goldUK bonds were the best performing asset class in 2011, according to Lloyds TSB Private Banking.

Investors enjoyed a return of 13.5% from UK bonds, the largest annual return from this asset class since 1998. UK bonds outperformed international bonds, delivering a total return that was more than double the return from international bonds (5.7%).

Top performing assets over one, five and ten years

  • UK Bonds 13.5% 36.8% 82%
  • UK Commercial Property 7.6% -7.8% 89%
  • International Bonds 5.7% 24.7% 51%
  • UK Residential Property 2.6% 6.7% 148%
  • Cash 0.6% 14.4% 42%
  • UK Shares -3.5% 6.2% 59%
  • International Shares -5.0% -13.7% 25%
  • Precious Metals -7.7% 86.2% 362%
  • Commodities -10.6% 42.6% 195%
  • Average 0.4% 21.8% 117%

Concerns over the outlook for the global economy and the Eurozone in particular have contributed to the marked increase in returns from UK bonds as investors sought a safe haven during the economic turbulence of the past year.

The banks said the better performance of UK bonds partly reflects the continued investor confidence in the UK government's fiscal reduction strategy as well as the ongoing anxiety about the health of the Eurozone. Bonds from the US did relatively well, while some in the Eurozone were much worse.

Where to put your money?

Five of the nine asset classes analysed delivered a positive return for investors in 2011. This was in contrast to 2010 when all nine asset classes delivered a positive return.

UK commercial property recorded the second highest return (7.6%) last year, albeit from a lower starting point. International bonds delivered the third biggest return (5.7%). Commodities delivered the worst returns in 2011 (-10.6%) as demand weakened due to the deterioration in the outlook for the global economy. Equity returns also fell.

The fall of commodities shows the different between short-term and long-term investing. Over ten years commodities have produced a return of nearly 200%.

Precious metals lose their shine

The price of precious metals delivered the second lowest returns among the nine asset classes tracked with the value of precious metals weakening by 7.7% in 2011. This was the first annual fall for this asset class since 2008. And over ten years this class of investment has returned a staggering 362%

Although precious metals were the top performing asset class in the first six months of 2011, their value fell by almost a fifth (-19%) over the second half of the year. This decline was driven by significant falls in the value of platinum (-21%) and silver (-20%) since June as weakening demand amid the worsening global economic outlook and the rise in the US dollar helped to reverse some of the recent surge in the prices of these precious metals.

Gold continues to glisten

Despite the overall fall in precious metal prices, gold bucked the trend with prices rising by more than a tenth (11%) over the past year as investors looked to safeguard the value of their investments against financial market uncertainty and high inflation.

However, the price of gold did weaken during the later part of the year as investors sought greater liquidity.

Suren Thiru, economist at Lloyds TSB Private Banking, said: "Last year proved to be a particularly turbulent period for investors against a backdrop of increasing pessimism over the outlook for the global economy including the Eurozone debt problems.

"UK bonds provided the best returns in 2011, reflecting the flight to safe haven investments that has characterised the past 12 months. Gold, which is viewed as the ultimate safe haven investment, also performed well.

"Looking forward, developments in the euro area are likely to be a key determinant for asset prices in 2012, along with level of demand from countries such as China and India."

Riskier investments

Ash Misra, head of investment policy and research, Lloyds TSB Private Banking said: "The central theme, certainly through the latter half of 2011, was the significant erosion of investors' appetite for riskier assets like equities, commodities and emerging markets.

"While some of the factors behind this weakening of investor sentiment – the Eurozone sovereign debt situation and hobbling attempts at effective policy formulation in the US – are unlikely to go away overnight, there are several positive trends to look forward to in 2012.

"Weaker commodity prices could potentially dilute any residual inflationary threat. This could boost companies' profit margins, increase households' disposable incomes and widen the range of policy options for central banks to maintain or even step up policy accommodation in response to economic sluggishness."

Safe as houses?

The survey also found that UK commercial property recorded a return of 7.6% in 2011, comfortably outperforming residential property (2.6%). However, the improvement in returns from commercial property is from a lower starting point following the substantial declines recorded in 2008 (-23%).

Precious metals recorded the highest return over the past decade (362%), followed by commodities (195%) and UK residential property (148%).