The Barclays (LON:BARC) Equity Gilt Study gives a clear picture of the returns from the UK market over the past 114 years. It is the UK’s foremost source of data and analysis on long-term asset returns with data going back to 1899. The study has been published every year since 1956 and, it is claimed, shows the key message has been consistent throughout that period: ‘over the long-term equities have delivered better returns than cash or gilts’.
Equities beat Gilts?
That claim is true, if you pick the right timescale. Over 114 years the ‘real’ (adjusted for inflation) annual return from shares was 5.1% (Barclays UK Equity Index). For gilts it was 1.2% (Barclays UK Gilt Index) and it was 0.8% for cash (Barclays UK Treasury Bill Index). For a contrary example ShareScope shows that capital returns from June 1999 to March 2016 were 102% for the IA sector UK Gilts Index and minus 3% for the FTSE 100.
Dividends and Interest
Every ‘good book’ tells us that the secret of successful investment is ‘total return’, that is capital plus dividends from shares and interest from bonds. The example in the Study shows that an investment of £100 in shares in 1899 would have been worth £191 in 2013 in real terms based on capital growth in the Barclays UK Equity Index alone. If, however, all the dividends arising from that initial investment had been reinvested the total ‘real’ value of the portfolio would have grown to £28,386 over the same period.
Real Life
If, however, you are in the income phase of your investment life you would probably want to spend the dividends and interest to maintain the life style you retired to enjoy. Thus, the view frequently expressed by Martyn Arbib, the founder of Perpetual Fund Management, is relevant. He emphasised “Equities are for Growth and Bonds are for Income.” We follow his teaching and the Defensive asset allocation in our income portfolios yields between 5% and 6% from interest from bonds and rents from property.
“When the facts change, I change my mind. What do you do?”
This quotation is often credited to John Maynard Keynes (an enormously influential economist) but Quote Investigator tells us that some give the credit to Paul Samuelson (1970 Nobel Prize for economics) while others promote Winston Churchill. An alternative version is “When the information changes, I alter my conclusions.” This is surely a rallying cry for active management since the Study shows how much passive is flawed.
So What?
The Barclays Equity Gilt Study is a magnificent store of data from which many investment lessons can be drawn, some may justify the quotation often credited to Disraeli of “lies, damned lies and statistics”. The data shows that circumstances change, often.