The Decade in Review

This past decade of January 2010 to December 2019 provided investors with extraordinary returns, consistently rising, with minimal hiccups along the way.  Below is a table of annualized returns for the major asset classes over various periods, including the past decade:

Index

Jan 2010 to Dec 2019 (Annualized Total Return)

Jan 2001 to Dec 2019 (Median Total Return over 10 Year Periods)

Jan 1989 to Dec 2019 (Median Total Return over 10 Year Periods)

S&P 500

13.56

7.36

8.46

Russell 1000

13.54

7.65

8.62

Russell 2000

11.83

8.24

9.17

Russell 1000 Value

11.80

7.20

9.25

Russell 1000 Growth

15.22

8.41

8.41

Russell 2000 Value

10.56

8.30

9.95

Russell 2000 Growth

13.01

8.87

7.48

Barclays Aggregate

3.75

4.53

5.91

DJ US REIT

11.20

8.99

10.55

MSCI EAFE USD (Developed Intl)

6.00

5.02

5.49

MSCI EM USD (Emerging Intl)

3.68

8.23

 

(The MSCI EM USD over the time period Jan 1989 to Dec 2019 is missing as the index does not go back that far.)

As the table above shows, most of the asset classes generated returns quite a lot in excess of their long-term returns.  Russell 1000 Growth provided an outsized return of 15.22% during the most recent decade, far exceeding its long-term median return of 8.41%.  The value category, typically a stalwart of excess returns, performed relatively poorly.  Over the past decade, the Russell 1000 Value earned 11.80% and the Russell 2000 Value generated 10.56%, both below the overall market and the Growth counterpart.  However, the Russell 1000 Value and Russell 2000 Value both outpaced their long-term median returns. 

On the other hand, the fixed income market and foreign stock markets provided more muted returns.  The Barclays Aggregate returned 3.75% for the most recent decade, underperforming its long-term performance.  However, this was to be expected given the low level of interest rates at the beginning of the decade.  Foreign markets underperformed its US counterparts, largely due to the impact of a strengthening dollar.

Nobody has a crystal ball for future returns.  However, current valuations can provide some insights into future returns (or at least relative returns).  Below is the same table, but with their respective valuation metric. 

Index

Price-to-Earnings Multiple (as of 12/31/2019)

Earnings Yield

S&P 500

25

4.00%

Russell 1000

22

4.50%

Russell 2000

20

5.00%

Russell 1000 Value

18

5.55%

Russell 1000 Growth

29

3.44%

Russell 2000 Value

17

5.88%

Russell 2000 Growth

27

3.70%

Barclays Aggregate

 

Yield-to-Maturity 2.29%

DJ US REIT

 

Current Yield 3.68%

MSCI EAFE USD (Developed Intl)

16

6.25%

MSCI EM USD (Emerging Intl)

15

6.67%

A decade of strong performance for the Growth category has led to the Russell 1000 Growth (PE of 29) and Russell 2000 Growth (PE of 27) both starting at price-to-earnings ratios higher than the other categories.  The Value categories are relatively low with the Russell 1000 Value at a PE of 18 and Russell 2000 Value at a PE of 17.  Even lower are Developed International and Emerging Markets equities at 16 and 17, respectively.  With interest rates at historically low levels, it is not surprising once again to see the yield produced by fixed income at only 2.29%.  Yield provided by REITs is also historically low at 3.68%.

There are two possible mistakes that an investor can make given the relative strong performance for U.S. assets over the past decade.  An investor could mistakenly think that the next 10 years will mirror the most recent 10.  Conversely, an investor could believe that a reversal of fortunes will happen, believing in mean reversion.  Again, nobody knows what will happen in the next 10 years.  Having a well-diversified portfolio with a proper amount of exposure to each category will provide the smoothest ride.


Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

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