Vimba's Analysis of the Top-Performing Investments of the Past 5 Years

Sam Blackmore| Feb 20, 2020

General

In the last five years, investors witnessed the stock markets rally on the back of quantitative easing, the bonds markets generating low yields due to the low-interest rate environment, and, of course, the emergence of crypto as a new asset class. It has been a wild ride.

 

In this analysis, we will look at the top-performing investments in the last five years to provide you with insight into what has made investors money. 

 

Best-Performing Investments 2014-2019

 

Our analysis involved looking at the five-year absolute returns of the most popular asset classes: shares, government and corporate bonds, gold, silver, real estate, and bitcoin.

 

In the table below, you can view our findings:

Returns of financial assets

(All data sources here)

 

For anyone who has been following bitcoin for a while, it should come as no surprise that digital currency has outperformed every other asset class in the last five years. The second-best performing asset class in the UK was real estate. Anyone who follows the property market, especially in London, should not be surprised about this. Closely following real estate is gold. Shares are the fourth-best performer while corporate bonds, treasuries, and silver have underperformed their peers. Oil was the worst performer and has lost value in the last five years. 

 

Let’s look into each asset class in more detail to see why each investment has performed the way it has. 

 

Bitcoin

The price of bitcoin (BTC) rallied by around 2,350% since September 2014. The digital currency is the best performing asset class of the last five years. Perhaps, even of all time, given that it started trading below $0.01 when it was launched in 2009.

 

While the early years of bitcoin were marred with extreme volatility, the cryptocurrency has managed to establish itself as “digital gold” and even enticed Wall Streeters to invest. 

 

Today, bitcoin is well on its way to becoming a leading alternative asset that portfolio managers include as a diversifier as it is uncorrelated to traditional assets. Additionally, bitcoin has the potential to continue to outperform traditional assets, which makes it even more alluring for fund managers to add as a portfolio constituent. 

 

While cryptocurrencies such as bitcoin (BTC) and ether (ETH) may be new and somewhat daunting, many experts agree that digital currencies will play a role in the future of the global financial system. And, as such, they are poised to continue to gain in value as their adoption increases. 

 

Bitcoin, as the world’s leading and most valuable cryptocurrency, is especially well-positioned to continue to outperform as it has finally piqued Wall Street’s interest. The recent launches of Bakkt and Fidelity Digital Assets, for example, could drive a wall of institutional money into bitcoin in the coming years. 

 

Real Estate

An often forgotten but potentially very lucrative asset class is property. According to the Halifax House Price Index, the value of U.K. real estate has increased by around 28% in the last five years. 

 

For investors who do not have the funds or the time commitment to purchase a portfolio of properties, REITs (Real Estate Investment Trusts) offer an ideal solution. REITs are funds that invest in real estate companies and/or developments. Investors can buy shares in REITs in the same way they can purchase stocks or ETFs. 

 

There are numerous REITs that focus on the U.K. market for investors who are looking for sterling-denominated real estate exposure in their investment portfolios. 

 

Gold 

Gold has managed to outperform stocks and bonds in absolute terms over the last five years despite experiencing a substantial bear market in 2015. 

 

From January 2009 to August 2011, the price of gold doubled to reach its all-time high of $1,896.50, which put gold bugs (and many retail investors) into a gold frenzy. In the years to follow, gold generated meagre returns and left many - especially younger investors - left wondering whether the precious metal should be a holding in their portfolios at all?

 

Gold primarily acts as a portfolio diversifier and as a safe haven asset. It does well during times of geopolitical turmoil of which we have witnessed a lot in the past five years. 

 

Shares

Good ol’ fashion stocks were the fourth-best-performing investment in the past five years. U.K. stocks have had a good run in the last five years (for sterling-denominated investors) despite Brexit uncertainty. 

 

The FTSE100 has generated a return of around 12%, which suggests that shares should most likely still make up a large portion of a diversified portfolio as they offer a good risk/reward balance. 

 

Government Bonds 

Government bonds are considered the safest investment in the capital markets. Debt issued by governments is widely considered to be risk-free (provided the government has its finances in order). U.K. treasury bonds are a low-risk but also low-yielding asset class that is commonplace in most British investors’ portfolios. 

