Risk & Return History I Selected Asset Classes

Size: px

Start display at page:

Download "Risk & Return History I Selected Asset Classes"

Gilbert Daniels
5 years ago
Views:

1 Risk & Return History I Selected Asset Classes Key Considerations for Asset Allocation Decisions June 2017 KEPPLER ASSET MANAGEMENT INC. 350 WEST 57 STREET I NEW YORK, NY I

2 Contents Page Wealth Indices I U.S. Capital Markets ( ) Wealth Indices (Nominal Returns)... 2 Wealth Indices (Inflation Adjusted)... 5 U.S. Large Stocks (Nominal Returns)... 6 U.S. Government Bonds (Nominal Returns)... 7 U.S. Treasury Bills (Nominal Returns)... 8 Probability of a Positive Return... 9 Probability of Highest Return The Dangers of Market Timing ( ) Value at Year-End 2016 of $1 Invested at Year-End The Folly of Stock Market Timing (Harvard Business Review 1984) Time is More Important than Timing I The Power of Compounding Value of Initial Investment of $1,000 after 45 Years (One-Time Investment) Value of Initial Investment of $1,000 after 45 Years (With Additional Investments) Years Required to Reach Previous High (Duration in Years) Dow Jones Industrial Average (Price Index) Dow Jones Industrial Average (Total Return Index) Dow Jones Industrial Average (Inflation-Adjusted Total Return Index) U.S. Large Stocks (Inflation-Adjusted Total Return Index) U.S. Government Bonds (Inflation-Adjusted Total Return Index ) U.S. Treasury Bills (Inflation-Adjusted Total Return Index) Value versus Growth I U.S. Capital Markets ( ) U.S. Large Value Stocks versus Large Growth Stocks U.S. Small Value Stocks versus Small Growth Stocks Value versus Growth I International Developed Markets ( ) MSCI World Value Index versus MSCI World Growth Index (Standard) Value versus Growth I International Emerging Markets ( ) MSCI EM Value Index versus MSCI EM Growth Index (Standard) Appendix Notes on Data Series

3 Wealth Indices I U.S. Capital Markets Nominal Returns: 2016 and 91-year Average (%) (91 years) year Return (2016) year Average Annual Return ( ) 0 U.S. Large Stocks 0.6 U.S. Government Bonds Gold U.S. Home Prices 0.3 U.S. Treasury Bills U.S. Consumer Prices Source: Ibbotson SBBI 2015 Classic Yearbook, Robert J. Shiller and others (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 2

4 Wealth Indices I U.S. Capital Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) year Return (2016) year Average Annual Return ( ) 5-year Average Annual Return ( ) 10-year Average Annual Return ( ) U.S. Large Stocks U.S. Government Bonds Gold U.S. Home Prices U.S. Treasury Bills U.S. Consumer Prices Source: Ibbotson SBBI 2015 Classic Yearbook, Robert J. Shiller and others (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 3

5 Wealth Indices I U.S. Capital Markets Nominal Returns (91 years) 10,000 1, U.S. Large Stocks $ 6,035 (10.0 % p.a.) U.S. Government Bonds $ (5.2 % p.a.) Gold $ (4.5 % p.a.) U.S. Home Prices $ (3.8 % p.a.) U.S. Treasury Bills $ (3.4 % p.a.) U.S. Consumer Prices $ (2.9 % p.a.) Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook, Robert J. Shiller and others (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 4

6 Wealth Indices I U.S. Capital Markets Inflation Adjusted Returns (91 years) 1, U.S. Large Stocks $ 448 (7.0 % p.a.) U.S. Government Bonds $ 7.26 (2.2 % p.a.) 10 Gold $ 4.16 (1.6 % p.a.) U.S. Home Prices $ 2.18 (0.9 % p.a.) 1 U.S. Treasury Bills $ 1.53 (0.5 % p.a.) Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook, Robert J. Shiller and others. Based on total returns in U.S. dollars with net dividends reinvested. 5

7 U.S. Large Stocks I Performance over Different Holding Periods Nominal Returns (91 years) 200% 150% 100% 50% 0% -50% -100% 1-year periods 5-year periods 10-year periods 20-year periods 25-year periods High Average Low % (6/32-6/33) % % (6/31-6/32) % (5/32-5/37) % % (8/29-8/34) % (5/49-5/59) % -4.9 % (8/29-8/39) % (3/80-3/00) % +1.9 % (8/29-8/49) % (12/74-12/99) % +5.6 % (8/29-8/54) Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Annualized total returns in U.S. dollars with net dividends reinvested; rolling periods based on month-end data. 6

