01 February 2023
One of the key elements of wealth management is the ability to choose the right asset classes at the correct times. This can significantly impact overall performance, perhaps more so when the investment strategy is less dynamic. For example, a recent study by Invesco looked at the performance of worldwide equities, bonds and cash as individual asset classes. We have broken down the performance into decades from the 1980s to the first part of the 2020s.
While this data is U.S.-based in relation to bonds and cash, it gives a good overview of the world of wealth managementand the performance of the different asset classes against different economic backgrounds. We will now take a look at performance across the different decades:-
Equities were most definitely the star asset class in the 1980s, with an increase of 516% over the ten-year period. Bonds came in second at 210%, with cash third at 143%. Those who follow the equity markets will know that the 1980s was a period of significant growth in markets and economies. In addition, the UK experienced "Big Bang", which brought wealth management, asset management and equity investment to the masses.
Dominated by the Gulf War, the ERM crisis and financial problems in Asia and Russia, there was a significant impact on the performance of equities. Over the period, equities were still in first place with a return of 209%, bonds in second place at 95% and cash trailing behind at 63%. The difference between the three asset classes was significantly reduced from the 1980s, representing the change in the worldwide economy.
This was one of the most volatile periods for worldwide stock markets and economies, creating a complex environment for asset management. There were the 9/11 attacks, the start of the second Gulf War and the US subprime mortgage crash. It will therefore come as no surprise to learn that equities struggled in this period. Registering an increase of just 4%, equities were third behind bonds at 85% and cash at 30%. Challenging times!
The decade starting in 2010 experienced the brunt of the US subprime mortgage crash and the knock-on effect on the worldwide economy. Wealth management was particularly challenging over this decade, as was asset management. However, equities still outperformed with a return of 161%, followed by bonds at 53% and cash at just 6%. This was the era of ultralow interest rates hence the minuscule return on cash.
The 2020s are not only feeling the after-effects of the US subprime mortgage market crash but also Brexit, Covid and the cost of living crisis brought about by the Ukraine conflict. Up to the end of 2022, equities registered returns of 12%, cash 2%, with bonds reporting a negative return of 11% so far this decade. It is difficult to see how the 2020s will pan out withthe worldwide economy struggling, volatile currencies and historically high inflation rates.
The better performers in the wealth management sector have managed to be relatively nimble concerning asset management, taking in both traditional and non-traditional investment opportunities. For example, many wealth management companies have used gold and other precious metals to hedge against inflation and economic challenges. However, we are also seeing the emergence of alternative investments as a means of adding a degree of stability toportfolios under challenging times.
As you will see above, in terms of asset management and asset classes, equities have produced the lion's share of returns in recent years. However, digging deeper, individual sector performance has often been varied, which has highlighted the benefits of diversification. It is sometimes easy to forget the traditional market trends of years gone by, modest interest rates, controlled inflation and long-term economic growth. The volatile nature of the last 20 years has undoubtedly created many challenges for wealth management companies.
Equities: MSCI World Equity Index in US$ terms with all dividends reinvested
Bonds: US 10-year Treasury bonds with all income reinvested
Cash: US three-month Treasury bills with all proceeds reinvestedBack to News