Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 43

Equities deliver high returns and low volatility - again

As we near the end of 2013, it looks like this year has been a repeat of 2012 for shares in the major developed world stock markets - high returns plus super-low volatility.

Stock markets in the US, Europe and Japan have done very well again this year despite their moribund economies being on life support in intensive care, their crippling government debt levels, high unemployment, aging populations, soaring pension costs, and debilitating political wrangles.

At the bottom of the pack once again for stock market returns were the BRIC markets, despite their much healthier fiscal, monetary, current account positions, more favourable demographics and lower unemployment levels.

The US stock market and deficit/debt crises

The US market in particular has had a remarkably smooth upward run this year, cruising right through the fiscal cliff, the sequester cuts, the QE taper scare, the government shut down, the debt-ceiling crisis, plus the worsening acrimony and dysfunction in Washington.

We have been over-weight global shares in portfolios (nearly half of which is US shares) since early 2012, and our confidence in the US was underpinned by a great deal of detailed fact-based research we did over the past 12 months into the US debt situation going right back to Abe Lincoln. This work was summarised in a number of Cuffelinks articles.

Far from being the end of the world, as predicted by many, our research showed that prior US Treasury defaults and government shutdowns actually provided catalysts for positive change and rising share prices.

Low volatility as well!

Volatility on global stock markets has also been incredibly low again this year, on any measure. The chart below shows the annualised standard deviation (the most common measure of price volatility) for the global index during the year. It has averaged an amazingly low 9% (compared to a long term average in the mid-teens), and has been below 10% for 74% of the year.

This has been even more calm than the super-calm 2012 (12% volatility) and 2011 (15%) which was more in line with long term average volatility levels.

In spite all of this we still see almost daily media headlines bemoaning these ‘volatile times’ in this low return world. All this scare-mongering helps sell newspapers, and it gives all those reporters on the 24/7 financial news channels something to babble to each other about.

As I said at the end of 2012, if this is the so-called new-new normal, high volatility, low return world, then let’s have more of it.

The missing link has been the money printing on an unprecedented, global scale. The uninformed chatter in the media is that as QE is withdrawn, as it inevitably must be, rising bond yields will be bad for share prices. Last year we also undertook extensive research into every bond yield spike since the Second World War to show that rising bond yields in the current conditions should actually be good for share prices. This has indeed been the case since bond yields started to rise in July 2012. Future Cuffelinks articles will summarise this work.

In summary, 2013 has been yet another reminder for investors to ignore the media hype and focus instead on the facts.

 

Ashley Owen is Joint Chief Executive Officer of Philo Capital Advisers and a director and adviser to Third Link Growth Fund.

 


 

Leave a Comment:

RELATED ARTICLES

Watch the performance of performance fees

What do fund managers mean by Quality Investing?

Hold the champagne, that’s not a recovery yet

banner

Most viewed in recent weeks

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Latest Updates

Investment strategies

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Investment strategies

Don't let Trump derail your wealth creation plans

If you want to build wealth over the long-term, trying to guess the stock market's next move is generally a bad idea. In a month where this might be more tempting than ever, here is what you should focus on instead.

Economics

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Investment strategies

Will China's EV boom end in tears?

China's EV dominance is reshaping global auto markets - but with soaring tariffs, overcapacity, and rising scrutiny, the industry’s meteoric rise may face a turbulent road ahead. Can China maintain its lead - or will it stall?

Investment strategies

REITs: a haven in a Trumpian world?

Equity markets have been lashed by Trump's tariff policies, yet REITs have outperformed. Not only are they largely unaffected by tariffs, but they offer a unique combination of growth, sound fundamentals, and value.

Shares

Why Europe is back on the global investor map

European equities are surging ahead of the U.S this year, driven by strong earnings, undervaluation, and fiscal stimulus. With quality founder-led firms and a strengthening Euro, Europe may be the next global investment hotspot.

Chalmers' disingenuous budget claims

The Treasurer often touts a $207 billion improvement in Australia's financial position. A deeper look at the numbers reveals something less impressive, caused far more by commodity price surprises than policy.

Fixed interest

Duration: Friend or foe in a defensive allocation?

Duration is back. After years in the doghouse, shifting markets and higher yields are restoring its role as a reliable diversifier and income source - offering defensive strength in today’s uncertain environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.