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Recent Market Returns Analysis

A simple return attribution model is used to parse market returns over various time frames.

Did you know that from the US equity market low at the end of February 2009 to December 31, 2013, the S&P 500 (in US dollars) has generated a total return of 178.9% or 23.6% annuallized? While 2.3% annually has come from dividends, and 5.1% has come from nominal dividend growth, dividend revaluation has generated returns of 15.1% annualized, or 64% of the total, as yields have fallen from 3.8% to 1.9%.

Background information is here, and further analysis is here.


Recent Returns Analysis:
global equity indexes

  • 2013 returns

  • Returns from March 2009
  • Returns from January

  • Longer term returns

Market Returns Anlaysis for 2013

2013 was very positive for the developed equity markets, and moderately positive for emerging equity markets. Table 1 summarizes results from a Canadian dollar-based perspective. The analogous information for US-dollar-based investors is shown below.


Several points stand out.

  • First, since the Canadian Dollar (CAD) fell relative to most currencies, Canadian investors generally benefited from currency exposures related to foreign equities.
  • Second, the US market was very strong, returning 32.4% in local USD terms. Since the USD rose 6.7% relative to CAD, total return to the US market was 41.3% from a Canadian perspective.
  • Third, you can see that the strong returns to the US market have been driven by both strong nominal dividend growth of 12.7%, which is significantly higher than historical levels, and by the return due to revaluation of dividends of 15.0%. Dividends added just 2.2%.
  • Fourth, while nominal dividend growth across EAFE has remained low at just 3.9% in local terms, only slightly higher than the contribution of 3.5% from dividends, the return to EAFE of 27.5% in local terms was largely driven by dividend revaluation at 18.9%.
  • Fifth, Canadian equity returns lagged many developed markets returning 13.0%. While dividend growth remained relatively strong at 7.8%, returns from changing dividend yields were only modestly positive at 1.8%, trailing the gains from revaluation posted by both EAFE and the US.
  • Finally, emerging markets have been hampered by negative nominal dividend growth of -1.0%, and have only marginally benefited from a small fall in dividend yields, generating returns of just 1.9%, supplementing returns from dividends of 2.8%. Total returns of 3.8% were boosted slightly for Canadian investors as CAD fell by 0.5% relative to EM currencies, for a total gain in CAD of 4.3%.

Here is the information from a US-dollar-based perspective.


The main additional point is that USD investors suffered from all three foreign currency exposures, as the USD was strong against most currencies.

Returns Analayhis from the market low:

March 2009 to December 2013

The US market has recovered from its low of February 2009, while other markets have made substantial inroads on their losses. But what has driven this recovery? We first look at the situation from a Canadian dollar perspective.


While all equity markets were strong over this period, Canadian dollar-based investors suffered from the rising Canadian dollar, which lowered foreign returns by 2.6 % to 3.6% annually.

The US equity market has been the strongest performer. Over the 58 months from the beginning of March, 2009, it returned 178.9% or 23.6% annualized in local terms, far surpassing its 2007 high. While nominal dividend growth was 5.1%, close to longer-term levels, 64% of the recovery was due to the revaluation of dividends, which produced a return of 15.1% annualized. The ending dividend yield of 1.9% is close to levels at the end of the last century and the early 2000s, and remains very low relative to longer-term norms.

Other points of note:

  • Generally, other markets have only produced about two-thirds of the gains generated by the US market, at least in local market terms.
  • The largest component of return in every case is due to the revaluation of dividends, although the gains from revaluation for Canada and the emerging markets trail those of the US and EAFE.
  • Nominal dividend growth in developed markets outside of the US has been poor. Dividend growth has been positive but low for Canada at 1.4%, and is still very negative at -3.6% for EAFE.
  • While dividend growth for the emerging markets is positive at 3.91%, this level is much lower than the robust levels we have seen since the early 1990s (see the next two tabs).

Here is the information from a USD perspective.


The additional story here is that US investors benefited from foreign currency exposures over this period.

Market Returns Analysis from

January 2000 to December 2013

The decade beginning in 2000 turned out to be a difficult period for equity investors, and despite stronger returns since the crisis of 2008, returns from the beginning of 2000 remain relatively low. We begin with the Canadian point of view.


