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Equities outperform bonds and money market products, says Allianz Global Investors


Equities have created more wealth than top-rated government bonds and money market products over more than two centuries, proving a surprisingly safe long-term home for capital, says a study from Allianz Global Investors.

Equities have generated positive real returns for every rolling 30-year period since 1800, the study found, based on the analysis of the data with respect to the US market.
Shareholders received an average annual post-inflation return of 6.94 per cent on that basis, falling between a low of 2.81 per cent for 1903 to 1933 and a high of 10.63 per cent from 1857 to 1887.
By contrast, investors have experienced periods of loss from fixed deposits or government bonds over the same timeframes. Zero interest rates saw US Treasuries achieve a maximum average annual real return of 7.44 per cent for the period between 1981 and 2011, but Treasuries fell to a two per cent loss from 1950 to 1980.
“Is there any risk free return left? No, investors need to take smart risk and that won’t work without any exposure to equities,” says James D Dilworth, CEO of Allianz Global Investors Europe.
Dilworth adds that an investment horizon of 30 years is perhaps longer than most investors are used to, but argued that it was realistic given the challenges of retirement planning and wealth accumulation facing the next generation.
“If our great-great-great grandparents had invested USD100 in an equity portfolio in 18711 the heirs of today would hold assets worth about USD15m,” he says.
An investment of EUR100 equivalent in the most highly liquid German companies in 1934, meanwhile, would be worth EUR87,121, according to analysis by AllianzGI’s capital markets & thematic research team.
Tightening the horizon to rolling 10-year averages paints an even more compelling case for equities. Since 1800, the asset class delivered a maximum average real return of 16.84 per cent, versus 12.41 per cent for US Treasuries and 11.62 per cent for US T-Bills. The 3.94 per cent maximum loss incurred by equities in a 10-year period was also lower than the respective 5.36 per cent and 5.08 per cent equivalents for US Treasuries and US T-Bills. Equities are riskier, however, over shorter periods and when measured by annual fluctuation or volatility. Annual fluctuations for US equities ranged from a 38 per cent loss in 1932 to a high of 66 per cent in 1862.
Government bonds and money market securities were subject to less fluctuation, although investors have also incurred substantial losses on these instruments. Investors suffered a 22 per cent loss on US Treasuries in 1864 and a 16 per cent loss on T-Bills in 1948.
“It is quite simple. The longer the investment horizon, the better the risk-return profile of equities versus bonds,” Dilworth says. “And the risk of owning fixed deposits and highly rated sovereign debt can only increase in the climate of financial repression and eventual interest rate rises that will drive down bond prices.”

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