on cash, a portfolio of high quality corporate bonds may be attractive, and should generate you better returns than cash without all the risks of western equity.
If something looks wrong, maybe it is. We think the huge sums the US and UK governments need to borrow will in due course place more strain on government bonds markets. If you agree, why hold these bonds?