Wednesday, May 9, 2012

Stocks for the Long Run?

While the below chart cherry picks one of the best performing fixed income sectors, it is still pretty amazing.

Bonds (defined in this example as the Barclays Capital Long Government / Credit index) have now outperformed stocks (defined as the S&P 500 index) going back to November 1980 (10.7% annualized vs. 10.4% annualized) and has more than doubled the performance of stocks over the past 15 years (239% vs. 108%). Note the chart below is total returns including reinvestment coupon payments and dividends.

Is this likely to continue?

Unless capitalism as we know it ends, the answer is a simple 'no' over the next 15 or 32 (or even 3-5) years. The government / credit index shown above yielded a whopping 13.18% as of November 1980 and the next 32 years were the great bond run that has resulted in the current paltry yield of 3.89% (just 7 bps off its all-time low).

Source: Barclays Capital / S&P


  1. Great summary pic. Then again, people have been calling the end of the bull run in bonds in America for years, and it still cannot be considered over yet.

  2. Food stocks appear to be good for the long run.

  3. what about going long a basket of stocks funded by shorting a basket of bonds? Put it on and forget about it for 30 years.

  4. Well, because if there is another crisis at any point during the next 30 years and equities sell-off, if this trade involves any leverage you will be blown out of the trade.

    If no leverage, I would rather just be long equities. A short bond position is negative carry in nominal terms. I'd prefer to avoid that.