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.

You can access the full report from this link

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.

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