Equities best investment in past 25 yrs: Report

Shanghai Composite Index of China tops the list among top 10 global indices with a CAGR of 12.9 per cent during the 25-year period

Equities, not just in the domestic context but across the globe, have been the best asset class in the past 25 years, with the Sensex and the Nifty being the second best performers among top 10 global indices with an average of over 12 per cent returns.

The Shanghai Composite Index of China tops the list among top 10 global indices by giving a compound annual growth rate (CAGR) of 12.9 per cent during the 25-year period, according to an analysis of various asset classes and their returns by the city-based brokerage Centrum Group.

The data pertains to the 25-year period ending July 31, 2016 and are in local currency terms, the brokerage said.

Our study prove that the equities have trounced all other asset classes such as currencies, commodities, real estate, by a wide margin. Of course some of these asset classes have given higher returns over a short-term, but for the long term it is definitely the equities, Centrum analysts Sweta Chawla and Siddhartha Khemka said.

"Of course, this has happened over a longer time frame and the asset class comes with its own set of volatilities in the shorter time frame," they told PTI.

While the Sensex has given in a CAGR of 12 per cent for past 25 years, Nifty has been a notch better at 12.1 per cent, while in dollar terms this have been 7.9 per cent each.

Against this, the Shanghai index gave in 11.9 per cent during the period in dollar terms.

Over the past 10 years, the Sensex and Nifty top the chart with 10.1 per cent and 10.7 per cent, respectively, while the shanghai was a low 6.7 per cent.

Similarly, from a five-year perspective too, the domestic indices have come in a close second with 9.1 and 9.6 per cent respectively against 10.9 per cent return by the Nikkei and S&P 500, and Dow Jones at third with 8.8 per cent. Against this, the Chinese index has been the worst performer with a paltry 2 per cent returns during the same period.

The Brazilian index Bovespa has given 11.8 per cent , 4.5 per cent and -14.2 per cent for the 20, 10 and 5 year periods, respectively, as 25 year data is not available. In the case of the German index DAX the returns for the 25, 10 and 5 year period have been 7.7 per cent, 6.1 per cent and 7.6 per cent, respectively, and that of the Hang Seng of Hong Kong it has been 7 per cent, 2.7 per cent and 0.4 per cent, respectively.

The British FTSE's stood at 3.9, 1.3 and 2.9 per cent each, and French CAC has given back 3.8,-1.2 and 3.9 per cent, respectively.

But the third largest index Nikkei has been disappointment over the 25 years with a negative -1.5 per cent return, 0.6 per cent for a 10 year period in terms of the yen but the best in the 5-year tenor at 10.9 per cent.

Noting that these returns are lower when converted into dollars, the report says within equities, emerging markets have done better than the developed markets indices despite the effect of currency depreciation in these countries.

In dollar terms, however, the returns have not been that strong, with Shanghai giving in only 11.9 per cent, 8.3 per cent and 1.3 per cent respectively for the 25, 10 and 5 year period, respectively, while the Sensex and the Nifty returning 7.9 per cent each for the 25 year period and 10.1 per cent 0.4 per cent (Sensex) and 6.7 and 0.8 per cent (Nifty) for the rest of the period.

The Dax has given 7.7 per cent, 4.7 per cent and 2.3 per cent, Hang Seng 6 per cent, 2.6 per cent and minus 0.4 per cent, FTSE 2.9, -2.2 and -1.4 per cent, and the Nikkei -0.3, 1.8 per cent 4.9 per cent, making it the second best amongst all in the five-year period after the S&P 500 which returned a whopping 11 per cent to investors in a five-year investment horizon.

When it comes to commodities as an asset class, while silver, gold and the industrial metals have given positive returns on a 25-year CAGR basis, most of them are negative on a 10-year and a 5-year basis. Crude and aluminium are the worst hit among all the commodities.

Similarly, in currencies, the yen, the pound and the euro have done relatively better than their peers, but compared to equities, the returns are still dismal.

Real estate, another hot asset class, where investors end up putting a huge chunk of money, is another disappointment, says the report.

Commodities also have been a big disappointment during this period. While silver returned 6.6, 6 and -12.7 per cent in the 25, 10 and 5 year period, respectively, gold's performance has been 5.4, 7.8 and -3.6 per cent, LME at 3.2. -4.8 and -12.9 per cent; Brent Crude 3.1, -5.5 and -18.3 per cent; WTI crude at 2.6, -5.6 and -15.3 per cent, respectively.

When it comes the currencies, it has not been any better with the yen's returns being 1.2, 1.2 and -5.8 per cent for the 25, 10 and 5 year periods.

The pound's has been 1, 3.4 and 4.2 per cent, the euro at 0.3, 1.3 and 4.9 per cent; the yuan at -0.9, 1.8 and -0.6 per cent; the rupee at -3.9, -3.7 and -8.7 per cent; the Brazilian real at -6.0, -4.1 and -16 per cent; South African rand at -6.5, -7.2 and -15.7 per cent and the Russian rouble was the worst with a return of -13.6 per cent, -9.4 per cent and a whopping -19 per cent.

Against this, the bonds have done better, with the Pimco Total Return Fund growing at 5 per cent CAGR in 25 years.