Canadian asset class returns

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Researchers at the London Business School have created indexes that track Canadian asset class returns for three basic assets: Canadian stocks, Canadian bonds, and Canadian treasury bills, from the year 1900 to the present.


Asset class returns since 1900

Canadian asset returns [1]

(view Google Spreadsheet in browser or download as xls, ods, or pdf)

The long term returns produced by Canadian markets from 1900 to 2011 (as measured by ABN AMRO/LBS indexes) have rewarded investors with positive long term compounded returns. Over the past 111 years, Canadian equities provided a nominal compound return of 8.9%; long-term conventional bonds provided a nominal compound return of 5.3%; and treasury bills produced a nominal compound return of 4.6%. (See table to the right.) These returns were consistent with the volatility of each investment. As measured by standard deviation, higher returns were correlated to higher risk.

  • Canadian stock standard deviation : 17.2%
  • Canadian bond standard deviation : 10.4%
  • Canadian treasury bill standard deviation: 4.9%

Of more importance to investors is the after inflation real return of investment. The real returns of Canadian asset classes over the past century were 5.7% for Canadian equities; 2.2% for Canadian conventional bonds, and 1.6% for Canadian bills. (These returns do not reflect the costs of investing nor the tax due on investment income).

These very long term compound return rates are the result of considerable shorter term variance. Over twenty year periods, the annualized real return of the Canadian stock market has ranged from 1.8% real compound return to 11.5% real compound return. [2] In the 1900 - 1950 period Canadian conventional bonds provided a real 1.2% return; from 1950 - 2000 conventional bonds provided a real 2.5% return. [3] Inflation was lower before 1950 (2.1%) than for the 1950 - 2000 period (4.1%). [4]

The table below shows the real returns provided by Canadian markets over each decade of the twentieth century.

Canadian real asset class returns by decade [5]
Years Equity Bonds Bills Inflation
1900-1909 6.4% 0.2% 2.8% 1.9%
1910-1919 0.4% -7.6% -2.0% 6.8%
1920-1929 15.5% 7.3% 6.1% -0.9%
1930-1939 2.9% 7.5% 3.5% -1.8%
1940-1949 4.2% -0.6% -3.9% 4.5%
1950-1959 12.5% -2.1% -0.3% 2.4%
1960-1969 7.1% 0.1% 1.9% 2.6%
1970-1979 2.4% -1.6% -0.2% 7.6%
1980-1989 5.5% 6.4% 5.5% 6.2%
1990-1999 7.8% 9.3% 4.1% 2.2%

The range of annual returns in the Canadian markets over the twentieth century are provided in the table below:

Dispersion of nominal and real returns (1900 - 2000) [5]
Asset class Lowest return

nominal

Year Highest return

nominal

Year Lowest return

real

Year Highest return

real

Year
Equities -33.0% 1931 51.6% 1933 -32.0% 1974 55.2% 1933
Bonds -23.9% 1915 43.0% 1982 -25.9% 1915 41.7% 1921
Bills 0.4% 1946 20.4% 1981 -12.5% 1941 27.1% 1921

The volatility in historical market returns has produced the following variance drain for Canadian returns 1900-2000:

Canada asset returns variance drain (1900-2000)
Asset class Geometric return Arithmetic return Variance drain
Equities (nominal 9.7% 11.0% -1.3%
Bonds (nominal) 5.0% 5.4% -0.4%
Bills (nominal) 4.9% 4.9% 0.0%
Equities (real) 6.4% 7.7% -1.3%
Bonds (real) 1.8% 2.4% -0.6%
Bills (real) 1.7% 1.8% -0.1%

Asset class returns from 1970

The following table provides returns data for a broader selection of Canadian investments. Return histories date back to 1970 for equities, t-bills, conventional all bonds, conventional long bonds, and gold bullion. Short term conventional bond data begins in 1980; Real Return Bonds data begins in 1993. [6]

Canadian asset class returns (from 1970 onwards) [7]

(view Google Spreadsheet in browser or download as xls, ods, or pdf)

See also

References

  1. Credit Suisse Yearbook 2012, Retrieved 10 December 2012.
  2. Dimson, Elroy; Marsh, Paul; Staunton, Mike. Irrational Optimism. 6 December 2003 (Version 17). Retrieved 15 December 2012.
  3. "Triumph of the Optimists", p. 80.
  4. "Triumph of the Optimists", p. 67.
  5. 5.0 5.1 Dimson, Elroy; Marsh, Paul; and Staunton, Mike; (2002). Triumph of the Optimists. Princeton, New Jersey and Oxford: Princeton University Press. p. 241. ISBN 0-691-09194-3.
  6. Canadian compound asset class returns (from 1970 onwards)

    (view Google Spreadsheet in browser or download as xls, ods, or pdf)

  7. Asset returns source :Periodic Table of Annual Returns for Canadians, Stingy Investor; Canadian CPI data source:Historic inflation Canada – Historic CPI inflation Canada, inflation.eu, Retrieved 21 December 2012.

External links