Best-to-worst asset class performance in 2021 ranged across the greatest distance in at least a decade, the just-released Mercer ‘periodic table’ of investment returns reveals.
For the second year in succession global private equity tops the Mercer table with a whopping 48.4 per cent return while NZ government bonds languish in last place after suffering losses of -6.2 per cent over the 12-month period.
The stellar 2021 result saw global private equity dethrone emerging markets as the single highest-returning asset class in any calendar year of the last decade: emerging market equities rose 34.6 per cent in 2017.
Mercer NZ head of consulting, David Scobie, said in a release: “Amid a busy year for merger and acquisition activity, and investors seeking out alternative sources of return, the asset class delivered handsomely for those with a means to access it and the ability to tolerate its higher risk and lower liquidity characteristics.”
Commodities, meanwhile, staged a comeback in 2021 with a fourth-place finish (up 26.3 per cent) following a generally dismal 10-year record. Bar 2016, when it headed the Mercer table, commodities has skulked at or near the bottom of the asset class returns spectrum.
And for the first time in a decade, too, Australian equities beat NZ shares as the latter asset class only squeaked into positive territory, up 0.2 per cent in 2021.
The local share market has been the best-performing asset class in two of the last 10 years (a record only beaten by global private equity) while ranking highly in most other annual periods covered in the Mercer table.
Scobie said mixed results from key stocks “ensured a sluggish year for our local market”.
“More widely, the relatively defensive characteristics of NZX companies served as a partial handbrake,” he said. “Bringing an end to a 10-year run, Australian Equities (+16.2%) outperformed New Zealand Equities in 2021, and by a significant margin. ‘Value’ type stocks came back into favour across the Tasman, particularly benefiting companies in the Communications and Financials sectors.”
Of the 16 asset classes monitored by Mercer only two (NZ and global fixed income) posted negative returns in 2021 in line with decade-long trends that included three years of across-the-board positive results: only 2018 featured a wide splattering of red ink when 10 asset classes went backwards.
As high inflation fears, rising interest rates and market volatility dented most assets early in 2022, Scobie said “it can be easy to forget how well investors have fared over longer periods”.
However, as per standard asset consulting policy, he said picking asset class winners based on previous performance is rarely a good investment strategy.
“A glance at the Table, with its scattered palette, quickly highlights how problematic it is to unearth patterns; or at least patterns that could be of use to us going forward,” Scobie said. “Last year’s stars sometimes prove to be a winner again the next year, but at other times sink to occupy the lower ranks.”
Diversification and allocating according to risk tolerance remains the best strategy for most investors, he said.
But in a departure from typical asset consulting policy, Scobie cited Los Angeles-based rock bank, Guns N’ Roses as a source of strategic investment advice with the group’s timeless lyric “all we need is just a little patience”.
An interactive version of the Mercer periodic table is available here.