If you had bet it all on bonds over the last ten years, your portfolio would have been significantly up—and your risk budget would be down, according to consulting firm Redington.
(10-Year Results to 12/31/14. Source: Redington)Over the ten years to the end of 2014, the top seven best-performing
asset classes—on a Sharpe ratio basis—were either entirely fixed income-based
investments or relied heavily on them, according to the consultants’ data.
Taking top honours for best absolute and risk-adjusted returns over the period was risk parity, with a result of 7.6% and 0.73 respectively. The strategy, which relies on a significant fixed income holding, was also one of the top contenders over a five-year period on both measures. However, in the shorter term the strategy only managed to score in the mid-table behind other bond products.
UK government index-linked and emerging market hard currency bonds gave investors the best risk/reward pay off over the decade with Sharpe ratios of 0.66 and 0.63.
In eighth and ninth place, emerging and developed market equities produced excess returns of 6.4% and 4%, but on a risk-adjusted basis they scored just 0.27 and 0.25 respectively.
Across all timescales, commodities underperformed to the greatest degree. Over 10 years, the asset class lost 3.9% with returns in the short term hit the hardest. Holding commodities over the 12 months to the end of 2014 would have made a loss of 17.2%, according to Redington.
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