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June 6, 2012
Australian shares outperformed all asset classes for best 'real' returns over 20 year period, says Russell Investments/ASX report
- Multi-asset, diversified portfolios are the best bet for investors over the long- term
SYDNEY, 6 June 2012 – Australian shares have outperformed all other asset classes - including residential investment property, fixed interest and cash - over a 20 year period, according to this year’s Russell Investments/ASX Long-Term Investing Report.
The 14th edition of the annual report, commissioned by the Australian Securities Exchange (ASX) and prepared by Russell Consulting, has found growth assets including Australian shares and residential property delivered superior returns compared to more conservative asset classes such as cash and fixed income, over the 10 and 20 year periods to 31 December 2011.
The report considers the impact of tax, costs and borrowing on ultimate investment returns. The aim is to provide investors with insight into how different investments have performed over the medium- to long-term, after-tax and expenses.
“This report highlights the desirability for investors of keeping a long-term perspective and offers practical examples on the benefits of many exchange traded investments compared to other categories,” says ASX business development manager Jonathan Morgan.
Over the 20 year period, Australian shares returned 9.0% p.a. and 7.0% p.a. at both the lowest and highest marginal tax rates respectively. Residential investment property achieved the second highest return of 8.1% p.a. and 6.6% p.a. at the lowest and highest marginal tax rates respectively. Cash had the lowest returns under both tax regimes, of all asset classes over 20 years.
Looking forward, one likely scenario over the next 10 years is lower returns from fixed interest.
“With 10 year government bond yields sitting at record lows, over the next 10 years returns from bonds will be lower,” said Greg Liddell, Russell’s director of consulting and advisory services.
An after-tax focus can maximise returns
As part of the government’s Stronger Super reforms, legislation has recently been introduced that requires superannuation fund trustees to consider the expected after-tax consequences of their investment strategies. Mr Liddell said the legislation was recognition of the significant impact an after-tax focus can have on member returns and this issue was just as important for retail investors.
“The report has consistently demonstrated the value of calculating investment returns on both a pre- and after-tax basis across the asset classes examined. Calculating the effective tax rates on different asset classes helps investors to determine their best allocation of capital between these asset classes to maximise their after-tax returns and ultimately boost their wealth,” he said
Illustrating this point, the report showed on a pre-tax basis, residential investment property had the highest return of 9.0% p.a. over 20 years. However, at both the lowest and highest marginal tax rates, Australian shares in fact provided better after-tax returns over the same period.
Residential property - no sure bet for future growth
Looking at the 10 year time frame, investors might find residential investment property a more appealing prospect as the report showed it outperformed all other asset classes at the lowest and highest tax rate at 7.2% p.a. and 5.8% p.a. respectively. However, Russell is warning investors that residential property is not a risk free asset class or a sure bet for future growth.
“The investment fundamentals of residential property are becoming less attractive compared to listed shares. The main risks for residential property relate to relatively high valuations and the prospect of further deleveraging by Australian households. Low rental yields will make it difficult for residential property to outperform listed shares as an investment over the next decade,” said Mr Liddell.
Don’t get spooked by market volatility and keep a long-term focus
The continued volatility in equity markets in 2011 has mainly been fuelled by international factors including the ongoing European sovereign debt issues, concerns over the recovery of the US economy, as well as the potential for China to suffer a ‘hard-landing’ in terms of GDP growth. The continued evidence of a two-speed economy in Australia has also been a material contributor to domestic market volatility.
“The reason we look to 10 to 20 years in this report is because in these asset classes investors should be invested for a minimum of seven years. Volatile short-term return patterns are a normal part of investing in growth type asset classes such as equities. Investors with long term time horizons should not respond to these short term market movements with knee-jerk reactions. For instance, while Australian and overseas equity markets produced negative returns over the 2011 calendar year, Australian equities have performed strongly over longer timeframes, which is where a long-term investor should focus,” said Mr Liddell.
Chris Corneil, CEO, Australasia, Russell Investments, said for most investors recent market volatility has resulted in heightened anxiety and concern and he believes the analysis reinforces the importance of a diversified multi-asset portfolio.
“There is no guarantee of picking the winning asset class from year to year, so we believe a multi-asset solution is the best option for giving investors more opportunities, greater flexibility and enhanced diversification potential. It’s unwise trying to time the market by chasing short-term performance.”
A copy of the Russell Investments/ASX Long Term Investing Report is attached. The report is also available from www.russell.com.au/long-term-investing-2012.
Please contact Honner Media if you would like any more information.
About the ASX Group
The ASX Group (ASX) is the overarching name for ASX Limited, the listed holding company with a range of services linked by a common purpose: to provide the core financial markets infrastructure necessary to meet the needs of a wide range of financial markets stakeholders and for a globally competitive and vibrant Australian economy. ASX is a multi-asset class, vertically integrated exchange group, ranked one of the world’s top-10 largest by market capitalisation. Its activities span the markets for corporate control, capital formation and price discovery and it functions as a market operator, clearing house, payments system facilitator and central securities depository. It oversees compliance with its operating rules, promotes standards of corporate governance among Australia’s listed companies and helps to educate retail investors.
The diverse domestic and international customer base of ASX includes issuers (such as corporations and trusts) of a variety of listed securities and financial products, investment and trading banks, fund managers, hedge funds, commodity trading advisers, brokers and proprietary traders, market data vendors and retail investors.
More information on ASX can be found at www.asxgroup.com.au
About Russell Investments
Russell Investments (Russell) is a global asset manager and one of only a few firms that offers actively managed, multi-asset portfolios and services that include advice, investments and implementation. Working with institutional investors, financial advisors and individuals, Russell’s core capabilities extend across capital markets insights, manager research, indexes, portfolio implementation and portfolio construction.
Russell has approximately $155 billion in assets under management (as of 31/03/2012) and works with 2,400 institutional clients, more than 580 independent distribution partners and advisors, and individual investors globally. As a consultant to some of the largest pools of capital in the world, Russell has $2.4 trillion in assets under advisement (as of 31/12/11). It has four decades of experience researching and selecting investment managers and meets annually with more than 2,200 managers around the world. Russell traded more than $1.5 trillion in 2011 through its implementation services business. Russell calculates more than 80,000 benchmarks daily covering 98 percent of the investable market globally, 85 countries and more than 10,000 securities. Approximately $3.9 trillion in assets are benchmarked to the Russell Indexes.
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Issued by Russell Investment Management Ltd ABN 53 068 338 974, AFS Licence 247185 (“RIM”). This document provides general information only and has not been prepared having regard to your objectives, financial situation or needs. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. This information has been compiled from sources considered to be reliable, but is not guaranteed. Past performance is not a reliable indicator of future performance. Any potential investor should consider the latest Product Disclosure Statement (“PDS”) in deciding whether to acquire, or to continue to hold, an investment in any Russell product. The PDS can be obtained by visiting www.russell.com.au or by phoning (02) 9229 5111. RIM is part of Russell Investments (“Russell”). Russell or its associates, officers or employees may have interests in the financial products referred to in this information by acting in various roles including broker or adviser, and may receive fees, brokerage or commissions for acting in these capacities. In addition, Russell or its associates, officers or employees may buy or sell the financial products as principal or agent.
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