Bonds in the U.S. and other major markets around the world will not likely deliver as high of performance as they have in the recent past, according to an annual report by the London Business School and Credit Suisse.
The annualized real return for the 11 years ended Dec. 31 for U.S. bonds was 5.4%, compared with -1.2% for stocks, according to the Credit Suisse Global Investment Returns Sourcebook 2011, written by London Business School finance professors Elroy Dimson, Paul Marsh and Mike Staunton. The average annualized returns for the 19 countries in the authors’ worldwide sample were 5.4% for bonds and -0.4% for stocks.
In fact, for the 40 years ended Dec. 31, 2008, bonds returned an average annualized 4.18% in the U.S., outperforming stocks by two basis points. In the same period, world bonds returned 4.77% on average, topping stocks by 76 basis points.
“Bonds have been stellar performers throughout the working lives of most individuals,” according to the report. However, the authors warn that expecting similar returns in the future “would be fantasy,” as bond outperformance has “arisen from non-repeatable factors, and future returns are likely to be far lower.”
Since 2000, U.S. equities have underperformed cash by 130 basis points in average annualized returns. That’s compared with long-term outperformance of 530 basis points over cash.
“This has been a pretty dismal period for equity, despite the wonderful returns” since March 2009, Mr. Marsh said at a press conference in London on Monday.
In the 111 years ended Dec. 31, U.S. equities returned an annualized average 6.3% vs. 1.8% for bonds. Worldwide figures showed a similar pattern, with stocks returning 5.5% vs. 1.6% for bonds. Cash returned 1% for the period.