Returns on bonds outstrip equities Neil Hume Friday February 22, 2002 The Guardian
The idea that investing in the stock market is the best way to save for retirement was dealt a blow yesterday when the study used to justify the "cult of equity" for generations showed blue-chip bonds had outperformed shares over the past decade. The 47th Barclays equity-gilt study, which has served as the equity salesman's bible for years, revealed that the average return from corporate bonds over 10 years exceeded that of equities by 1% per annum. It also showed that bonds had substantially outperformed shares, cash and government gilts in 2001. Last year corporate bonds returned a record real 6.0% compared with 4.8% from cash, 0.6% from gilts and minus 13.8% from equities. Barclays Capital, the investment banking division of Barclays, said its survey underlined the problems facing the pension fund industry, which relies heavily on stock market investments. Faced with low inflation, faltering returns, and an increasing number of people drawing a pension, the gap between pension assets and liabilities has been growing. This issue had been thrown into sharp relief by a new accounting rule called FRS17, which will force all companies to reflect their pension fund deficits or surpluses on their balance sheets. A number of big pension funds including the one run by Boots have said they will be shifting away from equities, a trend Mark Capleton, director of UK Strategy at Barclays Capital, expects to continue. "Institutional investment is undergoing a secular asset allocation shift away from equities into bonds, and this is particularly true for pension funds." He expects increased demand for bonds to be met in part by an increasing supply of government gilts but also infrastructure and old economy companies looking to lower their cost of capital by issuing bonds.
