10 years on from the credit crisis: investment products

In the second part of a series examining what has happened in the 10 years since the global financial crisis, Fidelity International reveals which investment products have been most successful over the past decade.

10 years on from the credit crisis: investment products

This month marks an important milestone – the 10-year anniversary of the global financial crisis. While it is hard to pin down a single event or date as marking the start of this seismic event, the run on Northern Rock which took place in September 2007 is forever burned into the memories of those who were around at the time as the point where the crisis was triggered into the consciousness of UK savers and investors.

What is, however, irrefutable is that the Credit Crunch and its long-term consequences have irrevocably changed economies, markets and the world we live in. Ten years on from the global financial crisis, Fidelity International illustrates how the investment and personal finance landscape has changed – and the lessons learned.

Asset classes

“The analysis of the returns of the various asset classes over the past ten years throws up some interesting findings,” said Tom Stevenson, investment director for personal investing at Fidelity International.

“For example, and somewhat surprisingly, the cumulative returns of high yield bonds and emerging markets over the past decade have pipped US equities. Bonds have benefited from the collapse in interest rates in the wake of the financial crisis but without first suffering the savage bear market that equities experienced in 2008 and the start of 2009.

“What jumps out even more for me, however, is the benefit of a balanced portfolio. While there have been some years when every single asset class has risen, and some when there was a mixture of risers and fallers, there hasn’t been a single year in which everything has fallen together.

“This is really good news for a hands-off, long-term investor because it shows that diversification works. It’s a compelling case for putting together a well-balanced portfolio and simply holding it for the long term.”

Chart 1: Best performing asset classes:

10 Year cumulative returns
High Yield Bonds 216.68
Emerging Market Debt 216.45
US Equities 209.04
Corporate Bonds 140.05
Global Equities 134.70
Asia Pacific Equities 130.24
Inflation-Linked Bonds 129.51
Government Bonds 120.75
Real Estate 102.89
Emerging Market Equities 92.87
European ex UK Equities 81.03
Japanese Equities 77.79
UK Equities 68.47
Cash 17.28
Commodities -21.06


Cash vs. stock markets

“Leaving your savings lingering in cash over the past ten years would have hurt,” said Maike Currie, investment director for personal investing at Fidelity International.

“As the chart below shows, had you saved £10,000 into the average UK savings account over the past ten years, you would now be left with £10,460. If however, you had invested £10,000 into the FTSE All Share index over the same period you would be left with £16,847 – that’s despite the dramatic stock market crash in late 2008, the Eurozone crisis and various political risk events of the past ten years.”

FTSE all share

Source: Fidelity International, July 2017. Total Return of FTSE All Share: 30/06/2007 – 30/06/2017. Cash returns are based on Morningstar UK Savings 2500: 30.06.2007 – 30.06.2017

UK sector performance

Tom Stevenson said: “The dispersion of returns over the past ten years makes another strong case for holding a well-diversified portfolio – spotting the winners and losers ahead of time is no simple matter and putting your eggs in a variety of baskets is the best way to ensure that you gain exposure to the sectors and asset classes that do end up delivering good performance.

“This chart (below) also shows how stock market returns are to a large degree determined by the price an investor pays at the outset. Buying at a low valuation stacks the odds in your favour, while paying over the odds makes it very difficult to generate an acceptable return over time.

“Ten years ago, financial stocks were flavour of the month and unsurprisingly they have performed badly over the subsequent decade. Technology stocks, by contrast, were still in the early stages of recovery from the post-dot.com bubble slump. Buying while these shares were in the doldrums set up a bumper decade of returns.”

10 yr returns

Source: Fidelity International, Datastream, July 2017. Total Return in GBP: 30/06/2007 – 30/06/2017

Performance of global stock markets

“It comes as little surprise that the US has led the recovery since the financial crisis,” said Stevenson. “The authorities moved swiftly to slash interest rates, inject cash into the economy via quantitative easing and, perhaps most importantly, re-capitalise the banking system. The US is also the spiritual home of the best performing sector over the period, technology.

“However, while it has paid to stick with the US throughout the post-crisis upswing, it is now one of the most expensive markets in the world and there are other regions which offer better value for investors, namely Asia Pacific, Europe and Japan. Emerging markets, in particular, have endured a widening performance gap with the developed world and look well-placed to bounce back with growth, demographics and valuations on their side.”

global

Source: Fidelity International, July 2017. All indices rebased to 1,000: 30/06/2007 – 30/06/2017

 

Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest and tax policies may change.

 

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