What caught my eye this week.
Every time a US financial pundit talks about the long bull market or sky-high equity valuations, remind yourself they’re almost invariably talking about US shares.
The US comprises roughly three-fifths of the global equity market by value. Handy for North American home bias fans.
And of course the global tracker funds that passive investors are well advised to use will therefore be very exposed to the US market, too.
Finally, where the US leads, others tend to follow – directionally if not in lockstep.
So the dearness or otherwise of US shares matters.
Still, it’s interesting to compare Uncle Sam’s rip-roaring equity-ganza with our own domestic damp squib.
US versus UK shares in terms of returns
The latest edition of the Barclays Equity Gilt Study summarizes returns from the US and UK markets in its usual tables.
Here’s the returns from US assets:
And here’s the returns from the UK:
Over the past 20 years US shares have delivered real returns of 5.5%. That compares to just 1.7% for their UK counterparts.
And in the last year covered, US shares clocked up over 19% in gains.
Whereas UK shares delivered worse than 10% in negative returns.
The old switcheroo
If you wonder why US shares are all the rage after seeing these numbers, you need a new hobby.
And if you don’t appreciate at a glance why the tech-heavy US index pulled ahead during a stay-at-home pandemic, you’ve got some reading to do.
However I believe it’d be a huge mistake – as so many seem to do – to think US shares will continue to outperform anything like so heavily, for decades to come, while the UK market slides into irrelevance.
These things have a habit of correcting themselves. I expect over a very long period US shares will still put up higher returns – for various structural reasons – but I’d be surprised if the UK doesn’t have the edge over the next 20 years.
Unfortunately, that’s a hunch, not a scientific fact. Over the long-term starting valuations matter, but they don’t explain all of subsequent returns.
And in the short run, anything could happen.
Still, if you’re one of the vanishing breed of stock pickers who hunts your quarry on the London Stock Exchange, you might breathe a little easier.
Also if I was a passive investor in the Vanguard UK LifeStrategy funds that slightly overweight UK equities, I’d not lose a moment of sleep over it.
If there was ever a time to be a mildly (tilted, never all-in or all-out) nationalistic UK investor, it would seem to be now.
Have a great long weekend everyone!
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FCA to ban car and home insurance ‘loyalty penalty’ in January – Which
Value of UK house sales to leap 46% this year as boom continues – Guardian
Axing ground rents on new build properties a step closer – ThisIsMoney
Hedge funds surpass $4 trillion in assets – Institutional Investor
Sandwell Bitcoin mine found stealing electricity – BBC
Members club Soho House gives leg up to entrepreneurs – ThisIsMoney
What are the odds? – Indeedably
Products and services
Premium bond plutocrats: 50% held by 4.3% of savers – ThisIsMoney
Nationwide launches £1m draw for all customers – Your Money
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
New flexible train tickets to go on sale from 21 June – Which
Meet the man who decides which town gets an ATM – ThisIsMoney
Homes for sale near docks, in pictures – Guardian
Comment and opinion
The future of UK inheritance tax [Search result] – FT
Am I old or am I onto something? – Klement on Investing
Staying wealthy – Humble Dollar
Four lessons from the crypto crash – A Wealth of Common Sense
How to do long-term – Morgan Housel
Getting to your first one million – Banker on FIRE
Teeth are deeply socially divisive – Guardian
This couple retired in their 30s – CNBC
Tempo – Enso Finance
I’m retired and I don’t want to travel [Few weeks old] – via Medium
Value and momentum factors: combine or separate? [Nerdy] – Alpha Architect
US market valuations mini-special, again
Low interest rates don’t justify today’s high [US] valuations – Compound Advisers
Talking bubbles with Jeremy Grantham [Search result] – FT
Don’t count on another roaring ’20s stock market… – Bloomberg
…still, the odds favour equities over bonds – Morningstar
Naughty corner: Active antics
ARK and the downsides [for active funds] of an ETF structure – Validea
How I misapplied my trader mindset to investing – Party at the Moontower
Portfolio construction in venture capital – Factor Research
Calculating a buy and sell price for DuneElm – UK Value Investor
Bill Ackman’s SPAC deal remains elusive – Institutional Investor
Scientists claim to have solved vaccine blood clot puzzle [Search result] – FT
Johnson & Johnson single-shot vaccine approved for the UK – Guardian
Glasgow: the City that has been locked down for nine months – BBC
Wuhan lab staff sought hospital care before Covid-19 outbreak disclosed – Reuters
Kindle book bargains
Lab Rats: Why Modern Work Makes People Miserable by Dan Lyons – £0.99 on Kindle
The Unexpected Joy of Being Sober: Discovering a happy, healthy, wealthy alcohol-free life by Catherine Gray – £0.99 on Kindle
What It Takes: Lessons in the Pursuit of Excellence by Stephen Schwarzman – £0.99 on Kindle
The Future Is Faster Than You Think by Peter Diamandis and Steven Kotler – £0.99 on Kindle
Clean energy stocks are as crowded as tech before dotcom crash, says MSCI [Search result] – FT
Bitcoin and the planet: has anything changed? – WisdomTree
The Dutch people versus Royal Dutch Shell – DIY Investor
Off our beat
Data centres, crypto miners, and gamers are all competing for semiconductors [Podcast] – OddLots
How to age without apology or regret – Roger Reid via Medium
Don’t let employees pick their working from home days – Harvard Business Review
“Don’t look for the needle in the haystack. Just buy the haystack!”
– John C. Bogle, The Little Book of Common Sense Investing
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The post Weekend reading: A tale of two markets – US versus UK shares appeared first on Monevator.