Asset classes: Naming the investment winners for the 2012 calendar year

Note: For the investment winners of the 2012/2013 financial year, see SuperGuide article Asset classes: Naming the investment winners for the 2013 financial year.

Australian and global listed property sectors delivered the biggest returns for the 2012 calendar year (1 January 2012 to 31 December 2012), according to Warren Chant of rating company, Chant West. He says that the strong performance of super funds during 2012 however was driven primarily by the Australian and international share markets.

In the table below, Chant West lists the investment performance of 13 asset classes, and offers the following key points about the 2012 calendar year:

  • Australian and global listed property (REITs) were the strongest performers returning 32.8% (Australian REITs), and 28% (Global REITs)
  • Australian share market rose 19.7%
  • International shares (hedged) returned 15.5% and international shares (unhedged) returned 14.1%
  • Unlisted property rose 7.9%
  • Unlisted infrastructure rose 9.5%
  • Australian bonds returned 7.7%, while international bonds delivered 9.7%
  • Cash returned 4.0% for the 12 months

Background: Your super fund invests in a mix of asset classes to generate an investment return on your super account, which means that some of your super money is likely to be invested overseas, a fair chunk invested in Australian assets, and a portion squirreled away in cash. The super money of most Australians is invested via a balanced or growth investment option, typically 61-80% of assets are in growth-style assets such as shares, property and alternative investments, and 20-40% are in income-style assets such as cash and fixed interest (bonds). If you choose your own investment option, or you run your own super fund, then you decide on the mix of asset classes for your super savings, including whether you have exposure to international assets, and whether you have exposure to foreign currency movements (that is, unhedged).

Briefly, when a super fund hedges your international investments against movements in the Australian dollar or foreign currency, your investment return is solely based on the merits of the investment rather than the strength or otherwise of the Australian dollar. If your super fund chooses not to hedge your international investments, then the return you may receive on this part of your portfolio may have very little to do with the merits of your investment. I explain the significance of hedging in more detail in my article Ban unhedged international shares in default investment options.

The table below sets out the performance figures for 13 asset classes (or sub-categories) for investment periods of 3 months, 6 months (Financial Year to Date), 1 year, 3 years, 5 years, 7 years, and, if applicable, 10 years.

Top performing asset classes for 10-year and 5-year periods to 31 December 2012

The top performers among the 13 asset classes (or sub-categories) are different when you look over a longer timeframe. For example, over a 10-year period, Australian Unlisted Property has outperformed all asset classes with an average annual return of 9.3%, followed by Australian Shares with an annual return of 9.1%, and then International Bonds (hedged) with an annual return of 8.0%.

Note: Figures over the 10-year period to 31 December 2012 don’t include performance statistics for private equity, global listed property (REITs), global listed infrastructure (hedged), Unlisted Australian property, and unlisted infrastructure, due to the relatively recent development of these asset sub-categories.

The ongoing effects of the Global Financial Crisis (GFC) can be seen in the 5-year and 7-year performance figures for the higher risk asset classes, such as shares and listed property. The top performers over the 5-year period are international bonds (hedged) with an average annual return of 9.3%, followed by Australian bonds (8.3 %), Cash (4.9%), Unlisted infrastructure (4.5%) and then Australian unlisted property (3.4%).

Australian shares have delivered a mediocre loss of 1.8% a year over the same 5-year period, and international shares (hedged) an unimpressive loss of 3.5% a year. Even worse, international shares (unhedged) delivered negative 4.5% every year for the past 5 years, on average, while Australian listed property, that is A-REITs delivered a negative 8.7% every year (!), on average, for the past 5 years. What this means for investors in A-REITs, is that their A-REIT investment is roughly 36% less than what it was worth five years earlier.

Asset Sector Performance: Gross performance to December 2012
Asset Sector3 Mths (%)FYTD (%)1 Yr (%)3 Yrs (% pa)5 Yrs (% pa)7 Yrs (% pa)10 Yrs (% pa)
Australian Shares6.816.119.72.8-1.84.19.1
International Shares (Hedged)2.88.415.56.5-1.51.66.0
International Shares (Unhedged)2.57.714.11.9-4.5-2.10.9
Private Equity1.41.24.49.01.16.5-
Australian Listed Property (REITs)7.014.132.89.1-8.7-3.52.4
Global Listed Property (REITs)5.79.928.017.52.94.4-
Australian Unlisted Property1.63.47.99.33.47.99.3
Global Listed Infrastructure (Hedged)1.74.09.16.5-0.85.6-
Unlisted Infrastructure2.45.09.510.34.57.8-
Australian Bonds0.22.27.78.38.36.86.4
International Bonds (Hedged)1.74.69.79.89.38.28.0
Hedge Funds1.95.37.75.22.25.36.9
Cash0.81.84.04.54.95.35.4

Source: Chant West, 21 January 2013 media release (www.chantwest.com.au)

Table notes: The table contains gross investment returns, that is, investment returns before fees and taxes have been deducted. The asset classes and categories listed are the main asset sectors that super funds invest in. Chant West has used market indices for performance figures for all sectors other than private equity and unlisted infrastructure. For those two categories, Chant West has used the returns of a major super fund in the Chant West survey that is representative of those sectors.

© Copyright Trish Power 2009-2014

Copyright for this article belongs to Trish Power, and cannot be reproduced without express and specific consent.

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Comments

  1. Bruce Hawkins says:

    Hi Trish

    I enjoy your articles very much.

    I note your comment above: “The super money of most Australians is invested via a balanced or growth investment option, typically 61-80% of assets are in growth-style assets such as shares, property and alternative investments, and 20-40% are in income-style assets such as cash and fixed interest”

    I would like to understand more re an appropriate asset allocation as I approach retirement. I would think that 61-80% of growth assets is ok for those aged under (say) 50 when there is still time to ride out volatility whilst bringing in income from working. However, for a retiree I think the allocation of growth assets should probably be less, perhaps 20 to 30%.

    Are you aware of any articles re a recommended asset allocation as we move into retirement?

    Thanks for a great website!!.

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