8 U.S. Government Bonds I Performance over Different Holding Periods Nominal Returns (91 years) 40% 30% 20% 10% 0% -10% 1-year periods 5-year periods 10-year periods 20-year periods 25-year periods High Average Low % (9/81-9/82) +5.4 % -5.6 % (10/93-10/94) % (8/81-8/86) +5.6 % +0.7 % (5/48-5/53) % (9/81-9/91) +5.8 % +1.2 % (5/43-5/53) % (9/81-9/01) +6.2 % +1.6 % (12/39-12/59) +9.4 % (2/80-2/05) +6.4 % +2.1 % (8/41-8/66) Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Annualized total returns in U.S. dollars; rolling periods based on month-end data. 7

9 U.S. Treasury Bills I Performance over Different Holding Periods Nominal Returns (91 years) 20% 10% 0% -10% 1-year periods 5-year periods 10-year periods 20-year periods 25-year periods High Average Low % (11/80-11/81) % (10/79-10/84) +3.5 % +3.7 % -0.1 % (1/38-1/39) 0.0 % (11/10-11/15) +9.2 % (10/77-10/87) +4.0 % +0.1 % (6/33-6/43) +7.7 % (6/72-6/92) +4.5 % +0.4 % (3/31-3/51) +7.2 % (9/66-9/91) +4.7 % +0.6 % (7/30-7/55) Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Annualized total returns in U.S. dollars; rolling periods based on month-end data. 8

10 Probability of a Positive Return Based on 91 years of U.S. Capital Markets History (Nominal Returns) Holding Period (Years) U.S. Large Stocks (%) U.S. Government Bonds (%) U.S. Treasury Bills (%) or more Compound Annual Return Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Based on calendar year total returns in U.S. dollars with net dividends reinvested. 9

11 Probability of Highest Return Based on 91 years of U.S. Capital Markets History (Nominal Returns) Holding Period (Years) U.S. Large Stocks (%) U.S. Government Bonds (%) U.S. Treasury Bills (%) or more Compound Annual Return Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Based on calendar year total returns in U.S. dollars with net dividends reinvested. 10

The Dangers of Market Timing 1926-2016 (91 years) $ 6,035 Value at Year-End 2016 of $ 1 Invested at Year-End 1925 $ 21.00 $ 20.65 U.S. Stocks U.S. Stocks minus 46 best months (= 4 % of all months) U.

12 The Dangers of Market Timing (91 years) $ 6,035 Value at Year-End 2016 of $ 1 Invested at Year-End 1925 $ $ U.S. Stocks U.S. Stocks minus 46 best months (= 4 % of all months) U.S. Treasury Bills Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Based on total returns in U.S. dollars with net dividends reinvested. 11

13 The Folly of Stock Market Timing Robert Jeffrey s Example Based on Quarterly Decisions: Stocks or Treasury Bills (Before Transaction Costs & Taxes) (91 years) Original Study KAM Update ,000,000 1,000,000 10, Beginning of Year ~1 ~ % Correct Decisions $ Million U.S. Stocks (Large Stocks) $ 6, % Correct Decisions $ 6, % Correct Decisions $ 582 U.S. Treasury Bills $ % Wrong Decisions 0.05 U.S. Cents Source: The Folly of Stock Market Timing, Harvard Business Review, July/August Based on total returns in U.S. dollars with net dividends reinvested. 12

S. Stocks Initial Investment ($) 1,000 1,000 1,000 Annual Follow-up Investment ($) - - - Total Investment ($) 1,000

14 Time is More Important than Timing I The Power of Compounding Value of Initial Investment of $ 1,000 after 45 Years 50,000 48,327 40,000 Without Additional Investments ($) 30,000 20,000 10,000 3,782 8,985 0 U.S. Treasury Bills U.S. Bonds U.S. Stocks Initial Investment ($) 1,000 1,000 1,000 Annual Follow-up Investment ($) Total Investment ($) 1,000 1,000 1,000 Expected Total Annual Return (%) Value after 45 Years ($) 3,782 8,985 48,327 13

Investments of $1,000 ($) 400,000 300,000 200,000 100,000 95,501 167,685 0 U.S.

