Unhedged global equities emerged as the number one asset class for the second year in succession while supplanting its private counterpart as the 10-year winner in the latest Mercer periodic table of investment returns.
In fact, various shades of global shares occupied four of the top five spots in the 2024 calendar year returns for NZ investors as measured by Mercer – or six if Australian equities count as foreign.
The multi-coloured Mercer display shows unhedged global stocks returned 34.1 per cent last year, up from the 23.7 per cent that landed the asset class atop the 2023 table.
But currency proved a bigger factor in 2024 with NZ dollar-hedged international shares (21.4 per cent) only the fourth-best performer during the 12-month period: hedged and unhedged global equities ended about even in the previous year.
Global small cap and emerging market stocks finished second and third last year after booking returns of 22.2 per cent and 21.5 per cent, respectively. Australian shares (14.3 per cent) beat NZ equities (12.2 per cent) but the NZX retains a 10-year lead over the ASX with respective annualised returns of 10 per cent and 9.1 per cent.
However, another lack-lustre run for global private equity – returning 6.4 per cent over the 12-month period – saw the asset class drop to second on the 10-year rankings by the end of 2024.
David Scobie, Mercer NZ principal, said in a release: “Frequently appearing near the top of the Periodic Table leaderboard, 2024 was not one of the better years for this asset class. A 6% return reflected a softer liquidity environment as fundraising activity eased, and while exits grew, distributions as a portion of net asset value sank to the lowest level in several years.”
Nonetheless, boasting a 10-year annualised return of 13.4 per cent, global private equity remains in cooee of its listed relative.
For the first time since 2019, all 16 asset classes covered in the Mercer table ended 2024 in the black in a feat achieved only four times over the decade-long period.
Generally a middle- to lower-end performer, global bonds slumped to dead last in 2024 while still returning 3 per cent versus 4.7 per cent for NZ bonds: local cash gave investors 5.6 per cent for the same period, about in line with the 2023 result for the risk-free asset class.
“But the standout Fixed Interest segment was Emerging Market debt which rose 15% amid greater investor interest, benefiting from improved credit ratings and economic outlooks, especially in Latin America and Asia,” Scobie said.
Despite considerable year-to-year volatility, the 10-year figures largely conform to capital markets theory where risk brings rewards over the long-term.
Sub-genres of shares ended the decade as the six best-performing asset classes with returns mostly descending in line with risk-weighted expectations.
However, commodities – a regular bottom-dweller in the Mercer table – turned in the worst 10-year record of just 1 per cent annualised, sitting below NZ and global bonds (2.3 per cent and 2.4 per cent, respectively) while local cash surprised on the upside with a long-term return of 2.6 per cent.
And in the wake of some of most dramatic ping-ponging in share and bond market history this April, Scobie notes in an understatement: “… unpredictability of capital markets over the short term is a feature that tests investors repeatedly and resonates as we experience the heightened volatility of early 2025”.
“In such an ever-evolving market environment, what is an investor to do? One can spend hours gazing at the Periodic Table seeking to identify patterns – whether real or, oftentimes, illusory,” he said.
“Alternatively, one can focus on structuring portfolios to withstand a variety of market conditions with an eye on longer-term outcomes. The latter approach tends to offer the most rewards.”
Pattern-seekers can gaze at an interactive version of the Mercer table here or find more tranquility in this static display.