Sunday, 27 October 2013

Benchmarking - A U.S.View of Major Asset Class Returns

A UK Benchmark

It is actually quite difficult to know how any investment style is performing because you have to decide what to compare it with - in other words, what your benchmark is.

I have discussed before the benchmarks I use for the DIY Income Investor portfolio - but these only relate to the performance of assets classes similar to those I invest in; so I might be missing something!

But here's some information I haven't seen presented before - a summary of the total returns of a wide range of asset classes. It's based on the point of view of a US investor (investing in Dollars) but interesting nevertheless.

The following table comes from The Capital Spectator and shows total returns (income + capital) up to September 2013 for:
  • one month
  • year-to-date
  • one year
  • three years (annualised)

As regular readers will be aware, DIY Income Investor portfolio is split between UK-quoted high-yield dividend shares and high-yield fixed-income securities, plus international ETFs including similar assets. For a UK investor the US Dollar/Sterling exchange rate might slant the results, although the US Dollar index quoted in the table seems to show some stability over three years.

For reference, total returns of the DIY Income Investor portfolio on the for the same periods (to end-September 2013 are:
  • one month: 3.7%
  • year-to-date: 14.5%
  • one year: 20.3%
  • three years (annualised):  14.8% (simple average)

These results look pretty good by comparison - the only asset classes that compare are:
  • US Stocks (Russell 3000) and the S&P 500 - which have both outperformed my portfolio over 3 years
  • Foreign Developed Market Stocks (MSCI EAFE) - which has outperformed on the year-to-date
  • Several asset classes performed better over the month

One structure of this table is the proprietary Global Market Index, described as "an unmanaged, market-weighted benchmark of all the major asset classes" - possibly the ultimate global benchmark? I can't find any further details - and its creators are obviously continuing to tweak it by introducing variations.

Interestingly some key alternative asset classes have not performed well: for example, gold, commodities, crude oil - and, of course, pretty much all bond asset classes, with the exception of high-yield.

The most sobering conclusion I take from this is that a passive US equity ETF would probably have outperformed my scrabbling efforts to make money over the last three years.

However, times change and I am hoping that my portfolio mix - including 50% fixed-income - may prove more resilient for the next stock market downturn.

[Thanks to Monevator's Weekend Reading for leading me indirectly to this table.]

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.


  1. Hi DIY,

    I've been a recent avid reader of your blog for the past few months now, been lovin it!

    Just wanted to share what I know about the GMI. If I'm not wrong, it's the Capital's Speculator's personal portfolio which has a specific weighting of all the asset classes on the table that he puts up. It's a pretty robust and simple allocation strategy.

    Pulled up a link for you to see more and its longer term performance: