Equity Gilt Study

The Equity Gilt Study has been published continuously since 1956, providing data, analysis and commentary on long-term asset returns in the UK and US. This publication is unique not only for its longevity, but also for its focus on the medium and long term. The UK data base goes back to 1899, while the US data – provided by the Centre for Research in Security Prices at the University of Chicago – begins in 1925.

We use this opportunity also to focus our essays on longer-term issues. Chapter 1 makes the case that current policy settings are extraordinarily easy and, if left in place for too long, will result in destabilizing imbalances and stretched asset valuations. The focus of policymakers on short-term results suggests that markets and economies are likely to continue to exhibit a high degree of volatility, reminiscent more of the 1970s and 2000s than the 1980s or 1990s. In Chapter 2, we focus on emerging markets as an asset class, and assess whether the outperformance of returns relative to developed markets seen in the last decade can reasonably be expected to continue. A thorough investigation of the fundamentals suggests that the answer is yes, although the bulk of this outperformance is expected to occur in equities. We also present an independent rating of EM risk by country and region. Chapter 3 examines commodity prices and inflation, and concludes that the disinflationary impact of low cost producers such as China and India is transitioning into an inflationary influence. As a result, the disinflationary trend of the past 30 or so years appears to be turning. Chapter 4 considers optimal investment strategies in a more volatile investment climate – a natural follow-up to Chapter 1. The recommended approach does not require investors to time cyclical inflexion points and allows them to tailor their portfolios to their appetite for risk. Chapter 5 re-examines the influence of demographics on asset returns that has been a theme in previous issues of the Equity Gilt Study. Using more robust testing methods, it re-affirms that aging populations are likely to lower returns on both equities and debt, and that equities are still likely to outperform bonds over the next decade, although less so than we had previously thought.

We sincerely hope that you find both the essays and the data useful inputs into your investment decisions.

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