Who would have guessed? 2020 caps off a stellar decade for investors


To the average investor, 2020 was nothing short of confusing. While the global economy was devastated by the pandemic, stock markets rallied. The US S&P 500 index reached record highs as investors flocked to growth and technology stocks. Aided by exceptionally low-interest rates, government fiscal injections and rapid-fire vaccine development, most share markets recovered from the first quarter collapse to end the year in the black.


However, not all asset classes delivered the goods, as highlighted by Mercer’s ‘Periodic Table’ (the Table) of investment returns. Produced annually, the Table colour-codes 17 major asset classes and ranks how each performed on an annual basis over the last ten years.


A quick glance at the Table shows how one year’s winners can quickly become next year’s losers and vice versa. Predicting what may happen next poses a big challenge to even the most avid market followers.



Key observations: 

Looking across 2020 and the past decade, several observations can be made from the Table:


  • 12 of the 17 asset classes generated a positive return last year – a healthy proportion albeit beneath the 100% level achieved in 2019.

  • Leading the way in 2020 was International Equity H. Although the index declined -21.1% during 1Q20, it managed to end the year up (+10.5%) in anticipation of a global economic recovery in 2021.
  • On an unhedged basis, International Equity UH returned 5.7%, as the Australian dollar appreciated with a recovery in commodity prices and appetite for risky assets increased. 
  • 2020 was also a good year for Hedge Funds (+10.5%), which managed the drawdown during 1Q20 better than major equity markets, and had lagged equity markets in 2019.

  • Also high on the leader board for the year was Australian Small Caps (+9.2%), in a year where growth, tech and healthcare stocks outperformed.

  • Emerging Markets UH (+7.8%) benefitted from cheap valuations and resilience in economic growth during the COVID-19 outbreak. China’s economic dominance is increasing, as is its weight in the emerging market index.

  • Australian Fixed Interest delivered solid returns of +4.5% last year alongside a general fall in interest rates and the Reserve Bank of Australia (RBA) implementing Quantitative Easing. Meagre yields on bonds were enhanced by capital gains. While it couldn’t compete with the riskier asset classes, fixed interest exposure gave a helpful boost for conservative investors. 

  • An aversion to risk was often prevalent during the year, but overall Cash proved an unattractive place to be as central banks pressured interest rates lower. The asset class generated a historically low return of +0.4% - a safe haven but not a path to riches. In its first meeting of the year, the RBA decided to maintain the targets of 10 basis points for the cash rate which will potentially see cash continue as an unattractive investment.

  • Global Listed Infrastructure (H) and Global Listed Property (H) were under pressure with returns of -6.3% and -12.9% respectively as investors questioned the “new normal” and the subsequent impact of COVID-19 on working from home arrangements, e-commerce and the impact on infrastructure and real estate in an asset-light, tech-driven economy.

Takeaways for investors 

It’s expected that global economies will continue to recover as government subsidies and central bank policies continue to provide liquidity and accommodate economic growth. The rate of growth however will vary by country depending on the emergence from COVID-19 restrictions and the successful roll out of vaccination programmes. The uncertainties of Brexit and the US elections from 2020 have faded, however global trade tensions remain between the US and China despite the change in administration in the US. Likewise, trade tensions between China and Australia remain as China continues to impose trade restrictions on Australian-sourced imports. However, Australia is benefitting from booming iron ore and other commodity prices as the global economy recovers.


Although international shares look expensive, low-interest rates and further fiscal stimulus around the world are likely to support P/E levels with a recovery in earnings and dividends yields as the global economy continues to rebound. With few asset classes standing out as obviously ‘cheap’ at present, the argument for wider diversification is perhaps as strong as ever. Exposure to non-traditional asset classes can serve to balance out the path of returns over time, so long as the risks are understood and access is attained on a cost-effective basis, as bonds are not offering much income in a “lower for longer” yield environment, and equity is more richly valued. 


In sum, one can while away the hours making additional observations on the Table, and perhaps identify patterns. But are they real or illusory? The unpredictable nature of capital markets is unavoidable. The Table serves as a reminder to investors to establish their risk tolerances, avoid the temptation to pick winners, allocate to a range of asset types and focus on the longer term. In that way, there is a greater chance that periods of market disruption, such as we saw in 2020, can be tolerated rather than spark a panic reaction. 


It is well established that the majority of return variation comes from asset allocation rather than the timing of individual markets or securities. Mercer believes that during episodes of heightened volatility investors should try stay the course, focus on the long-term time horizon and use robust and stress tested portfolios.



This article does not contain investment advice relating to your particular circumstances. No investment decision should be made based on this information without first obtaining appropriate professional advice and considering your circumstances.



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