Global Capital Markets Achieved 7% Average Annual Return Over Past Five Years, Despite Market Headwinds

Published: 05 May 2023

Despite market contractions due to COVID-19, inflation, and recessionary fears, global capital markets achieved an average annual return of approximately 7% from 2018 through 2022, according to the 2023 Value Creators Rankings released by Boston Consulting Group (BCG).

Since 1999, BCG has published annual rankings of top value creators based on total shareholder return (TSR) over the previous five-year period. The 2023 rankings reflect BCG's analysis of TSR at nearly 2,500 companies worldwide from 2018 through 2022. To mark the rankings' 25th anniversary, BCG also reviewed a quarter-century of value-creation patterns across industries and regions.

Five-Year TSR Shows Shifting Patterns

While global capital markets' 7% annualized return is consistent with long-term historical averages, it is notably lower than the double-digit returns achieved during the bull market that characterized most of the 2010s and extended through 2021. The market headwinds in 2022 shifted value creation patterns substantially:

- Companies in Asia-Pacific made considerable gains in the rankings, primarily at the expense of those in Europe and North America. Asia-Pacific companies now represent more than 50% of the global top 100 value creators globally and are the largest group among companies ranking in the top ten of their respective industries.

- The deceleration in technology-driven value creation became more pronounced in 2022, with software, hardware, medtech, and fintech companies among those seeing the most significant TSR slowdown. At the other end of the spectrum, the TSRs of oil and gas companies spiked substantially in 2022.

- Industries that rely on significant consumer spending faced the most consistent TSR challenges over the past five years. These industries include automotive (OEMs and suppliers), consumer durables, and travel and tourism. By contrast, large-cap biopharma and mining companies have most consistently demonstrated strong performance.

Analysis of 25-Year TSR Performance Underscores the Challenge of Consistent Value Creation

Despite four substantial bear market periods over the past 25 years, global capital markets have yielded strong annualized returns of approximately 9%. Across industries, the top-performing sectors include health care services, fashion and luxury, fintech, software, mining, machinery, and retail. Across regions, India stands out as the top-performing capital market with an almost 15% annualized return and featuring ten of the top 25 overall TSR performers.

In terms of the top 25 large-cap value creators over the past quarter century, Monster Beverage, Apple, and Amazon ranked highest, delivering staggering returns of 37%, 33%, and 26%, respectively. Even the "weakest" companies among the large-cap top performers delivered significant returns of 17% annually, resulting in more than a 50-fold increase in value over 25 years for those top 25 companies.

These companies' long-term outperformance is especially impressive because no company beats its industry and regional benchmarks every year. Among the more than 1,200 companies that BCG analyzed for the 25 years between 1998 and 2022, only eight outperformed their respective industry at least 80% of the time (for 20 or 21 years of the 25 years).

"What sets apart long-term value creators is their ability to turn volatility and downturns that were damaging for other companies into mere bumps in the road for themselves," said Hady Farag, a BCG partner and director, and global topic expert for Corporate Strategy and Shareholder Value. "Companies employing the right strategies to identify promising markets and outpace competitors will be well-positioned for sustained long-term value creation, regardless of what the future brings."

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