Market snapshot - what’s on the horizon
Following significant share market falls around the world in 2008, 2009 also started on a bleak note with global share markets falling around 10% in the first quarter. However, as a result of concerted efforts by governments across the globe, most markets bottomed-out in March. Since then, global credit markets have improved significantly, while share markets have posted gains of around 50%; the median balanced fund option returning a 10.07% one-year return as at the end of November 2009*.
*SuperRatings Fund Crediting Rate Survey, 30 November 2009.
What are diversified investors likely to have seen?
The following table shows the median returns for diversified investment funds, compared with the same period for the Australian share market (the S&P/ASX 200 Accumulation Index).
|
| |||||
|
. |
One year return @ 31/12/08* |
One year return @ 31/12/09* |
5 year return @ 31/12/09* |
Indicative % invested in growth assets |
Indicative % invested in defensive assets |
|
Conservative diversified fund |
-7.2% |
9.31% |
4.68% |
30% |
70% |
|
Balanced diversified fund |
-22.0% |
12.83% |
4.89% |
70% |
30% |
|
Aggressive diversified fund |
-32.8% |
17.01% |
4.54% |
100% |
0% |
|
S&P/ASX 200 Accumulation Index |
-38.44%# |
37.03%# |
8.36% |
100% |
0% |
* Source: InTech Super Survey. Returns quoted are net of tax and ongoing fees.
# Source: Factset.
Please note: the above investment returns are not specific to your account. Your investment returns may differ from these median returns and in addition these median returns do not reflect withdrawals. Past performance is not a reliable indicator of future performance. The above median returns should be used as a guide only. The period ended 31 December 2009 was the most recent data available at the time this table was prepared.
Why haven’t diversified funds shown the same recovery as share markets?
Diversified funds have a diversified mix of assets. So just as they did not fall as much as share markets in 2008, they have not risen as much as share markets in 2009.
For example, aggressive funds include assets such as property, while conservative funds include a greater allocation to defensive assets such as bonds.
Despite the recovery in share markets, some other asset classes have experienced significant setbacks over the past 12 months. For example, direct property returned around -8%, and similarly, private equity and infrastructure returned around -10%.
In addition to the above, the appreciation of the Australian dollar has held back returns from international investments where the associated foreign currency exposure has been unhedged.
Markets continue to move and different assets may move in different directions over the same period, impacting the overall return of diversified funds.
What’s expected looking forward?
Shane Oliver, AMP Capital Chief Economist, says:
|
“Looking forward, our view is that unlisted assets such as direct property, private equity and infrastructure - which are a component of many diversified funds - are close to their low point and some recovery is likely in 2010. Despite the experience of the past year, we believe that these assets substantially enhance the risk and return characteristics of diversified funds over long periods as they tend to outperform at different stages of the market cycle to listed assets such as shares and listed property. We expect further gains in share markets in 2010 due to the combination of improving economic and profit growth, low inflation and relatively low interest rates. Australian shares are likely to continue to outperform global shares, reflecting their higher dividend yields and stronger growth prospects. Asian and emerging markets are also likely to perform strongly, though with some volatility in returns.” If you have any questions or would like to know more about these strategies please give us a call. For the latest market updates, including a monthly market update video featuring Shane Oliver, go to www.amp.com.au/volatility. |
What you need to know
Information current as of February 2010. This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. If you decide to purchase or vary a financial product, your financial planner, AMP Financial Planning and other companies within the AMP Group will receive fees and other benefits, which will be a percentage of either the premium you pay or the value of your investment. You can ask us for further details about this.
