Kevin Toohey

Direct Property has been the best performing asset class over the past 20 years. It has returned an average 10.2 per cent between 2003-22, edging out Australian equities at 8.9 per cent, according to research by the asset consulting firm Atchison.

The findings, which encompass debt, equity, and property securities, as well as commodities and cash, also highlight how 2022 was the worst annual period in the last 20 years for the number of asset classes that were able to deliver a positive real return, being a return above inflation.”

Even in 2008 at the epicentre of the Global Financial Crisis, six asset classes – three bond assets, cash, direct property, and commodities – outperformed the CP.

Aside from commodities and direct property, which returned 17 per cent and 11 per cent respectively, only cash was in the black in 2022 with a one per cent return. The other 12 asset classes were in the red with G-REITs (-24 per cent), hedged international equites (-22 per cent) and A-REITs (-20 per cent) bringing up the rear. Nine asset classes notched double digit negative returns.

However, Australian equities and unhedged insertional equities held up better than most – both notched a minus one per cent return – especially when compared with fixed interest classes with long durations.

2022 was the second consecutive year that commodities have headed the list and the third time in the past five years, with international equities (hedged) and international equities (unhedged) taking first place in 2020 and 2019, respectively.

But Atchison Principal Kevin Toohey cautions investors about chasing the commodity rainbow. “Over the 20 years, commodities, which have topped the poll six times – A-REITs and emerging markets share second place with three apiece – have also come last in seven of the 20 years.

“Commodities tend to be binary in nature – periods at the very top of the table are typically followed by periods at the very bottom. Over the 20 years their average return has been 8.7 per cent, placing them ninth on the ladder.”

Other interesting trends the research reveals are:

• Emerging market equities (unhedged) have underperformed developed market equities (unhedged) for the past five successive years. This contrasts sharply with the first five years (2003-07) when emerging markets outperformed developed market equities (hedged and unhedged) four years out of five. In two of the five years emerging markets headed the list.
• Of the seven asset classes that have returned seven per cent or higher over the 20 years, four are equities, two are property (G-REITs and direct property) and one is fixed high yield credit.
• Three of the bottom five asset classes are debt, with three being government bonds. Cash comes in last at an average 3.5 per cent.
• The research is a salient reminder of the pre-GFC boom. In two of the five years (2004 and 2005) all asset classes outperformed the CPI, in two years only two failed to outperform it, and in the other year only three asset classes fell short of the benchmark.

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