The Global Investment Returns Handbook 2025 has just been released which compares the returns of stocks, bonds and cash over the last 125 years. Written by Professor Paul Marsh, Dr. Mike Staunton, both of the LSE and Professor Elroy Dimson of Cambridge University, and sponsored by UBS, it helps to focus on the long term at a time of so much confusion and volatility. Mind you, I do not think that will ever change in light of algorithmically focused passive investment strategies.
One standout trend post Covid has been the extraordinary performance of just a few large US stocks. The top 10 largest companies have the greatest share of US market cap in nearly 100 years and now make up around a quarter of global market value.
Some of the key takeaway points are summarised below.
• Over 125 years the industrial landscape has changed dramatically. Markets at the beginning of the 20th century were dominated by railroads that accounted for 63% of US stock market value and 50% in the UK. Today energy, technology and healthcare have taken their place.
• Since 1900, stocks have vastly outperformed fixed interest, cash and inflation. US Stocks annualized at 9.7%, bonds 4.6%, US Treasury 3.4% and inflation 2.9%. Whilst equities have been rewarding, they are accompanied by increased volatility.
• Patience has been invaluable. Investors will always be concerned about buying assets that will fall in value, but history demonstrates that patience wins out. After the four biggest falls in the markets, the Wall Street Crash, the Oil shock of 1973, the Dotcom bubble bursting in 2000 and the Global Financial Crisis in 2008, the markets recovered to reach new highs.
• Multi-asset diversification has helped manage volatility. Over the very long term the stock- bond correlation has only been around 33% which translates to mean that when one asset class falls, another should help to balance this out. But a word of caution – if inflation takes off again, a combination of rising yields and falling stock prices will mean that both asset classes fall together. We must beware Government spending and trade policies.
• Global investment has outperformed domestic investment. Identifying the best companies around the world, regardless of their stock market listing, has assisted the diversification story.
• Inflation impacts long term returns. This is obvious. This is why we focus on identifying companies with the potential for above average earnings growth, enabling them to increase their dividends and help offset the impact of inflation.
• Gold and commodities can have a role to play in hedging inflation. These assets tend to be positively correlated to inflation – we have seen gold rise today to its highest ever level. But in isolation it is a volatile asset and over the long term it hasn’t been so good. It might still hit US$3000 on the back of momentum funds piling in, but as an asset that provides no income it falls under the “greater fool” theory, like crypto, in the hope someone out there will pay more for it than you did.
• No one “style” of investing has dominated. In fact, such terms as Value, Growth and Quality are fairly meaningless industry terms as any decent stock picker will tell you they are seeking quality companies that have the potential for growth and wish to buy them at a low value. But the message is that all these things should be evaluated and can have an impact on portfolio returns.
So, no change really.
A summary from James Scott-Hopkins, Founder, EXE Capital Management, content quoted from The Global Investment Returns Handbook 2025 available: Global Investment Returns Yearbook 2025 | UBS Global
The views are those of the author only. The value of investments can fall as well as rise. Past performance is no guarantee of future returns.