Australian investors and retirees are expected to face lower returns from both bonds and equities over the next few years, according to Clime Asset Management.
According to Clime’s managing director, John Abernethy, the lower returns would be the result of the sustained period of low inflation and the continued interference in bond markets by international central banks that pulled yields even lower.
The firm expected that balanced portfolio returns, spread across asset classes, may average about five per cent per annum for the next few years with returns particularly dragged down by bond or fixed income returns.
“While we expect better returns from equities than bonds in the next few years, it seems that the equity market has its own unique issues,” Abernethy said.
He also stressed that it was important to examine the period of underperformance by the Australian equity market which typically generated superior risk-adjusted returns and were critical for the total returns of long-term investment funds in Australia.
“However, 10-year equity returns have now fallen to well below long-term norms and shorter periods, inflicted by price volatility, have exhibited spasmodic results.
“Without the benefit of franking, the Australian share market indexes have returned about five per cent per annum below their long-term averages over the last decade,” he said.
Also, according to Abernethy, the equity asset class was confronted by developments that were acting against proper capital formation and therefore affecting the returns of the equity market.
“If they remain unchecked and we suspect they will, then the returns from the Australian equity market (in particular, the indexes) will remain sub-optimal.
“Passive ETF [exchange traded funds] index investing simply does not work in Australia.”
