Your quick guide to investment returns
Each year, we produce a wall poster that illustrates the relative performance of all asset classes from the past 20 years. Here’s what you need to know about multi-asset returns – and why diversification remains a key strategy for withstanding market volatility.
Every now and again a year comes along that throws the market into disarray and leaves some investors scrambling for safety while others rush in to try capture market gains. 2020 was one of those years. After significant market downturns in February, March and April due to the global impact of COVID-19, some sectors began to thrive as others performed poorly.
It’s years like 2020 that show us why diversification is one of the most important strategies for any investor.
How did different asset classes perform in 2020?
After enjoying double-digit returns in 2019, the growth asset classes of Australian Equities, Global Equities, Emerging Market Equities, Australian Property Trusts and Global High Yield all experienced significantly lower returns in 2020. The most pronounced fall was for Australian Property Trusts, which returned -4.6% in 2020 compared to 19.4% in 2019.
As is to be expected, defensive assets experienced much less volatility throughout 2020 than growth assets. Australian Fixed Income, International Fixed Income, Australian Credit and Cash all managed to post positive returns in 2020, albeit lower than their 2019 returns thanks to low interest rates globally. The best performing defensive asset was Australian Credit, returning 5.3% in 2020 (compared to 7.1% in 2019).
Why diversification is important
Experienced investors use diversification as a strategy to reduce risk by building a portfolio with a range of investments, instead of placing all their capital in a single investment. This can be done by investing in different asset classes, industries or sectors.
In 2020, a well-diversified portfolio would have helped investors to cushion the impact of some of the greater falls in the market. In other words, the volatility in growth assets would have been offset by the relative stability of defensive assets.
To learn more about how Schroders’ is navigating these uncertain markets, speak to your Business Development Manager or adviser.
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