New report highlights the dangers of chasing past returns and ‘hot’ markets
Australia makes up ~3% of the global market, which means that 97% of global investment opportunities are elsewhere. As valued clients, I wanted to share an insightful report with you.
As highlighted in several major Australian publications today, the 2015 Russell Investments/ASX Long Term Investing Report points to the risks of relying on a resilient domestic share market, strong domestic currency and solid residential property market.
This year’s report argues that Australian investors can no longer rely on the ‘triple treat’ of a resilient domestic share market, strong domestic currency and solid residential property market. Russell’s market strategists made the following observations about 2014:
- Australian equities lagged overseas markets for the second consecutive year underperforming unhedged global equities by 6.6 percentage points in 2014 (23.8% in 2013).
- The 10-year return on Australian equities fell from 9.2% to 7.1% at the end of 2014.
- The Australian dollar fell over 8% against the US dollar, from US$0.89 to US$0.82. In the first quarter of 2015, it fell an additional 7%. If it falls to $0.74 by the end of 2015 as projected by some experts, a super fund investor with $100,000 invested (in hedged global equities) at the beginning of the year could wind up with only $90,000, driven purely through currency movements (ignoring any market movements.
- What are the key messages?
- Domestic investments can continue to have a role in Australians’ portfolios, but investors with a home-country bias would do well to revisit their portfolios, review their exposure to residential property and determine whether they have adequate offshore diversification.
- Interesting fact: In a notable departure from trend, international shares (hedged) overtook Australian shares as the best performing asset class over the 10 years to 31 December 2014.