Which Investments Do Best—and Worst—in a Recession | Kanebridge News
Kanebridge News
Share Button

Which Investments Do Best—and Worst—in a Recession

By DEREK HORSTMEYER
Wed, Sep 7, 2022 9:19amGrey Clock 2 min
We ran the numbers for seven recessions, and found a big difference between what fared well in the period leading up to recessions and during the recessions themselves

With academics, economists and pundits arguing over whether the U.S. is in a recession, many investors are wondering how to shift their portfolios amid the current economic uncertainty and its effect on financial markets.

If we are in a recession, what’s the best way to reposition a portfolio to maximise returns? And if this is just the lead-up to a recession, what then?

My research assistants, Zi Yang and Yuge Pang, and I decided to examine how various asset classes have fared leading up to recessions and during recessions—as defined by the National Bureau of Economic Research—over the past 50 years. We studied the seven recessions in that period (1973-75, 1980, 1981-82, 1990-91, 2001, 2007-09 and 2020) and found that growth stocks led the way in the lead-up to recession. But, once we entered a recession, fixed income far outperformed equity, with international stocks providing the worst returns by far.

The asset classes we examined were U.S. high-yield bonds, U.S. long-term bonds, U.S. short-term bonds, U.S. total fixed income, U.S. growth stocks, U.S. value stocks, U.S. small-cap equity, international equity and U.S. large-cap equity.

In the nine months before the start of a recession, U.S. growth stocks delivered an average monthly return of 0.92% (a compound annualised return of 11.6%), followed by U.S. small-cap equity at 0.83% monthly (10.4% annualised). U.S. total fixed income averaged a monthly return of just 0.48% (5.9% annualised).

But in a recession, U.S. total fixed income averaged a monthly return of 0.62% (7.7% annualised), while U.S. growth stocks returned an average of 0.12% monthly (1.5% annualised). Returns were negative for every other equity class we studied.

Among the fixed-income classes, U.S. high-yield bonds are notable for having the lowest average monthly return of any of the asset classes we studied in the lead-up to a recession, at 0.14% (1.7%% annualised), and for being the only fixed-income class with a negative return during a recession, at a monthly average of negative 0.08% (minus 0.9% annualised).

On the equity side, international equity was easily the worst performer in a recession, at negative 0.93% a month on average (minus 10.6% annualised). That compares with an average monthly return of 0.80% (9.9% annualised) in the lead-up to a recession—the biggest difference for any asset class between returns before and during a recession.

The takeaway from it all, if history can tell us anything, is that once we enter a recession, the average investor best be prepared to head toward fixed-income assets and get out of international equities.

MOST POPULAR

Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’

Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual

Related Stories
Lifestyle
Luxury Rents Across 30 Global Cities Outpace Prime Sales Prices
By V.L. HENDRICKSON 07/02/2023
Money
Harry Styles-Signed Guitar Sells for $19,200 Right Before the Grammy Awards
By FANG BLOCK 07/02/2023
Lifestyle
For the Best Interior Design Finds, Take a Guided Shopping Tour to Paris, Istanbul and More
By ANTONIA VAN DER MEER 06/02/2023
Luxury Rents Across 30 Global Cities Outpace Prime Sales Prices

Average prime rental values jumped by 5.9%, with some cities seeing jumps of more than 50%

By V.L. HENDRICKSON
Tue, Feb 7, 2023 2 min

The growth of luxury rental prices outpaced the sales market in top global cities last year, according to a report Monday from Savills.

Average prime rental values jumped by 5.9% in 2022 across the 30 world cities analyzed in the report, the data showed. Limited inventory and increased demand pushed rents higher, while capital values saw an average of 3.2% rise during the year.

“Rental growth came as people continued to return to cities after the lifting of pandemic-related restrictions, and as rapidly rising interest rates in the latter half of 2022 meant that more people chose to rent,” Lucy Palk, an analyst at Savills World Research, said in a statement. “The rebound in international travel was a factor too, by the end of 2022 international arrivals had recovered to between 75% to 80% of 2019 levels.”

Meanwhile, average rents were up 10% or more in cities such as Singapore, New York, Dubai and Lisbon, Portugal, the report said.

For example, in New York, the median rent for properties in luxury, doorman buildings spiked 53% to almost $5,000 at the end of last year compared to $3,270 in December 2020, the figures showed.

And in Singapore, prime rents shot up by 26.2% annually as the country opened its borders and students, expats and high-net-worth individuals flooded the city. “Delayed completions of new prime stock further contributed to the significant rental rise seen in 2022,” the report said.

Climate, quality of life and strong business environments have been big draws for Lisbon and Dubai last year, where luxury rents were up 25.4% and 22.9%, respectively, according to the report.

The two strongest performing cities in the Asia Pacific region last year were Seoul, with 4.9% rental price growth, and Tokyo, 4.1%, the data showed.

On the flip side, Hong Kong had the lowest rental growth for luxury properties. The country is still subject to Covid-19-related restrictions, and has yet to see the full return of international tenants. In addition, rising interest rates have undermined consumer confidence.

“This suppressed transaction volumes causing pricing declines across all price brackets except the ultra-prime residences,” the report said. “Average prime prices fell by 8.5% in 2022.”

MOST POPULAR
Pixelated Facebook

Content moderation rules used to be a question of taste. Now, they can determine a service’s prospects for survival.

Pamela Anderson House

Inspired by some of California’s best known Modernist architecture.

0
    Your Cart
    Your cart is emptyReturn to Shop