1/n What does the equity risk premium tell us about the prospects for equities vs bonds?

A chart 🧵 of pros/cons/messages

3 different approaches:

1️⃣ historical

2️⃣ simple: yield gap

3️⃣ more involved: what’s priced in?

Full article here: schroders.com/en-gb/uk/inter… 2/n

1️⃣historical = how much have equities outperformed bonds over the v. long term

For the US = 4.5% over past 150 years

Job done? Not so fast

🔔 The 8 charts you need to see on credit/corporate bond markets this month

1️⃣ KILLER CHART: spreads are unusually stable in the face of the sharp tightening in bank lending conditions

📊 from our latest monthly Credit Lens chart pack schroders.com/en-gb/uk/inter… 2️⃣/8 IG spreads cheaper than HY

GBP/EUR spreads cheaper than USD

💥1/9: UK housing affordability since the year 1876 (UPDATED to 2022)

Average house~9x average earnings

Here’s a chart-thread of my research, as covered by:

@Bloomberg @Telegraph, @thisismoney, @TheSun, @guardian

Full article: schroders.com/en/insights/ec…

#houseprices #property 2/9 Last time UK houses were so expensive vs earnings was the year 1876

They were even more expensive previously…

What happened to change things? More houses, smaller houses, higher incomes.

1/9 Why does high GDP growth ≠ high stock market returns?

1. Valuations - high growth may be already priced in via high valuations, similar to growth stocks vs value

2. The stock market is not the economy

1st is obvious (even if regularly forgotten)

2nd is worth diving into

https://twitter.com/DuncanLamont2/status/1585937456867987456

2/9
GDP growth/corp earnings per share growth relationship like a watered-down cocktail

Gets less pure at every level

Last one key for China

Net effect huge (analysis from 2017 but still valid)

20yr EPS growth lagged GDP growth by average of 3.1% pa in EM

Much more in China

1/6 Four perils for #PrivateEquity today-or are they?

1. Recessions are bad, right?

Nope. Funds raised in recession years have done very well. Capital is deployed over several years so get to pick up assets at beaten up prices, and sell later in recovery phase

#SuperReturn 2/6
2. Stagflation is worse though?

For some sectors yes but not all (based on analysis of public market sectors). Some could do well

- healthcare
- consumer durables
- anything that can save companies money (e.g. some business services)

1/4 Could/should private credit trade on tighter credit spreads than corp bonds?

If going into enviro when default risk 📈

- is ability to take action to mitigate your risk of default loss worth more than ability to easily sell an asset❓

A thought inspired by @CliffordAsness 2/4 Cliff’s argument is that the low, smoothed, vol of private equity is part of its appeal, so investors may be prepared to pay up for it

My argument for private credit is different ✋

(FWIW I agree that vol ≠ risk, everyone should be honest with themselves about this)

1/8 What does almost two centuries of data tell us about #ukhousing affordability? Here’s a chart-thread of my research which @martinwolf_ covered in his latest @FT piece.
Full article here: schroders.com/en/uk/private-…
#houseprices #property 2/8 UK homes have only been this expensive vs earnings twice in the past 120 years.

Things were even more expensive between the year 1845 and early 20th century.

What happened to change things? More houses, smaller houses, higher incomes.