Weekend reading: A tale of two markets – US versus UK shares

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:

Click to enlarge the US returns

And here’s the returns from the UK:

Click to pump up Britannia

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!

From Monevator

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News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

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 Dunelm – UK Value Investor

Bill Ackman’s SPAC deal remains elusive – Institutional Investor

Covid corner

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

Expert who helped change No 10 Covid policy in first wave warns over risk of easing – Guardian

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

Environmental factors

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

And finally…

“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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