 

In the last five years, U.K. treasuries - also known as Gilts - have generated a return on investment of 6.06%, according to the S&P U.K. Gilt Bond Index.

 

The outperformance of Gilts over corporate bonds can be potentially attributed to the weak pound (due to Brexit uncertainty), which has driven more international investors into “cheaper” treasuries. 

 

While it may be difficult for a fund manager to imagine a diversified investment portfolio without government bonds, they generate lower returns - on average - than corporate bonds and are, therefore, less enticing for yield-hungry investors. 

 

The amount of government bond exposure in your portfolio depends on your risk profile. If you prefer investing in low-risk assets, you will likely find plenty of Gilts in your holdings. If you want to generate a high average annual return, you will likely want to keep your government bond exposure to a minimum and “load up” on risky assets instead. 

 

Corporate Bonds

Corporate bonds can be an excellent source of both capital gains and annual investment income. The S&P U.K. Investment Grade Corporate Bond Index, which tracks the performance of high-grade corporate debt issued by British companies, has generated a five-year return of 5.98%. 

 

While that may not seem like big returns, high-grade corporate bonds are considered a safer and less volatile investment than stocks. Additionally, corporate bonds usually offer higher yields than government bonds, which often make them the more popular bond option among investors. 

 

Silver 

Silver is another precious metal that fund managers like to add to their portfolios as a diversifier. In the last five years, however, the value of silver only increased by around 5%. 

 

Unlike gold, which is widely considered a store of value and safe haven asset, silver has more industrial use cases. Its value is, therefore, not driven by the same factors as gold. Mining costs, industrial demand, and jewellery and silverware demand are key market drivers for the price of silver. 

 

Looking at the historical price chart for silver, we can see that the precious metal had a great run from early 2010 to mid-2011 when it rally from $16 to over $47 per ounce. Since then, the price has dropped back down to the $12 to $20 range. 

 

As we know today, the extraordinary high silver prices may have been due to market manipulation, which means we may not see these highs again anytime soon. 

 

While silver can act as a portfolio diversifier as it has a low correlation with stocks, it may not add great returns to your investment portfolio. 

 

Oil 

Oil is the only asset class in our analysis that has lost value in the last five years. WTI Crude Oil lost over 30% from September 2014 to September 2019. 

 

If you look at a historical price chart of oil, you will quickly notice how volatile the “black gold” can be. From January 2002 to June 2008, for example, the price of oil rallied from $28 to $164 per barrel, generating an ROI of 485%. In the same year, however, the price dropped from its all-time high down to $54. 

 

While oil’s volatility provides an excellent opportunity for experienced traders to get in and out at the right times, it does not bode so well for long-term investors who want to buy and hold oil over long periods of time. If you can’t time your oil investment right, it may not pay off. 

 

Cash ISAs

Cash ISAs were not mentioned in our five-year returns table because there is no reliable index that tracks individual savings account returns. However, according to research conducted by investment management firm Schroders, cash ISAs have generated an average annual return of 0.6% in the last twenty years. 

 

That would mean that £1,000 put into a cash ISA in 1999 would be worth around £1,115 now, which marks a very modest 20-year ROI of 11.5%. From that estimation, we can deduce that over the last five years, an investment in cash ISAs would have returned around a quarter of that amount. Most likely, less.  

 

While cash ISAs are arguably the safest investment to put money in to, a 0.6% annual return is currently (and in most years) less than inflation. That would mean that you are actually losing money by placing it into a cash ISA. 

 

The Bottom Line

 

Bitcoin piggy bank

 

Most investment advisors will tell you that you should diversify your portfolio to reduce your risk and maximize expected returns. By building a portfolio based on a combination of high-risk, medium-risk, and low-risk assets, you can find the right risk/return mix for your risk profile. 

 

Our analysis would suggest that adding cryptocurrencies, such as bitcoin, in your portfolio has the potential to boost portfolio returns if the next five years look anything like the last five. 

 

While past performance does not predict future returns, leading digital currencies such as bitcoin (BTC) and ether (ETH) have weathered boom and bust cycles and have become potentially high-performing portfolio additions. 

 

To add bitcoin and ether to your investment portfolio on an ongoing basis, sign up for VIMBA’s automated crypto saving platform here

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