15 Time is More Important than Timing I The Power of Compounding Value of Initial Investment of $ 1,000 after 45 Years 600, , ,000 With Additional Annual Investments of $1,000 ($) 400, , , ,000 95, ,685 0 U.S. Treasury Bills U.S. Bonds U.S. Stocks Initial Investment ($) 1,000 1,000 1,000 Annual Follow-up Investment ($) 1,000 1,000 1,000 Total Investment ($) 45,000 45,000 45,000 Expected Total Annual Return (%) Value after 45 Years ($) 95, , ,186 14

16 25 Years Required to Reach Previous High? Dow Jones Industrial Average (Price Index) $ (August 1929) $ (November 1954) years Beginning of Year Source: The Dow Jones Averages , Phyllis S. Pierce ed. 15

17 25 Years Required to Reach Previous High? Dow Jones Industrial Average (Total Return Index) ,800 Total Return Index $ 1, (November 1954) 1,600 1,400 1,200 1,000 $ (August 1929) $ (January 1945) ½ years Price Index $ (November 1954) Beginning of Year Dow Jones Industrial Average Price Index = $ August Total Return Index = $ August

18 25 Years Required to Reach Previous High? Dow Jones Industrial Average (Inflation-Adjusted Total Return Index) ,200 Inflation-Adjusted Total Return Index $ 1, (November 1954) 1, $ (August 1929) $ 391,84 (January 1937) ½ years Price Index $ (November 1954) Beginning of Year Dow Jones Industrial Average Price Index = $ August Inflation-Adjusted Total Return Index = $ August

19 Number of Years Required to Reach Previous High U.S. Large Stocks (Inflation-Adjusted Total Return Index) (91 years) 1000 $ 3.18 (February 1945) $ (December 1972) $ (August 2000) $ (May 2013) $ (December 2016) $ 3.04 (November 1936) $ 3.04 (August 1929) $ 3.18 (February 1937) $ (June 1983) 1 7 ¼ years 8 years 10 ½ years 12 ¾ years Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). 18

20 45 Years Required to Reach Previous High U.S. Government Bonds (Inflation-Adjusted Total Return Index) (91 years) 10 8 $ 7.26 (December 2016) 6 4 $ 2.42 (November 1940) $ 2.42 (November 1985) 2 45 years Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). 19

21 68 Years Required to Reach Previous High U.S. Treasury Bills (Inflation-Adjusted Total Return Index) (91 years) 1.8 $ 1.73 (April 1933) $ 1.73 (October 2001) 1.6 $ 1.53 (December 2016) years Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). 20

22 Value versus Growth I U.S. Capital Markets U.S. Large Value Stocks versus U.S. Large Growth Stocks in U.S. Dollars (89 years) $ 100,000 $ 10,000 $ 1,000 $ 100 U.S. Large Value Stocks $ 13,212 (11.3 % p.a.) U.S. Large Stocks $ 3,932 (9.7 % p.a.) U.S. Large Growth Stocks $ 2,189 (9.0 % p.a.) $ 10 $ 1 $ $ Max: 8.1 December 31, 2006 Relative Strength (Value/Growth) Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 21

23 Value versus Growth I U.S. Capital Markets Risk & Return Characteristics in U.S. Dollars Large Caps (89 years) U.S. Large Value Stocks U.S. Large Stocks U.S. Large Growth Stocks Number of Years Average Annual Return (%) Compound Annual Return (%) $1 Grows to ($) 13,212 3,932 2,189 Number of Winning Years Highest Annual Return (%) Probability of Annual Gain (%) Average Gain in Winning Years (%) Expectation of Annual Gain (%) Number of Losing Years Lowest Annual Return (%) Probability of Annual Loss (%) Average Loss in Losing Years (%) Expectation of Annual Loss (%) Longest Losing Streak (# of years) Largest Drawdown from Previous High (%) Standard Deviation of Annual Returns (%) Risk-adjusted Return (Keppler Ratio) Return per Unit of Expectation of Loss Volatility-adjusted Return (Sharpe Ratio) Return per Unit of Standard Deviation Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix) Based on total returns in U.S. dollars with net dividends reinvested. 22

