long equity returns

This website is entirely my own creation and has nothing to do with any of my former employers. Not only do I  accept all responsibility but also I assert all rights over site  content. Some pages may appear repetitive but I don't know which route  you'll take. Family and friends have been supportive, for which I remain grateful.

The term “DVR” stands for “discounted value return”,  while “MVR” stands for “market value return”. Originally, I used the  term “calculated value return” but I replaced it quite fast. The general idea is to smooth out returns, which I believe can be useful.

Although the predecessor website ( was first set up in April  2000, the original work goes back some 20 years earlier. At the time, I  had become concerned that the “new style” approach to assessing the  performance of pension fund assets was inimical to the long-term nature  of “final salary” pension schemes. With the benefit of hindsight, I  reckon I was absolutely correct! The origins are explained here with a simple example.

The more I thought about it, the more I became convinced that I was really  addressing long-term returns on UK equities, hence the revised URL. In  March 2010, I set up a new website, where I was looking at liabilities  as well as assets and I had been intending to continue extending that  website (which I did until 2014). However, I realised that the whole  approach to discounting future cashflows needed greater attention so I  set up a separate website in about July 2015, which has been my main focus for quite a while.

In order to try to achieve consistency with the actuarial valuation, I  thought I'd switch the performance criteria away from the short term to  the long term. Instead of taking assets at market, this entailed using  discounted asset values, which was typical for funding valuations in the UK alone until around 2000. The whole point is to try to introduce some balance between the very short term and the longer term.

A few  pages have been transferred elsewhere, where they belong better and  those will be signposted. In earlier years, I had data for US as well as UK, but I lost access to US data in 2007. Although I have since found  new data sources, I have ignored US where the assets have never been  taken off market. For UK, the analysis has been extended until the end  of 2022 and I will extend it to 2023.

Using the navigation  bar on the left, you can find what I think is relevant for the basic  DVRs themselves, for estimating long-term returns and for thinking about equity risk premia. A  few charts are interactive but are no longer  rendered in Flash. My tentative conclusions are here.

All the  assessments are based upon statistics as at the last working day in any  year described as the start. For the avoidance of doubt, I'm using  “long” as representing around 15 years, upon which period I shall be  focusing. Having said that, I have looked at periods lasting between 10 years and 15 years, ending no later than 2022.

One critical task for pension fund trustees is deciding how to invest their assets. At  least in the UK, they need to appoint an investment advisor and have a  statement of investment principles (the “SIP”). To my mind, before  considering asset allocation, the trustees need to focus upon likely  timeframes within which they must operate. If total (or partial)  discontinuance looks like a serious prospect within 10 years or so, then the trustees have little room for equities or property. Where the plan  sponsors do have a good covenant, and the trustees have long enough to  take the risks, then they can justify seeking higher investment rewards  from real assets; this makes a difference!

You don't have to agree with any of this stuff but please tell me why not.

Jon  14 Jan 2024