Snapshot

Even long term outperformers suffer years of underperformance


81% of companies that outperformed the US stock market in the last 10 years went through a period of underperformance lasting at least five years.

Just as striking, 41% underperformed for at least nine years.

To-bag-long-term-outperformers-you-have-to-stomach-periods-of-underperformance.png

The pattern is almost identical if we look at data to the end of 2021 (2022 has seen quite a reversal in many trends), or if we look at companies that outperformed over the past five years rather than ten. Or if we look at the UK market rather than the US.

You could argue this is overly simplistic. The job of an active asset manager is to adjust their exposure based on the relative appeal of different stocks, which varies over time. And, as the market cycle shifts, the basket of stocks that you might want to hold will change. It’s not a case of picking a portfolio and logging off for five to ten years.

But that doesn’t invalidate the overall point here. Which is that, if you want to outperform over the long run, you will almost certainly have to go through periods when performance is less good. Staying the course isn’t easy. It tries your conviction. But judging performance over short horizons, and making investment decisions on that basis, could mean missing out on long term gains.

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.