Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 233

Asset class performance and lessons in 2017

Better than as good as it gets

2017 goes down in history as the 6th consecutive year of positive real total returns from all major asset classes for Australian investors – Australian shares, global shares, Australian and global bonds, listed and unlisted commercial property, housing and bank deposits. Six straight years when everything went up has never happened before in history.

Click chart to enlarge

The next longest period was four positive years in 1925-28 during the great post-war housing and government spending boom. No prizes for what happened next: the 1929 crash, 1930s depression and defaults by NSW and Commonwealth governments.

Periods of negative real returns from the major asset classes together are relatively rare and short-lived. There were only four individual years where major asset classes posted negative returns together:

  • 1912 –War build-up in Europe, US dismantling the Money Trusts, Titanic sinking
  • 1941 – Hitler invading Russia, Pearl Harbour bombing, Japanese army storming down through Asia.
  • 1948 – Industrial unrest, communist agitators, Australian bank nationalisation crisis, Soviet blockade of Berlin
  • 1973 – Australian monetary tightening, severe credit squeeze, Britain entering ECM, USD devaluation, Yom Kippur oil crisis

What is the common thread that runs through all of these positive and negative return periods? Inflation.

Each of the periods of across-the-board negative real returns had high inflation. Conversely, each of the periods of across-the-board positive real returns had low inflation, including the current six-year rally.

Will markets remain positive for another year to make it seven years in a row? All types of assets everywhere are expensive, but shares, property and bonds tend to do well when inflation and interest rates are low. The good news is that inflation and interest rates are still very low in Australia and around the world and are likely to remain that way for some time yet.

Portfolios and lessons

With each of the main asset classes posting positive returns in 2017 it was difficult to lose money.

Click chart to enlarge

The active positions that paid off for investors in 2017 include:

  • In Australian shares – bias toward small/medium versus large companies paid off as the big banks dragged on the market
  • In global shares – over-weighting ‘emerging markets’ shares paid off as Chinese tech stocks in particular were very strong
  • In global shares – bias toward hedged versus unhedged as the AUD rose
  • Within fixed rate bonds – bias toward corporate versus government bonds paid off as credit spreads contracted but no benefits from running floating versus fixed rate bonds.

As far as regrets go, it is easy to look back with the benefit of hindsight and say (for example), “We should have had more global shares”. However, it was hard to argue for an overweighting to global shares when they were so expensive at the start of the year and with the Brexit vote and Trump election so fresh in the minds of our investors.

 

Ashley Owen is Chief Investment Officer at advisory firm Stanford Brown and The Lunar Group. He is also a Director of Third Link Investment Managers, a fund that supports Australian charities. This article is general information that does not consider the circumstances of any individual.

 


 

Leave a Comment:

     

RELATED ARTICLES

Spotting signs of trouble in a retirement portfolio

Where do Australian share returns come from?

The difference between arithmetic and geometric investment returns

banner

Most viewed in recent weeks

How to enjoy your retirement

Amid thousands of comments, tips include developing interests to keep occupied, planning in advance to have enough money, staying connected with friends and communities ... should you defer retirement or just do it?

Results from our retirement experiences survey

Retirement is a good experience if you plan for it and manage your time, but freedom from money worries is key. Many retirees enjoy managing their money but SMSFs are not for everyone. Each retirement is different.

A tonic for turbulent times: my nine tips for investing

Investing is often portrayed as unapproachably complex. Can it be distilled into nine tips? An economist with 35 years of experience through numerous market cycles and events has given it a shot.

Rival standard for savings and incomes in retirement

A new standard argues the majority of Australians will never achieve the ASFA 'comfortable' level of retirement savings and it amounts to 'fearmongering' by vested interests. If comfortable is aspirational, so be it.

Dalio v Marks is common sense v uncommon sense

Billionaire fund manager standoff: Ray Dalio thinks investing is common sense and markets are simple, while Howard Marks says complex and convoluted 'second-level' thinking is needed for superior returns.

Fear is good if you are not part of the herd

If you feel fear when the market loses its head, you become part of the herd. Develop habits to embrace the fear. Identify the cause, decide if you need to take action and own the result without looking back. 

Latest Updates

Economy

The paradox of investment cycles

Now we're captivated by inflation and higher rates but only a year ago, investors were certain of the supremacy of US companies, the benign nature of inflation and the remoteness of tighter monetary policy.

Shares

Reporting Season will show cost control and pricing power

Companies have been slow to update guidance and we have yet to see the impact of inflation expectations in earnings and outlooks. Companies need to insulate costs from inflation while enjoying an uptick in revenue.

Shares

The early signals for August company earnings

Weaker share prices may have already discounted some bad news, but cost inflation is creating wide divergences inside and across sectors. Early results show some companies are strong enough to resist sector falls.

Property

The compelling 20-year flight of SYD into private hands

In 2002, the share price of the company that became Sydney Airport (SYD) hit 80 cents from the $2 IPO price. After 20 years of astute investment driving revenue increases, it sold to private hands for $8.75 in 2022.

Investment strategies

Ethical investing responding to some short-term challenges

There are significant differences in the sector weightings of an ethical fund versus an index, and while this has caused some short-term headwinds recently, the tailwinds are expected to blow over the long term.

Investment strategies

If you are new to investing, avoid these 10 common mistakes

Many new investors make common mistakes while learning about markets. Losses are inevitable. Newbies should read more and develop a long-term focus while avoiding big mistakes and not aiming to be brilliant.

Investment strategies

RMBS today: rising rate-linked income with capital preservation

Lenders use Residential Mortgage-Backed Securities to finance mortgages and RMBS are available to retail investors through fund structures. They come with many layers of protection beyond movements in house prices. 

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.