Last year was one many traditional money managers would like to forget. However, while the past doesn’t guarantee future results, it’s worth noting that U.S. equities and U.S. high yield historically have the highest risk-adjusted returns, and the slide in 2022 still may give some long-term investors reason for optimism based on certain valuation metrics.
Rough year: Persistent inflation, increased interest rates, supply chain shocks and the war in Ukraine conspired to present challenges in 2022. U.S. equities, as measured by the Russell 3000 index, posted a -19.2% return, worse than all but emerging markets.
2022 index returns
Better long term: Over 10 years through Dec. 31, the Russell 3000’s 12.1% annualized return bested the MSCI World ex USA and MSCI Emerging Markets indexes. On a risk-adjusted basis, the Russell 3000’s 0.79 Sharpe ratio was much higher than both MSCI indexes.
Equity index risk/reward
Not junk: Over 10 years ended Dec. 31, high-yield bonds’ annualized return topped the U.S. and global investment-grade markets and had a much higher Sharpe ratio. The U.S. high-yield index’s yield to worst more than doubled in 2022.
Bond index risk/reward
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