While it is one of the most common investment strategies to back “last year’s winner,” research house Lonsec has warned it is very rare that asset classes consistently outperform and that backing last year’s winner could end up making a loss for investors.
Lonsec said that all too often investors pile into the best performing asset class of the last year in the hope that success will be repeated.
The table below reveals the best performing asset classes for each financial year since 2008 and shows that not every winner repeats its outperformance in the following year.
Conversely, Lonsec pointed out the table reveals that avoiding asset classes that performed poorly in the previous year can cost investors in the following year.
For example, if investors had reduced their exposure to Aussie shares following a negative return in 2012, they would have missed out on one of the better-performing asset classes in the subsequent two years (+21.9 per cent and +17.3 per cent, respectively).
“It’s a reminder that a well-researched, diversified portfolio is better over the long term than chasing last year’s winners,” Lonsec said.
