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Insurer, Clerical Medical, calculates that precious metals were the best performing (based on the Reuters CRB precious metals index) asset class in 2006 with a 28% return for the year - ahead of UK shares (17%) and international shares (16%). In 2005 commodities were the best performers with a 23% return, marginally outperforming UK shares (22%).
Precious metals have been the best performing asset class in two out of the past five years - 2006 and 2003. And on a five year view they were also the best performers, with a 19.9% pa return or a 148% increase since 2001.
The UK share market returned 17% (capital growth plus dividends) in 2006 versus a 10% rise in UK house prices. This is the second consecutive year that stocks outperformed the housing market. On a ten year view UK house prices have risen by 183% or 11.0% pa, compared with a 114% or 7.9% pa return from UK shares.
The 17% total return of UK shares in 2006 compared with a 1% return from UK bonds. Bond performance (source: Merrill Lynch UK Broad Market total return bond index) was weighed down by falling capital values as interest rates rose. In fact, the last time UK bonds outperformed UK stocks was in 2002 when they returned 10% versus a 23% drop in the value of UK shares. Over the past ten years, UK stocks have returned 7.9% pa or 114%, while UK bonds have returned 7.4% pa or 104%.
UK shares also outperformed international shares (16%) in 2006 and have now done so in seven out of the past ten years. However, average annual performance has been identical over 10 years with both UK and international shares delivering a return of 7.9% pa. International share prices are based on the MSCI World Total Return Index in local currency terms.
Over the past ten years, commercial property has seen the strongest performance with annual returns of 13.6% pa or 258% in total. Indeed, it has outperformed residential property in each of the past three years. Worth noting however is that commercial property includes capital growth plus income, while residential property only includes capital growth.
Elsewhere, the return from holding cash last year was 5% versus a 1% return from investing in bonds. This is the first time that cash has outperformed bonds in six years. On a ten year view holding cash in the short term money market has averaged a return of 5.4% pa or 69%, compared with 7.4% pa or 104% return from investing in bonds.
30 January 2007 © Moneyextra.com
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