24 Value versus Growth I U.S. Capital Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) year Return (2016) year Average Annual Return ( ) 5-year Average Annual Return ( ) 10-year Average Annual Return ( ) 0 U.S. Large Value Stocks U.S. Large Stocks U.S. Large Growth Stocks Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 23

25 Value versus Growth I U.S. Capital Markets U.S. Small Value Stocks versus U.S. Small Growth Stocks in U.S. Dollars (89 years) $ 1,000,000 $ 100,000 $ 10,000 $ 1,000 $ 100 U.S. Small Value Stocks $ 115,615 (14.0 % p.a.) U.S. Small Stocks $ 25,805 (12.1 % p.a.) U.S. Small Growth Stocks $ 2,667 (9.3 % p.a.) $ 10 $ 1 $ $ Max: 43 December 31, 2016 Relative Strength (Value/Growth) Beginning of Year Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 24

26 Value versus Growth I U.S. Capital Markets Risk & Return Characteristics in U.S. Dollars Small Caps (89 years) U.S. Small Value Stocks U.S. Small Stocks U.S. Small Growth Stocks Number of Years Average Annual Return (%) Compound Annual Return (%) $1 Grows to ($) 115,615 25,805 2,667 Number of Winning Years Highest Annual Return (%) Probability of Annual Gain (%) Average Gain in Winning Years (%) Expectation of Annual Gain (%) Number of Losing Years Lowest Annual Return (%) Probability of Annual Loss (%) Average Loss in Losing Years (%) Expectation of Annual Loss (%) Longest Losing Streak (# of years) Largest Drawdown from Previous High (%) Standard Deviation of Annual Returns (%) Risk-adjusted Return (Keppler Ratio) Return per Unit of Expectation of Loss Volatility-adjusted Return (Sharpe Ratio) Return per Unit of Standard Deviation Source: Ibbotson SBBI 2015 Classic Yearbook and Keppler Asset Management Inc. (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 25

27 Value versus Growth I U.S. Capital Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) year Return (2016) year Average Annual Return ( ) 5-year Average Annual Return ( ) 10-year Average Annual Return ( ) 0 U.S. Small Value Stocks U.S. Small Stocks U.S. Small Growth Stocks Source: Ibbotson SBBI 2015 Classic Yearbook (see Appendix). Based on total returns in U.S. dollars with net dividends reinvested. 26

28 Value versus Growth I International Developed Markets MSCI World Value Index versus MSCI World Growth Index (Standard) (42 years) LC 10,000 MSCI World Value Index LC 6,460 (10.4 % p.a.) LC 3,000 LC 1,000 MSCI World Index LC 4,579 (9.5 % p.a.) MSCI World Growth Index LC 3,088 (8.5 % p.a.) LC 300 LC Max: 2.5 December 31, 2006 Relative Strength (Value/Growth) Beginning of Year Source: MSCI and Keppler Asset Management Inc. Based on total returns in local currencies (LC) with net dividends reinvested. 27

29 Value versus Growth I International Developed Markets Risk & Return Characteristics (42 years) MSCI World Value Index LC Source: MSCI and Keppler Asset Management Inc. Based on total returns (calendar years) in local currencies (LC) with net dividends reinvested. 28 MSCI World Index LC MSCI World Growth Index LC Number of Years Average Annual Return (%) Compound Annual Return (%) LC Unit Grows to (LC) Number of Winning Years Highest Annual Return (%) Probability of Annual Gain (%) Average Gain in Winning Years (%) Expectation of Annual Gain (%) Number of Losing Years Lowest Annual Return (%) Probability of Annual Loss (%) Average Loss in Losing Years (%) Expectation of Annual Loss (%) Longest Losing Streak (# of years) Largest Drawdown from Previous High (%) Standard Deviation of Annual Returns (%) Risk-adjusted Return (Keppler Ratio) Return per Unit of Expectation of Loss Volatility-adjusted Return (Sharpe Ratio) Return per Unit of Standard Deviation

30 Value versus Growth I International Developed Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) year Return (2016) year Average Annual Return ( ) year Average Annual Return ( ) 10-year Average Annual Return ( ) 2 0 MSCI World Value Index MSCI World Index MSCI World Growth Index Source: MSCI and Keppler Asset Management Inc. Based on total returns in local currencies with net dividends reinvested. 29

