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.

 

  •   6 December 2013
  •      
  •   

 

Leave a Comment:

RELATED ARTICLES

The ultimate investing hack: dividend growth stocks

Watch the performance of performance fees

What do fund managers mean by Quality Investing?

banner

Most viewed in recent weeks

Little‑known government scheme can help retirees tap into $3 trillion of housing wealth

The Home Equity Access Scheme in Australia allows older homeowners to tap into their home equity for retirement income, yet remains underused due to lack of awareness and its perceived complexity.

Origins of the mislabeled capital gains tax ‘discount’

Debate over the CGT discount is intensifying amid concerns about intergenerational equity and housing affordability. This analysis shows that the 'discount' does not necessarily favor property investors.

2 billion reasons to fix retirement income

A proposal to address Australia's 'stranded balances' in retirement by requiring super funds to transition members to pension phase at 65, boosting retirement income and reframing super as a source of income.

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Div 296 may mean your estate pays tax on assets your beneficiaries never receive

The new super tax, applying from 1 July, introduces more than just a higher rate on large balances. It brings into focus a misalignment between where wealth sits and where the tax on that wealth ultimately falls.

Do super funds need a massive wake up call?

UK retirement expert, Guy Opperman, believes super funds are failing at supporting members in deaccumulation. Here is what Australia should do about it. 

Latest Updates

Retirement

How inflation is quietly moving the goalposts on retirement

Inflation doesn’t just raise today’s bills - it quietly increases the amount needed to retire, while simultaneously making it harder to save. Three steps to take before June 30th to improve retirement outcomes.

Investment strategies

Three strategies for investing amid AI whiplash

AI fears have shifted from bubble talk to disruption anxiety, driving investors toward asset-heavy, 'AI-resistant' businesses while punishing many software and service firms. This environment may be ripe for stock pickers.

Investment strategies

Are private market assets the answer in an unstable world?

Private markets can offer diversification and return potential, but their opacity, scale and wide dispersion of outcomes make manager selection and due diligence critical for non‑institutional investors.

Property

Mispriced in plain sight: The case for Global REITs

Global REITs have fallen out of favour, trading at deep discounts after years of underperformance, despite resilient earnings and improving fundamentals.

Investment strategies

Survival is the only success

True financial success isn’t about how much you make, but whether you can sustain it — survival is the only win that matters.

Investment strategies

$42 billion too late

Why Australia's biggest energy bet may already be redundant while a less celebrated government program is exceeding expectations. 

Investment strategies

Do investors accept lower returns from assets that make them feel good?

Assets that deliver emotional satisfaction tend to offer lower financial returns, as investors accept an “emotional yield” in place of performance which shapes how investors approach ESG and unpopular assets.

Sponsors

Alliances

© 2026 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.