More from the recent working paper by Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan Taylor (“The Rate of Return on Everything, 1870–2015“). (Previous blog post about the return on residential real estate.)
- Return data for 16 advanced economies over nearly 150 years …
- …on the income and capital gains (and thus, total returns) from equities, residential housing, government bonds, and government bills.
- Real returns average 7% p.a. for equity, 8% for housing, 2.5% for bonds, and 1% for bills.
- Housing returns are much less volatile than equity returns.
- Real interest rates have been volatile over the long-run, sometimes more so than real risky returns. Real interest rates peaked around 1880, 1930, and 1990. Current low real interest rates are “normal.”
- Risk premia have been volatile, but at lower than business cycle frequencies.
- r − g is rather stable in the long run and always positive. The difference rose during the end of the 19th and 20th century.
On Alphaville, Matthew Klein discusses recent work by Oscar Jorda, Katharina Knoll, Dmitry Kuvshinov, Moritz Schularick, and Alan Taylor (“The Rate of Return on Everything, 1870–2015“) according to which
Residential real estate, not equity, has been the best long-run investment over the course of modern history.
… but they didn’t calculate the returns most homeowners actually experience. Most people borrow to buy housing and most people live in their properties without renting them out. This makes a big difference.
… Net rental income has historically accounted for half of the total returns from owning housing. It’s also far less volatile, dramatically boosting the Sharpe ratio compared to what you would get just by looking at changes in house prices.
Housing has beaten stocks since 1950 because rental income has been better than dividend income, not because house prices have grown more than stock prices.
In the NZZ, Michael Schaefer reports on a study about the performance of Swiss portfolio managers in 2016.
- The median portfolio returns in all investment strategies except those not investing in stocks fell short of the corresponding benchmark returns.
- Only a fifth of the portfolios generated returns in excess of their benchmark.
- These numbers do not yet account for management fees.
- No portfolio manager generated high returns across all strategies.
- But some managers consistently generate high returns in certain strategies.
On Project Syndicate, Andres Velasco argues that one of the sources of the current problems with the Chilean pension system are the high fees charged by fund managers:
A government-appointed commission recently concluded that managers have generated high gross real returns on investments: from 1981 to 2013, the annual average was 8.6%; but high fees cut net returns to savers to around 3% per year over that period.
The commission’s report.