Should Aussie super funds fly the coop?
Most portfolios have seen an uptake in allocations to international equities at the expense of Australian equities, so Money Management looked at the performance of both equity sectors using FE Analytics to see whether the grass really is greener on the other side.
Australian Prudential and Regulation Authority data tells us that as of June 2018, super funds with more than four members decreased allocations to Aussie equities to around 23 per cent, and international is up to 24 per cent, as opposed to September 2013 data which shows Aussie equities at 25 per cent and international at 17 per cent.
The move is mostly in response to investors searching for diversification in their portfolios, given Australia doesn’t offer much by way of tech stocks or consumer discretionary, and really only makes up two per cent of the entire global equity market.
But, experts will also say Australia is quite the honeypot for returns, using its minimal scrapes and bruises from the global financial crisis as an example. And, franking credits are still a pretty significant incentive to eat from the nest.
Looking at FE Analytics, global equities and Aussie equities don’t really seem to perform that differently, with global equities posting returns of 9.30 per cent over 10 years, 11.99 per cent over five years, 9.67 per cent over three years and 10.44 in the year to date.
Even the last six months, despite global trade tensions and political unrest, have seen global equities post 6.54 per cent returns.
What’s driving the good performance? Well, industry experts say it’s the US, which has posted quarter after quarter of growth since the GFC and is looking as good as it ever has.
This year alone, the US has posted a 16 to 20 per cent growth, primarily led by US tech stocks.
“The technology sector has experienced very large growth, increasing to be more than 25 per cent of the US stock market value,” said Frontier Adviser’s director of investment strategy, Chris Trevillyan.
“The US technology sector has produced around a 400 per cent total return over the last 10 years,” he added.
While global equities are looking good, Aussie equities really aren’t that far behind with returns of 8.19 per cent over 10 years, 7.19 per cent over five years, 8.65 per cent over three years and 9.20 per cent in the year to date. Over the last six months, Aussie equities have held steadfast at 5.36 per cent.
Emerging markets though, while a great tool for diversification and long-term high returns, have had a pretty tough time.
FE Analytics shows the EMs sector has only seen 0.32 per cent returns in the year to date and -5.14 per cent over the last six months, reflective of political unrest and loss of central bank independence in places like Argentina, Brazil and Turkey.
The chart below shows the performance of the three sectors for the three years to date.
Recommended for you
Financial advisers will have access to private equity investments run by WTW for the first time as it launches a pooled fund to provide savers with access to traditionally institutional assets.
Three solutions providers – Betashares, Franklin Templeton and Russell Investments – have all launched new ETF products, including one range which uses gearing to help build wealth.
Platinum Asset Management chief executive, Jeff Peters, has shared a progress update on its newly announced turnaround strategy.
There is a role for advisers using inflation-linked bonds in portfolios, according to AXA IM, as the possibility of higher inflation necessitating another US rate hike is not out of consideration.
