Investment managers (finance professionals whom you can pay for advice) often talk about asset classes or sectors of investment. Consider the table opposite, showing the best and worst performing sectors (and their respective returns) for the ten years to 2019, plus the performance of global equities (shares) over the same period for comparison. There’s very little consistency but it’s common to see a class performing well one year after a poor year and vice versa. Although even this is a fairly loose trend, as demonstrated by the UK Smaller Companies class. If you were asked to pick one sector to invest in over the next 12 months, which would you choose? Or which sector would you pick to give you the most consistent returns over the next five years? Difficult, isn’t it?
It’s important to note that investments have variable performance and whatever anyone says to you, it’s impossible to guarantee returns. Investment managers aim to do just this – analyse the market and predict which sector will perform better – but their performance is equally variable and you normally pay a premium for them to try. Note that there’s no penalty for (their) failure either, as they’re covered by the phrase ‘investments may go down as well as up’, so you’re funding their decisions. You might win big or lose a little but they get paid anyway! There’s an argument that you might be able to shorten the odds of better performance a little but that’s as far as it goes. Looking at global equity performance (a broad selection of large global companies), although there have been two years of losses, some years have shown impressive returns. Over this ten-year horizon, this asset class has returned an average of 10.4%. This long-term positive performance is a theme I will revisit in a later chapter.
Year
Best performing asset class
%
Worst performing asset class
%
Global Equity Performance
2010
UK Smaller Companies
30.8%
UK Gilts
5.9%
15.5%
2011
UK Index-linked Gilts
21.8%
Emerging Markets
-19.1%
-9.4%
2012
UK Smaller Companies
22.6%
UK Index-linked Gilts
0.3%
9.8%
2013
UK Smaller Companies
37.3%
UK Gilts
-5 3%
21.8%
2014
UK Index-linked Gilts
18.7%
UK Smaller Companies
-1.6%
7.4%
2015
Japan
