According to a new research by Lloyds TSB Private Banking the average return for nine key asset classes increased by 2.8% over the 12 months to June 2013. This was in contrast to the previous year when the average return fell into negative territory (-0.1%) for the first time since 2009.
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International and UK equities provided the highest returns among the nine assets classes, with a surge in global equity markets in the year to June 2013 providing investors with an average return of 22.1%. UK shares provided an average annual return of 17.9%, the report revealed.
Amid positive news on the US economy and the expansionary monetary policies being pursued by central banks around the globe, returns from the MSCI World Total Returns Index grew by 12.1% in the first six months of 2013; again outperforming the FTSE All Share Total Returns Index which provided returns of 8.5% in the same period.
Nitesh Patel, economist at Lloyds TSB Private Banking, said: "The rally in global stock markets means that international equities have been the best performing asset class over the past year. Gains have been driven by improving global economic growth, particularly in the US, and expansionary monetary policies from the main developed market central banks. By contrast, precious metals such as silver and gold have fallen sharply in price, in large part due to a decline in demand and fears of European governments reducing their gold holdings to cover the bailouts."
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By GlobalDataWhilst precious metals have been the best performer three times since 2008, they have been the worst performer over the past 12 months. Precious metals have significantly underperformed against the other assets classes tracked with prices falling by 20.9% over the 12 months to June 2013 (including a 25.8% contraction since the end of 2012).
During this period, the price of silver has fallen by 30%, while the price of gold is down by almost a quarter (-24%).
Residential property outperforms commercial property
Over the past year, total returns (based on house price growth and rents) from UK residential properties1 grew by 7.8%, driven mainly by the average house price rising by 4%2 between June 2012 and June 2013. By contrast, UK commercial property provided investors with average returns of 3.3%, less than half the rate earned on residential properties. However, the IPD Index (which measures total returns on commercial properties) is now at its highest level since October 2007.
Energy and cotton are the top performing commodities
Natural gas was the top performing commodity in the past year with the price of Henry Hub natural gas rising by 30.1% over the 12 months to June 2013. The rise in the price of natural gas is followed by that for cotton, which has increased by 18.3%, and crude oil (13.3%), which climbed to US$96.4 per barrel in June 2013. Since the start of the year, crude oil prices have now risen by 5%.
Of the worst performing commodities, increased production in the past year has contributed to coffee prices falling by 30% (including -15% since the turn of the year) – the largest decline among the commodities in this review. Sugar prices have also fallen (-20.7%) since June 2012, again largely as a result of increased production. At the same time, wheat prices have contracted by -18.3%.
International bonds outperform UK bonds
International bonds delivered a total return of 1.6% in the past year, outperforming UK bonds, which provided returns of 0.4% over the same period. Returns earned by both asset classes have contracted in the first six months of 2013, with returns on UK bonds falling at a faster rate (-2.7%) than those for international bonds (-0.7%).
Looking to the start of the year, investors were upbeat after the US political leadership overcame the threat of the fiscal cliff and following the Federal Reserve’s (Fed) commitment to support employment growth. However, during the first half of 2013, there was increased caution as a result of the Cypriot banking crisis and concerns about a pause in growth. Returns on UK bonds, meanwhile, suffered from weak growth prospects for the UK economy as well as rising inflation for much of the first half of 2013.
"Prospects for asset prices for the rest of the year will critically depend on monetary policy developments, the impact of fiscal austerity measures in Europe and the UK, and the extent to which the Chinese economy slows down. Indeed the US Fed’s recent statement on paring back asset purchases later in the year has caused a stir in the markets with equities dipping slightly while gold and silver prices fell further as investors grew nervous about the prospects for the recovery of the US economy," Patel added.
