In investing, assets that have performed well in the past have a good chance of continuing to do well in the future. This is especially true when the factors that have driven the outperformance remain in place to drive the future performance.

Investment research firm Lipper recently released data detailing the best investments of the past decade. Below is an overview of the top five performers of the past 10 years. As you will see, a couple of recurring factors have driven the stellar results, so I expect them to continue to do so for many more years for a number of these top performers.

1. Precious metals
Annual gains in the past decade: 25.4%

Precious metals such as gold and silver were used in the past as currencies, but these days they qualify primarily as an alternative asset under the commodity asset class. In addition to gold and silver, this category also consists of metals such as platinum, palladium and diamonds. This investment class collectively had its best decade in more than 30 years, as demand for metals increased for both commercial purposes and investment appeal.

India and China accounted an estimated 51% of the demand for gold in 2010. This stemmed from growing popularity in those countries for jewelry and its overall investment appeal, given it is seen as a store of value, which can be especially important when inflation is high. These same drivers have influenced demand for other precious metals as well. Uncertainty in the developed world also drove the store of value consideration during the tumultuous period between 2007 and 2009, and the rally continued into 2011 with gold and silver having risen sharply — gold is up close to 30% while silver has jumped a remarkable 120% so far this year. 

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2. Latin America
Annual gains in the past decade: 20.6%

A rise in demand for commodities including precious metals as well as oil, copper and soy beans helped push Latin America to second place in terms of performance during the past decade. Strong demand for its natural resources as well as economic reforms and moderate inflation also helped encourage foreign investment that drove impressive stock market gains.

Latin America was not immune to the credit crisis and ensuing recession, but commodity demand quickly recovered and is projected to remain robust as emerging markets, including India and China, continue to grow. Countries such as Chile and Brazil — which are abundant in copper and iron ore reserves, respectively — have benefited greatly, while Mexico has benefited from the North American Free Trade Agreement with the United States and Canada, as well as its vicinity next to the largest economy in the world, the United States. The biggest contributor to the strong regional returns has been Brazil, which I profiled recently as having one of the world’s largest consumer markets and a handful of globally competitive firms.

3. Emerging markets
Annual gains in the past decade: 16.1%

Given the discussion above, it should come as little surprise that emerging markets overall have been among the top investing classes of the past decade. Strong precious metal and Latin American performance have resulted from demand from emerging markets, with Asia leading the way in terms of demand. Brazil, South Africa, and eastern European countries have also driven strong emerging market returns on the combination of economic liberalization, related reforms and strong commodity demand from developing markets.

4. Pacific excluding Japan
Annual gains in the past decade: 14.2%

I found it interesting that Latin America and emerging markets in general have outperformed Asia overall, given the region is driving demand for these other markets. The fact that Asia may not be as rich in natural resources has held back its overall growth, but it remains the engine that will likely drive the global economy for years to come. This includes India and China, but also countries such as Indonesia, Singapore, South Korea and Taiwan. A combination of developing and developed markets means growth potential, but also more stable economies that can help keep steel and manufacturing supply closer to home.

5. China
Annual gains in the past decade: 13.3%

China is actually very abundant in natural resources such as coal, iron ore, oil and natural gas, but its voracious appetite has also meant the need to import these commodities to help it keep pace with building roads, airports and related infrastructure. This has again driven stronger returns for other emerging markets, but China is still growing rapidly in its own right and has consistently posted double-digit GDP growth during the past 10 years while the rest of the world was lucky to post half that much.

Action to Take —> I don’t see precious metals posting as strong returns in the coming decade as in the past. The store-of-value appeal has lessened now that the global economy is back on solid footing. Inflation worries have also recently lessened the appeal of emerging markets, though Brazil continues to do well and has implemented some controls to keep foreign investment from becoming overly volatile.

Mostly because of Brazil, I see Latin America as an appealing locale for investment going forward. Asia and China also continue to hold long-term appeal, even if the near-term outlook could be a bit uncertain. Given the appeal of these economies, I would prefer to pick and choose among appealing emerging markets, as opposed to investing in them as one asset class.

P.S. — I don’t know if you’re aware of this or not, but a 20-year energy agreement between the United States and Russia is about to expire. The problem is, this deal supplies 10% of America’s electricity. When the Russians refuse to renew the agreement, the U.S. will face an entirely new kind of energy crisis. This disruption could send a handful of energy stocks through the roof. Keep reading…