What the Last 10 Years Can Tell Us About the Next 10

Posted by Barry Gilbert, PhD, CFA, Asset Allocation Strategist

Wednesday, July 27, 2022

Investors love to chase returns. In the near term it can potentially be a successful strategy that has some strong academic and industry research behind it. But nothing lasts forever and markets move in cycles. One reason is the more a segment of the equity market outperforms, the greater the potential for it to become mispriced as sentiment runs ahead of fundamentals. Sentiment can run hot for a long time, and there’s no rules for how long these cycles may last, but at some point there’s typically a comeuppance. Historically a decade has often been long enough to see some meaningful reversals. Our basic conclusion: based on history, outperformers over the last 10 years tend to be underperformers over the next 10 and vice versa.

“Once a segment of the market has underperformed for a decade, it is often so hated many investors actively avoid it,” said LPL Asset Allocation Strategist Barry Gilbert. “As a result, that’s often when that segment becomes statistically favored to outperform.”

As shown in the LPL Chart of the Day, looking at 22 major segments of the equity market, outperformers in one decade became underperformers over the next decade over every rolling period, starting with the comparison of 1990-1999 and 2000-2020. In fact, an average of 6.0% of outperformance from the winners in the starting decade became an average of 2.8% of outperformance from the prior losers in the next.

View enlarged chart.

The study suggests that the right thing to do when positioning tactically may not be the same as the right thing to do when positioning strategically, but taking advantage of that difference takes patience. So what were the underperformers from 2012-2021 that may be potential outperformers over the next decade? The Russell 1000 Value, Russell Mid-Cap Value, Russell 2000, Russell 2000 Value, MSCI EAFE, MSCI Emerging Markets, and the S&P Dow Jones Select Sector indexes for energy, materials, consumer staples, communication services, and utilities. It looks like an awful list judging from the last decade—but that’s the point. For long-term investors, these areas may be worth considering for mean reversion opportunities.


This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. For more information on the risks associated with the strategies and product types discussed please visit https://lplresearch.com/Risks 

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Securities and advisory services offered through LPL Financial, a registered investment advisor and broker-dealer. Member FINRA/SIPC.

View All Posts