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Credit Suisse Global Investment Returns Yearbook 2016 Dienstag, 09. Februar 2016 - 11:00

Credit Suisse Global Investment Returns Yearbook 2016

The Credit Suisse Global Investment Returns Yearbook and the Credit Suisse Global Investment Returns Sourcebook are published today.
London
09.02.2016

Press contacts
 Sofia Rehman, Credit Suisse, tel +44 (0)20 7883 7373

Frances Chitoriski, London Business School,, tel +44 (0)20 7000 8659

  • New research analyses 70,000 days of financial market history and 2,400 country-years of data across 21 countries
  • Rate rises typically bad news, but immediate impact is small
  • During periods of rising rates, stock and bond returns were far lower than when rates were falling; the same holds for other assets like real estate, precious metals and collectibles

In the 2016 Yearbook, Professors Elroy Dimson and Paul Marsh and Dr Mike Staunton of London Business School examine two issues: first, the reaction of financial markets to interest-rate rises and cuts; second, the investment performance of trading strategies over interest-rate hiking and easing cycles.

Based on an analysis of the three great crises of the 1890s, 1930s and since 2008−09, Jonathan Wilmot of Credit Suisse suggests that, over the next decade, real bond returns will be close to zero with real equity returns close to 4−6% p.a.

Published by the Credit Suisse Research Institute, in collaboration with London Business School, the 2016 Yearbook and the 2016 Sourcebook report the latest long-run return data and risk premium estimates for 23 global stock and bond markets based on data since 1900.

The latest Yearbook reports on the interest-rate sensitivity of 12 financial assets (equities, bonds, risk premia, smart beta), 12 industries and 12 real assets (gold, housing, artworks). It spans 21 countries over 116 years. The authors report that virtually all assets perform worse when interest rates are rising than when they are falling.

Giles Keating, Deputy Global Chief Investment Officer at Credit Suisse, said: "The Fed’s rate hike last December was the first-ever in the professional lives of a generation of investors and traders, and however slow, the trend is now upwards, creating uncertainty and squeezing out overvaluations across the asset spectrum. The Yearbook provides an invaluable historical perspective on this, with its treasure-chest of data and analysis across 21 countries and more than a century of data."

"Stefano Natella, Head of Global Market’s Research at Credit Suisse, said: "The aim of the Credit Suisse Investment Returns Yearbook is always to provide a unique historical lens with which to view the investment issues of the day. With a debate over the direction of the interest rate cycle being front and centre at present, the content of this year’s Yearbook is again helping frame thinking around a topic at the top of the agenda for investors."

2016 Yearbook

The Yearbook comprises three articles, together with profiles of 23 national and three regional markets. For each of these countries and regions, it shows the inflation-adjusted returns since 1900 on stocks, bonds, cash and currencies, as well as equity and bond risk premia.

Does hiking damage your wealth?

In the first article in the 2016 Yearbook, Elroy Dimson, Paul Marsh and Mike Staunton analyse whether the market's fixation on interest rate hikes is historically warranted by their impact on equity and bond returns.

Based on more than a century of evidence on US interest rates (85 years for the UK) it is clear that announcement-day impacts are typically small, especially for well-signalled policy moves. Nevertheless, rate rises are on average bad news for equity and bond investors. In an analysis of annual data covering 21 countries over the period 1900–2015, the authors find that real equity and bond returns tend to be higher in the year following rate falls than in the year after rate rises.

Elroy Dimson, Chairman of the Newton Centre for Endowment Asset Management at Cambridge University and Emeritus Professor of Finance at London Business School, said: "Until late last year, no American or British investment professionals in their 20s (and only a few in their early 30s) had experienced a rise in their domestic interest rate during their working lives. Without personal experience to draw on, it is essential to take a longer-term perspective. We hope that our historical focus will help investors to interpret interest rate changes, if and when they happen, and to construct portfolios that have resilience over the long term."

Cycling for the good of your wealth

In their second chapter, the authors compare the investment performance of trading strategies over interest-rate hiking and easing cycles.

Across a broad set of asset classes – including equities, bonds, currencies, real estate, precious metals and collectibles – the findings point to substantial differences between returns during hiking and easing cycles. Historically, no asset class has offered contracyclical returns in relation to interest-rate changes. Smart beta is attracting a lot of attention at present, and the study reports that the rewards from such strategies tend to shrink when interest rates are rising.

Paul Marsh, Emeritus Professor of Finance at London Business School, said: "The equity risk premium is the return on equities in excess of the return on cash. In the USA, the risk premium during periods of tightening interest rates was just 1.8% p.a, compared with 8.8% p.a. during periods when rates were falling. In the UK, the entire equity premium was earned during loosening periods, and investors would have been better off being out of the equity market while interest rates were rising."