31 Value versus Growth I International Emerging Markets MSCI EM Value Index versus MSCI EM Growth Index (Standard) (16 years) $ 1,000 $ 500 $ 300 $ 200 MSCI EM Value Index $ 438 (9.7 % p.a.) MSCI EM Index $ 380 (8.7 % p.a.) MSCI EM Growth Index $ 326 (7.7 % p.a.) $ 100 $ Max: 1.6 January 31, Beginning of Year Relative Strength (Value/Growth) 1.3 Source: MSCI and Keppler Asset Management Inc. Based on total returns in U.S. dollars with net dividends reinvested. 30

32 Value versus Growth I International Emerging Markets Risk & Return Characteristics (16 years) MSCI EM Value Index USD Source: MSCI and Keppler Asset Management Inc. Based on total returns (calendar years) in U.S. dollars with net dividends reinvested. 31 MSCI EM Index USD MSCI EM Growth Index USD Number of Years Average Annual Return (%) Compound Annual Return (%) $1 Grows to ($) Number of Winning Years Highest Annual Return (%) Probability of Annual Gain (%) Average Gain in Winning Years (%) Expectation of Annual Gain (%) Number of Losing Years Lowest Annual Return (%) Probability of Annual Loss (%) Average Loss in Losing Years (%) Expectation of Annual Loss (%) Longest Losing Streak (# of years) Largest Drawdown from Previous High (%) Standard Deviation of Annual Returns (%) Risk-adjusted Return (Keppler Ratio) Return per Unit of Expectation of Loss Volatility-adjusted Return (Sharpe Ratio) Return per Unit of Standard Deviation

33 Value versus Growth I International Emerging Markets Nominal Returns: Latest 1-, 3-, 5- and 10-year Average (%) year Return (2016) MSCI EM Value Index MSCI EM Index MSCI EM Growth Index 3-year Average Annual Return ( ) 5-year Average Annual Return ( ) 10-year Average Annual Return ( ) Source: MSCI and Keppler Asset Management Inc. Based on total returns in U.S. dollars with net dividends reinvested. 32

34 Appendix: Notes on Data Series U.S. Large Stocks Standard & Poor's 500 Index (with dividends reinvested) (S&P 500, 1957 Present; S&P 90, ) U.S. Small Stocks U.S. Large Value Stocks U.S. Small Value Stocks U.S. Large Growth Stocks U.S. Small Growth Stocks MSCI World Index MSCI Emerging Markets Index MSCI Growth and Value Indices U.S. Government Bonds : Fifth capitalization quintile of stocks on the NYSE January 1982 March 2001: Performance of the Dimensional Fund Advisors (DFA) U.S Small Company Portfolio April 2001 Present: Performance of the Dimensional Fund Advisors (DFA) Micro Cap Portfolio All NYSE, AMEX and NASDAQ stocks with a Price/Book Value ratio lower than the 30th percentile of NYSE stocks and a market-capitalization larger than the median of NYSE stocks All NYSE, AMEX and NASDAQ stocks with a Price/Book Value ratio lower than the 30th percentile of NYSE stocks and a market-capitalization smaller than the median of NYSE stocks All NYSE, AMEX and NASDAQ stocks with a Price/Book Value ratio higher than the 70th percentile of NYSE stocks and a market-capitalization larger than the median of NYSE stocks All NYSE, AMEX and NASDAQ stocks with a Price/Book Value ratio higher than the 70th percentile of NYSE stocks and a market-capitalization smaller than the median of NYSE stocks The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets (currently 23): The MSCI Emerging Markets Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of emerging markets (currently 23): Please see MSCI website for complete methodology description: Maturity: 5 Years ( : Source = Ibbotson SBBI 2015 Classic Yearbook; 2016: S&P 5-year U.S. Treasury Note Futures Index) U.S. Treasury Bills Maturity: 30 Days ( : Source = Ibbotson SBBI 2015 Classic Yearbook; 2016: S&P/BGCantor 0-3 Month U.S. Treasury Bill Index) U.S. Inflation CPI All Urban Consumers, not seasonally adjusted Gold London Bullion Market Association; December 1925 = $1 U.S. Home Prices Robert J. Shiller, Nominal Home Price Index 33

Managed Futures and Emerging Markets

Managed Futures and Emerging Markets Michael Keppler President Keppler Asset Management Inc. New York Published in: The Hand Book of Derivatives & Synthetics Innovations, Technologies and Strategies in