Asset class performance, like fund manager performance, can fluctuate wildly from year to year. The annual Russell Investments/ASX study of markets and accompanying analysis provides a reflective view on the lack of persistence in market segment returns on a year-by-year basis.
The 20th edition of the report was published late last week and will probably provide some comfort for the many individual investors who have consistently favoured residential property against the advice, often, of their professional advisors.
The report shows that Australian residential property outperformed the other major asset classes over both the past 10 and 20 years. However, global shares – both hedged and unhedged – as well as global listed property fared better for the 10-year period to December 2017 than results for the previous year. Further, while showing a gain for the 10 years to December 2017, residential property returned 0.8 percentage points less for that 10-year period compared to last year’s results.
Scott Fletcher, client portfolio manager at Russell in Sydney, said: “Looking deeper than today’s headlines on asset-class returns shows considerably more variation year on year, and our annual report offers investors greater insights that could benefit their investment-strategy choices and increase the likelihood of achieving desired outcomes.”
The best and weakest performer among the asset classes changed significantly throughout the 20-year period. Residential property and global shares, for example, each flipped from the best-performing asset class in the group for a particular year only to rank in a subsequent year as the worst.
Meanwhile, the multi-asset portfolio measure experienced a more consistently positive, smoother journey throughout the two decades, demonstrating the age-old advantage of diversification.
The firm’s analysis of these annual returns says that an Australian investor who switched to follow the previous year’s ‘winner’ each year would have a portfolio 29 per cent worse off compared to staying invested in a sample balanced fund throughout the 20-year period.
Other key findings in the annual report for the 10-year and 20-year periods include:
- The rankings for each asset class change slightly on a net of fees and tax basis, but the overall picture is similar for the 10 and 20 years respectively.
- Similarly, the gearing analysis shows Australian residential property outperforming Australian shares, with 50 per cent leverage enlarging the differentials for both the lowest and highest marginal tax rates. For the 10-year period, gearing caused the levered returns from Australian shares to become negative for both tax rates due to the weak returns from Australian shares for the last decade.