Two general points hold across markets.

  • First, Canadian investors were generally hurt by foreign exposures, as CAD has risen relative to many currencies.
  • Second, in all cases shown here, equity market returns were hurt by rising dividend yields, as yields at the beginning of 2000 were close to historical lows.

The US and EAFE posted particularly low returns.

  • The US equity market returned just 3.6% in local terms. Positive dividend growth of 5.6% was partly offset by the negative impact of rising yields.
  • EAFE returned just 1.9%, which is still less than the return due to dividend yield of 2.9%, as negative returns due to revaluation more than offset positive returns from dividend growth.

Other points of interest:

  • Canada's positive return of 5.9% was largely driven by strong dividend growth of 9.7%, which was partly offset by negative returns due to rising dividend yields.
  • Emerging markets posted the strongest returns of 8.7% in local terms, but only 5.79% to Canadian investors including currency exposures. These returns were largely a result of very positive dividend growth of 11.6%. Tables 1 and 2 (previous tabs) show that emerging markets dividend growth has slowed dramatically since the financial crisis, leading to much lower returns.

Here are the results from the perspectives of a US investor.


The main additional point is that US investors benefited with unhedged exposures to the Canadian and EAFE equity markets.

Longer-term returns

It is important to understand what has driven markets over the longer term. There are three examples here:

  • 23 years from January 1991 to December 2013 for all four markets;
  • 34 years from January 1980 to December 2013 for the three developed markets; and
  • 143 years from January 1871 to December 2013 for the US equity market.

Table 4 shows returns for the 22 years beginning January 1991, the longest time span over which the emerging markets data seem to have been relatively stable.


Several points are worth noting.

  • First, you can see that over this longer time period, foreign currency exposures have had a smaller impact for Canadian investors, except for emerging markets. The US perspective is given below,(1) and the impact of currency exposures is similar in magnitude.
  • Second, in contrast to the period since 2000 (previous tab), Canadian and US equity markets have returned close to 8.9% and 10% annualized in local terms, levels that many people have come to think of as "normal".(2)
  • Third, returns from emerging markets dominated at 20.4% in local terms, driven by double-digit dividend growth of 16% annualized. Of course falling currency returns of -8.8% for Canadian investors in emerging markets removed a significant portion of those gains
  • Fourth, over this 23-year period, broad-based EAFE returns have lagged at 5.7% annualized in local terms. Dividend growth has been close to levels in the US and Canadian markets, but the period has ended with higher dividend yields (lower valuations) which have caused significant negative returns to this component of -1.1% annualized.

Table 5 shows returns and attribution for the 33 years beginning January 1980, a time span that many people view as "long-term history".

  • The positive impact of revaluation is relatively modest for Canada and EAFE.
  • But the impact of revaluation is very large for the US, at 3%, as dividend yields fell from 5.2% to 1.9%. This impact is reflected in the higher returns to the US market, but it is unlikely that continued revaluation of a similar magnitude can be repeated going forward.
  • The impact of nominal dividend growth is higher for all three indexes, at 5% or more.

Table 6 presents the attribution analysis for the US equity market using the Shiller data, combined with S&P 500 total returns since 1970.


Since US dividend yields were generally above 4% until 1980, the return due to dividend yield is the largest component of return at 4.41%. Nominal dividend growth of 3.49% is lower than that of the past 30 years or so, and reflects the fact that inflation over this whole 142-year span was low, close to 2%. Returns due to revaluation are largely a function of falling dividend yields that has occurred since the early 1980s (see Table 5).


(1) Here are Tables 4 and 5 from a USD perspective.

Table4_usd Table5_usd

(Return to text)

(2) The idea that this level of return is "normal" (or to be expected), is probably derived from the longer-term experience of US investors in their home market. I discuss this and related issues at some length in How do you get THERE from HERE? (Return to text)

Structured Capital presents a book by Tim Appelt:

How do you get THERE from HERE?
Learning and Playing the Long-term Investment Game

frontcoverHistorical analysis of long-term global equity and bond returns is used to develop an analytical framework for a historical attribution of returns. In turn this attribution approach is used to develop expectations of future returns that acknowledge the past but take into account current market conditions.

Further information: