Equities’ Un-Sharpe Decade | Chief Investment Officer

If you had bet it all on bonds over the last ten years, your portfolio would have been significantly up—and your risk budget would be down, according to consulting firm Redington.

Redington Sharpe 14 (10-Year Results to 12/31/14. Source: Redington)Over the ten years to the end of 2014, the top seven best-performing asset classes—on a Sharpe ratio basis—were either entirely fixed income-based investments or relied heavily on them, according to the consultants’ data.

Taking top honours for best absolute and risk-adjusted returns over the period was risk parity, with a result of 7.6% and 0.73 respectively. The strategy, which relies on a significant fixed income holding, was also one of the top contenders over a five-year period on both measures. However, in the shorter term the strategy only managed to score in the mid-table behind other bond products.

UK government index-linked and emerging market hard currency bonds gave investors the best risk/reward pay off over the decade with Sharpe ratios of 0.66 and 0.63.

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In eighth and ninth place, emerging and developed market equities produced excess returns of 6.4% and 4%, but on a risk-adjusted basis they scored just 0.27 and 0.25 respectively.

Across all timescales, commodities underperformed to the greatest degree. Over 10 years, the asset class lost 3.9% with returns in the short term hit the hardest. Holding commodities over the 12 months to the end of 2014 would have made a loss of 17.2%, according to Redington.

The Securities and Exchange Commission (SEC) has recommended disciplinary action against one of the world’s largest custodian banks and asset managers for alleged violations of the US Foreign Corrupt Practices Act.

BNY Mellon noted in an 8-K filing to the government agency this month that it had received a Wells notice “in connection with the provision of a limited number of internships to relatives of sovereign wealth fund officials” in the third quarter of last year.

“In the third quarter of 2014, the SEC Staff issued Wells notices to certain current and former employees of BNY Mellon, informing them that the SEC Staff has made a preliminary determination to recommend enforcement action against them for alleged violations of the US Foreign Corrupt Practices Act in connection with the provision of a limited number of internships to relatives of sovereign wealth fund officials,” the filing said.

BNY Mellon said it had received “a similar notice” during the last three months of 2014 after being first alerted to the enquiry more than four years earlier.

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“In January 2011, the Enforcement Division of the US SEC informed several financial institutions, including BNY Mellon, that it had commenced an inquiry into certain of their business practices and relationships with sovereign wealth fund clients,” the company’s 8-K filing said.

“BNY Mellon has fully cooperated with the SEC staff’s investigation,” the company said, adding that although it was “not possible to predict the ultimate resolution or financial liability with respect to this matter, BNY Mellon is currently of the opinion that the outcome of this matter will not have a material effect on BNY Mellon’s business, financial condition or results of operations”.

A Wells notice is neither a formal allegation of wrongdoing nor a finding that the company violated any law. Rather, it provides BNY Mellon an opportunity to respond to issues raised by the SEC staff and offer its perspective prior to any SEC decision.

BNY Mellon declined to comment.