Predictions wane for domestic assets
Investors exposed to local assets have enjoyed a 'triple treat’ of investment returns over the past 10 to 20 years, according to Russell Investments - but Australian shares, Australian currency, and Australian residential property were unlikely to deliver the same performance for the next 10-20 years.
The latest Russell Investment/ASX Long-Term Investing Report found that Australian shares outperformed all other asset classes over the past 10 and 20 years.
Australian shares returned 8.9 per cent per annum (pa) over 10 years, while hedged international shares returned 8.2 per cent pa. Cash returned 3.8 per cent pa, while unhedged global shares were the victim of 10 years’ appreciation of the Australian dollar and returned 1.4 per cent pa.
However, the market environment was due to shift significantly over the next 10-20 years as the two major themes dominating investment markets for the last two decades - falling bond yields and domestic growth fuelled by the resources sector - changed, according to Russell. It said a comparison of this year’s results to last year’s show that rankings have already changed significantly.
Despite ranking first last year, hedged global bonds dropped to third, returning 7.9 per cent pa, according to the latest data, while Australian residential property - which ranked second last year - dropped to fifth at 6.5 per cent pa.
Multiple domestic assets would be affected by slowed growth, while it was unlikely currency would appreciate much more, Russell said.
Global bond yields were also unlikely to continue their decade-long decline and would deliver more realistic returns over the next 10-20 years, according to Russell.
It said an actively-managed diversified strategy could provide investors with exposure to growth assets without the volatility from equity markets.
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