Equities have traditionally been the investment of choice for investors looking to generate growth/real returns over the long term. The typical expectation, supported by historical performance, is that equities will deliver an “excess” return (i.e. return above cash rates) in the region of 4% per annum.

The challenge investors face is that the equity returns actually achieved can deviate materially from what was expected over short or even medium-term horizons:

  • Since 2008, calendar year US equity excess returns have for instance ranged from -38% in 2008 to +35% in 2013 (resulting in an average excess return of 8.6% p.a.);
  • Since 1926, the average excess return generated by US equities over rolling 10 year periods has ranged from -6% to +19% per annum.

Diversified Growth Funds (“DGF”) have been designed to tackle this challenge by aiming to deliver “equity-like” returns with less variability than equities.

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