In a note, David Scobie, Mercer NZ head of consulting, says historically even a singe calendar year of total-asset positive performance is “not normally a common event”.
And yet for the third year out of the last four, all 16 asset classes covered by the annual Mercer ‘Periodic Table’ of investment returns – available in passive and active formats – were in the black in 2019.
According to the Mercer study, the almost perfect four-year run was spoiled only by a stinker 2018 when 10 asset classes fell into negative territory.
The 2019 result featured another stand-out performance from NZ equities, which topped the Mercer table with an almost 32 per cent return. With the exception of 2016, where NZ shares sat about mid-table, the local asset class has been among the top three in the Mercer study over the last five years – including another number one result in 2015.
Indeed, investors must look back to 2010 for an annual period when local equities delivered relatively poor returns: the NZ shares 3.7 per cent result was the third-worst of that year.
“A low interest rate environment and a relatively robust economy underpinned the strength of our market, which has now bettered our Australian counterpart for nine years running,” Scobie says.
Along with global private equity, NZ shares have been the most-consistently-up over the last decade (the Mercer table limits reporting to the most-recent 10-year period) while cash, commodities and “defensively-oriented” hedge funds have habitually slunk in the bottom half, the study shows.
However, Scobie says the fluctuating asset class return data shows “how challenging it is to unearth patterns and predict what the years ahead may hold”.
For example, following a patchy decade, emerging market shares went from best-performing to second-worst asset class in the space of a year (2017 and 2018, respectively) before clawing back to mid-table last year. Emerging markets turned in both the highest (35 per cent) and second-lowest (-18 per cent) annual results during the 10 years to the end of December last year.
“The biggest asset class bounce last year was Global Small Cap Equities, recovering from a -9% return in 2018 to generate +25% in 2019,” the Mercer release says. “Certainly a lesson in volatility for investors in that sector.”
In spite of the curious repeat upbeat results across all asset classes in 2019, the spread of returns for the period fell in a 30 per cent range, in line with the average for the decade.
Scobie says the “inherent volatility” of asset class returns as seen in the Mercer table reinforces the diversification message for investors.
“For many investors, a key takeaway is the importance of harnessing both time and patience – the big money to be made is often not in the buying and selling but in the waiting,” he says.