When bonds aren't bonds any more

In the third chapter, Jonathan Wilmot re-examines the three great crises of capitalism, namely the 1890s, 1930s, and the period from 2008–09 to see what light they can shed on current investor concerns. As one might expect, policy regimes and policy choices really do matter during periods of major systemic stress. History suggests that the risk today of a 1937-style policy mistake is all too real, and that we should probably not expect a standard hiking cycle. During the recovery periods, moreover, systemic fragility tends to persist, meaning that bonds yields actually trend down through the first 7-10 years of recovery, before a long secular bear market begins.

Jonathan Wilmot, Managing Director of Credit Suisse, said: "Looking forward, we think zero real returns for developed market bonds and 4–6% for equities would be a good working assumption. That means real returns on a typical mixed portfolio of bonds and stocks will likely be 1–3% p.a., down from around 10% p.a. over the past seven years. That is bad news for retiring baby boomers and will pose a structural challenge for the fund management industry."

2016 Sourcebook

Covering 26 markets, the Credit Suisse Global Investment Returns Sourcebook, also launched today, examines risk over the long run and the historical extremes of investment performance. It documents the global long-term and shorter-term rewards for equity and bond investing, and presents the detailed 116-year dataset that underpins the Yearbook.

Mike Staunton, Director of the London Share Price Database at London Business School said: "Although world equity returns since 2000 have been somewhat disappointing, over the 116 years since 1900, equities beat bonds and bills in every country. For the world as a whole, equities outperformed bills by 4.2% per year and bonds by 3.2% per year."

The Sourcebook also investigates the impact of investment styles on portfolio performance, providing long-run evidence on size, value, income and momentum effects in stock returns.

  1. Obtaining copies

    The Yearbook is available as a free download. The Sourcebook is a hard-copy publication and can be sent only by post. Copies of both publications may be requested by journalists from the press contacts below.

  2. Charts and analysis

    For charts or graphics, contact edimson@london.edu,pmarsh@london.edu, or mstaunton@london.edu

The Credit Suisse Research Institute identifies and provides insights on global themes and trends. The objective of the Credit Suisse Research Institute is to provide clients with leading-edge advice by leveraging internal and external expertise, thus reinforcing Credit Suisse's integrated global bank approach. The Institute conducts research on new fundamental topics, working with some of the world's leading experts, academics and institutions and Credit Suisse's global network of 400 analysts, and makes this available throughout the Bank for the business units to create innovative products, solutions and services for Credit Suisse's clients.

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* LBS Executive Education programmes ranked in the Top 5, by the Financial Times 2015. London Business School was awarded the 2013 EFMD Excellence in Practice Award for its 10-year partnership with Danone.

The Credit Suisse Global Investment Returns Yearbook 2016 draws on the Dimson-Marsh-Staunton database, which now covers 116 years of investment returns for all the main asset categories in Australia, Austria, Belgium, Canada, China, Denmark, Finland, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Russia, South Africa, Spain, Sweden, Switzerland, the UK, the US, and three continental and worldwide indexes. The Credit Suisse Global Investment Returns Yearbook 2016 contains the three papers described above, plus a summary of long-run investment performance for every Yearbook market. Yearbook: A4 full-color glossy, hard-copy or PDF, 71 pages, 31 chapters, 109 figures/tables. ISBN 978-3-9524302-2-4-8.

The Credit Suisse Global Investment Returns Sourcebook 2016 contains fully up-to-date information on long-run capital market history for 23 countries and three regions. Review chapters summarize the long-run global evidence on (i) risk and return from stocks, bonds, bills, inflation and currencies; (ii) the equity risk premium and maturity premium; and (iii) investment style, size, value, income, and momentum. The "country" chapters then each provide six pages of detailed statistics on investment returns for stocks, bonds, bills, inflation, currencies and risk premiums, in each of the 26 markets. Sourcebook: A4 color, perfect-bound only, 224 pages, 31 chapters, 152 charts, 85 tables, 150 references. ISBN 978-3-9524302-5-5.

Disclaimer: This document was produced by and the opinions expressed are those of Credit Suisse as of the date of writing and are subject to change. It has been prepared solely for information purposes and for the use of the recipient. It does not constitute an offer or an invitation by or on behalf of Credit Suisse to any person to buy or sell any security. Any reference to past performance is not necessarily a guide to the future. The information and analysis contained in this publication have been compiled or arrived at from sources believed to be reliable but Credit Suisse does not make any representation as to their accuracy or completeness and does not accept liability for any loss arising from the use hereof.

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