“So the last shall be first, and the first last,” saidith the Lord, according to Matthew 20:16 and, almost, Mercer 2022.
In fact, the best-performing asset class in the latest edition of the long-running Mercer NZ ‘Periodic Table of investment returns’ is both first and last.
“The leading asset class in 2022 was Commodities (+15.3%), influenced by the war in Ukraine and China’s strict zero-Covid policy, both of which constrained supply and fuelled inflation,” Mercer NZ investment consultant Neil Cannell notes. “Despite the strong returns in the last two years though, Commodities remains the weakest asset class over the 10-year period.”
If commodities had a rare moment on top in 2022, the gut-wrenching journey of international listed real estate over the last three years closely fits the biblical prophesy.
“Global Listed Property (-24.0%) finished last on the Periodic Table this year and also took the prizes for the largest year-on-year fall (-53%) and the lowest annual return of any asset class across the whole decade,” Cannell says. “Investors in the sector have been on a wild ride in the last few years, having rebounded from last place in 2020 (granted the Covid-19 outbreak didn’t help) to second in 2021, before dropping back to last place this year.”
Over the 10-year period, global listed real estate hovers mid-table in the Mercer rankings with a long-term annualised return of 4.8 per cent but the asset class was not alone in enjoying a miserable 2022.
Just four asset classes turned in a positive result last year with hedge funds, NZ direct property and local cash joining commodities in the black zone.
“This was the lowest proportion of positive returns in any of the last 10 years. The next lowest number of positive returns was six in 2018 (the following year all asset classes generated positive returns – Hmmm?),” Cannell says. “This was a sharp contrast from 2021 where 14 out of 16 asset classes were positive (many in healthy double digits). Not surprising then that the returns for defensive Hedge Funds and Cash were the only ones to increase year on year in 2022.”
But while the top-to-bottom range of returns of 39 per cent in 2022 was about average (and below the 55 per cent peak spread of 2021), he says the calendar year ranks as worst-in-decade.
“Highlighting just how negative 2022 was, of the 160 annual returns across the decade, 37 were negative and of these almost a third (12) were in 2022. This included six of the worst (i.e. most-negative) 10 annual returns in the Periodic Table.”
Markets, of course, are forward-looking but the Mercer rear-view analysis highlights the difficulties of picking short-term asset class winners (or losers) in a game that, as Matthew 20:16 puts it, “many be called, but few chosen”.