(October 14, 2013) — If you have held European high-yield debt over the last five years, you might be sitting pretty—the asset class has made some good returns, but crucially, these have had well-adjusted risk profiles too.
The quarterly “Risk-Adjusted Return” note from consultants Redington has shown that relatively risky debt from Europe returned a cumulative 13.7% return in the five years to the end of September (the highest of any mainstream asset class). The risk for holding the debt over a fairly tumultuous period was amply rewarded too, with the asset class clocking up a 0.86 Sharpe Ratio—second only to US high yield, which had a slightly lower overall return.
Emerging markets hard currency rewarded investors with a 9.3% return and 0.83 Sharpe Ratio, whereas risk parity strategies fell below UK government bonds on a risk-adjusted return basis—0.63 vs 0.73—but outperformed in terms of excess returns—7.2% vs 4.6%.
Investors in commodities may be hoping that the long game pays off. Those who have held a general basket of these supposedly essential items would have seen cumulative losses of 5.9% over the last five years. However, the last quarter has been kind, lifting losses from a cumulative 12.5% at the end of June.
Macro hedge funds have done little better with a loss of 3.9% over the five years to the end of September.
To see the full report—including one and three-year returns and associated Sharpe Ratios—click here.
Related content: If Risk Parity is Fallible, What’s the Sharpe Option Now?