It is an article of faith among most investors that equities outperform government bonds. Smart long-term investors put their money in shares because over any lengthy period in the past century or more, they have produced much bigger returns than bonds have.

With shares now languishing unloved once more, that faith is being put to the test. The cult of the equity is still the mainstream view but its adherents are having to be a lot more patient than usual. British shares are lower today than 12 years ago. Japanese shares are lower than 26 years ago.

Tim Bond, the man behind Barclays' Equity-Gilt study, has crunched up-to-date numbers for The Times and come up with some sobering findings. Only investors who put their money to work in 1983 or earlier would have done better placing it in equities than government bonds (gilts). From 1984 onwards, in any timeframe up to the present day, gilts have produced a better total return than shares. Over any timeframe of less than 15 years to the present day, even deposit accounts have produced a better return.

The hefty premium that supposedly rewards investors prepared to take the extra risk of investing in shares has not paid off for anyone with a time horizon of less than 25 years. In short, capitalism has not been working terribly well of late.

This is no abstruse matter. For millions of members of defined contribution pension funds, the expected outperformance of equities relative to gilts underpins their retirement hopes.

The preference for equities remains firmly entrenched. Clare College, Cambridge, it was reported yesterday, is demonstrating its absolute faith, borrowing £15 million for 40 years to invest in shares. Using derivatives, the college will pay an interest rate of inflation plus 1.09 per cent on its borrowings. Since shares have over the past century averaged a total annual return of inflation plus 7 per cent, it certainly appears the “sensational deal” the college claims.

It won't be the first charity to borrow to bet. Wellcome Trust, Britain's biggest medical endowment, borrowed £550 million in July 2006 to bet on shares, property and hedge funds. Unless it has been very fortunate, its positions in equities and property must be showing big falls on paper. Most hedge fund returns have gone sharply negative too. The trust has plenty of time for markets to come good. The borrowing was for 30 years. But those taking these ultra long-term bets may have to hold their nerve for decades before seeing their faith pay off.

Some argue that the notion of the free lunch given to long-run holders of equities is plain wrong. The idea that the risk of holding equities declines the longer one holds them is a fallacy, the sceptical minority say. If it were so, then the cost of an equity put option - an insurance policy against markets failing to rise to an agreed point - should decline the longer the time frame. It doesn't. No one among the rocket scientists on the big bank trading desks - for all their fancy stochastic modelling techniques - is keen to take that side of the bet.

It would take a brave soul to pronounce that the era of equity outperformance is over. Clare College, founded eight centuries ago, has long time horizons. But listed companies certainly have some catching up to do right now.

Fortunately, the fellows of Clare know all about faith. Among the college's most illustrious alumni was Hugh Latimer, the Bishop burnt at the stake by Mary I for refusing to recant his Protestantism.

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