The Variation of Annual Returns Across Asset Classes

Diversification is the concept of not putting all of your eggs in one basket.

A key investment strategy, diversification helps spread your risk and support more stable growth over the long-term. The chart below illustrates the variation of annual returns across asset classes and equity markets over time.

Figure 1. 'Patchwork Quilt' of annual returns across asset classes.
(Click the image to download the pdf.)

The data reveals a pattern where often the best-performing markets in one year tend to experience a slowdown in the year or years following, while the previously poorer performing markets tend to rebound. This highlights the importance of diversifying your investments across both asset class and geographic region.

What's happening in 2026 so far:

So far this calendar year, we have seen a continued rotation away from US exceptionalism. Asia Pacific, Japan, UK and European equities have extended their outperformance, delivering strong returns as investors redirect capital away from the increasingly expensive US technology sector.

There has also been notable divergence in returns across underlying sectors. The software subsector in the US, which delivered returns of more than 100% over the three years to the end of 2025, has fallen by more than 25% year to date as concerns surrounding AI disruption have intensified. Markets are increasingly focused on the risk that AI language models could reduce the need for traditional software by completing many tasks more efficiently and at a lower cost. This selling has broadened into other subsectors such as Real Estate Services, Insurance Brokers, Cyber-Security and to a lesser extent Financial Services.

In contrast, areas such as Energy, Materials and Industrials have produced double digit returns.

In our view, this backdrop supports investment solutions that can adapt to continually shifting market dynamics. Strategies such as Omnis Agility and the Omnis Managed Funds can take advantage of these conditions, as the investment teams are able to implement more granular Tactical Asset Allocation adjustments through the use of ETFs to capture opportunities as they emerge.

Omnis Agility has already been tilted away from the S&P 500 and into Energy, Health Care, Small Caps and Fixed Income. Each of these have been a positive driver of returns so far this calendar year.