Australian property (both listed and unlisted), global listed property and infrastructure investments were the stand-out performers for the 2015/2016 financial year (1 July 2015 to 30 June 2016), according to rating company, Chant West.
In the table appearing later in the article, SuperGuide presents the investment performance of 12 asset classes, and compares the investment performance for the 12 asset classes over 1 year, 3 years, and 5 years, and also over the longer timeframes of 7, 10 and 15 years. All investment data for this article is sourced from rating company, Chant West.
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 squirrelled 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).
Implications of hedging shares: 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 maintain the view that unhedged investments should not belong in the portfolio of a default investment option, despite the stronger return on unhedged international shares for the year (which had more to do with movements in the dollar than underlying investment performance). In my opinion, unhedged international shares should only form part of an investment option that a fund member actively chooses.
For example: Hedged international shares have outperformed unhedged international shares over 15 years and 10 years, although unhedged has significantly outperformed hedged international shares in more recent years due to the depreciating Australian dollar. I explain the significance of hedging in more detail in the SuperGuide article Ban unhedged international shares in default investment options.
The rating company, Chant West, offers the following key points about the 12 asset classes for the 2015/2016 financial year:
- Australian Property: Of the traditional asset sectors, Australian Listed Property (A-REITs) was the best performer delivering a massive gain in value of 24.6%. Australian Unlisted Property also delivered a strong result gaining 12.7% in value.
- Global Listed Property: Global Listed Property (global REITs) delivered 12.3% for the financial year.
- Infrastructure: Unlisted Infrastructure produced a strong return delivering 17.9% for 2015/2016 financial year, while Global Listed Infrastructure (Hedged) gained 12.8% for the financial year.
- Australian Shares: Australian Shares delivered a disappointing 0.9% for the 2015/2016 financial year.
- International Shares: International Shares (Unhedged) delivered a mediocre 0.4% return, although that return was still better than International Shares (Hedged) which lost 2.7% in value for the 2015/2016 financial year. The difference in returns between hedged and unhedged was simply due to a fall in the value of the Australian dollar (down from US$0.77 to US$0.74), rather than underlying investment performance. The return on International Shares (Hedged), removes the effect of currency movement. See earlier in the article for an explanation of hedging.
- Private Equity: Private Equity gained 9.5% in value for the financial year.
- Bonds: Defensive asset sectors delivered positive returns with Australian Bonds delivering 7.0% for the 2015/2016 financial year, while International Bonds (Hedged) delivered 9.3%
- Cash: Cash returned 2.2% for the 2015/2016 financial year.
The table later in the article sets out the performance figures for 12 asset classes (or sub-categories) for investment periods of 1 month, 3 months, 1 year, 3 years, 5 years, 7 years, and, if applicable, 10 years and 15 years.
Top performing asset classes for 15-year, 10-year and 7-year periods to 30 June 2016
The top performers among the 12 asset classes (or sub-categories) vary depending on the timeframe you are reviewing.
Australian Listed Property (A-REITs) was the stand-out performer over all short- and medium-term timeframes, but was a poor performer over 10 years and a comparatively strong performer over 15 years.
For example, over the 7-year period to 30 June 2016, Australian Listed Property outperformed all asset classes with an impressive average annual return of 16.5%, followed by Global Listed Property (16.2%), and Private Equity (11.9%)
In comparison, over the 10-year period to 30 June 2016, Unlisted Infrastructure won the day (9.3% average each year), followed by Private Equity (8.5%), and then International Bonds (Hedged) (8.1%). The lingering effects of the Global Financial Crisis can still be seen in the 10-year performance figures for the higher risk asset classes, such as Australian Shares (4.8%) and Australian Listed Property (2.9%).
Looking shorter-term, over the 3-year period to 30 June 2016, strong average annual returns were achieved by Australian Listed Property (18.5%), Private Equity (17.2%), International Shares (Unhedged) (14.8%), and Global Listed Infrastructure (Hedged) (14.4%).
The top performers over the 15-year period are International Bonds (Hedged) (7.9%), followed by Australian Shares (7.2%), and Australian Listed property (7.1%). Over the same 15-year period to 30 June 2016, International Shares (Unhedged) delivered a mediocre average annual return of 2.1%. Slightly better, International Shares (Hedged) delivered an average annual return of 4.0% for the past 15 years. Cash delivered a heart-warming 4.7% over a 15-year period to 30 June 2016, outperforming international shares.
Note: Figures over the 15-year period to 30 June 2016 don’t include performance statistics for Private Equity, Global Listed Property (REITs), Australian Unlisted Property, Global Listed Infrastructure (Hedged), and Unlisted Infrastructure, due to the relatively recent development of these asset sub-categories.
Asset Sector Performance: Gross performance to 30 June 2016
|Asset Sector||1 Mth (%)||3 months (%)||1 Yr (%)||3 Yrs (% pa)||5 Yrs (% pa)||7 Yrs (% pa)||10 Yrs (% pa)||15 Yrs (% pa)|
|International Shares (Hedged)||-1.3||1.2||-2.7||8.8||8.9||11.1||4.6||4.0|
|International Shares (Unhedged)||-3.8||4.4||0.4||14.8||14.9||11.7||4.4||2.1|
|Australian Listed Property (A-REITs)||3.5||9.2||24.6||18.5||18.0||16.5||2.9||7.1|
|Global Listed Property (REITs)||3.0||3.7||12.3||11.9||12.0||16.2||5.5||–|
|Australian Unlisted Property||1.5||2.4||12.7||10.5||9.7||8.8||7.9||–|
|Global Listed Infrastructure (Hedged)||3.7||5.4||12.8||14.4||15.0||–||–||–|
|International Bonds (Hedged)||2.0||2.9||9.3||7.6||7.7||8.2||8.1||7.9|
Source: Chant West, 19 July 2016 media release
Table notes: The table above 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, except where indices don’t exist, and then the returns of a major fund in the survey are used for that asset class.
For more specific information on the investment performance of super funds, see the following SuperGuide articles: