BEST LONG-TERM RETURNS: ANDREW MORRIS - Welcome to Soul 2 Soul Mates Blog


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A long-term analysis of asset classes highlights the defensiveness of gilts and the potential for superior equity market returns and, in turn, argues Andrew Morris, why maintaining a diversified exposure is so important

Last month, we considered whether fixed income could still act as a defensive asset class - even in a rising rate environment - while we have also previously shown how property can act as a useful diversifier within multi-asset portfolios. This time, we are going to dig down into the ultimate driver of wealth appreciation - in short, where should investors look to find the best long-term returns?

We all know different asset classes perform very differently in times of growth than they do in times of stress. For simplicity, we are using UK equities and UK government bonds for this research, before analysing what else can impact multi-asset funds.
Now, equities tend to be more sensitive to economic growth and have historically returned more when the underlying backdrop has been positive. They also, however, suffer the most when markets fall.

In contrast, government bonds are thought of as ‘safe havens' in times of stress and are often negatively correlated to equities during periods of economic stress. Maintaining a long-term, diversified exposure to both asset classes allows investors to take advantage of these different return profiles - as the following graph highlights.

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