Infrastructure investments and Australian listed property were the stand-out performers for the 2016 calendar year (1 January 2016 to 31 December 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) on your international investments.
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. 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, but unhedged outperformed over 10 years and 7 years and 5 years and 3 years, due to the depreciating Australian dollar. For the 2016 calendar year, hedged international shares has outperformed unhedged, due to the appreciating 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 2016 calendar year:
- Infrastructure: Unlisted Infrastructure was the best performer overall gaining 17.3% in value for the 2016 calendar year, while Global Listed Infrastructure (Hedged) delivered an impressive 12.7% for the calendar year.
- Australian Property: Of the traditional asset sectors, Australian Listed Property (A-REITs) was the best performer delivering a gain in value of 13.2%. Australian Unlisted Property also delivered a strong result gaining 11.1% in value.
- Australian Shares: Australian Shares delivered a double-digit return of 11.8% for the 2016 calendar year.
- International Shares: International Shares (Hedged) gained 8.9% in value, which was better than International Shares (Unhedged) which gained 7.9% in value for the 2016 calendar year. The difference in returns between hedged and unhedged was simply due to a rise in the value of the Australian dollar, 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 7.9% in value for the calendar year.
- Global Listed Property: Global Listed Property (global REITs) delivered 6% for the calendar year.
- Bonds: Defensive asset sectors delivered small positive returns with Australian Bonds delivering 2.9% for the 2016 calendar year, while International Bonds (Hedged) delivered 5.2%
- Cash: Cash returned 2.1% for the 2016 calendar 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, FYTD (6 months), 1 year, 3 years, 5 years, 7 years, and, if applicable, 10 years and 15 years to 31 December 2016.
Top performing asset classes for 15-year, 10-year and 7-year periods to 31 December 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 (1 year, 3 years, 5 years and 7 years to 31 December 2016), but was a poor performer over 10 years and a comparatively strong performer over 15 years.
For example, over the 3-year period to 31 December 2016, Australian Listed Property outperformed all asset classes with an impressive average annual return of 18.0%, followed by Private Equity (16.3%) and Unlisted Infrastructure (12.8%).
In comparison, over the 10-year period to 31 December 2016, Australian Unlisted Property won the day (9.6% average each year, followed by Unlisted Infrastructure (9.4% average each year), and Private Equity (8.2%), and then International Bonds (Hedged) (7.4%). The lingering effects of the Global Financial Crisis can still be seen in the 10-year average annual performance figures for the higher risk asset classes, such as Australian Shares (4.4%) and Australian Listed Property (0.3%).
Looking medium-term, over the 5-year period to 31 December 2016, strong average annual returns were achieved by International Shares (Unhedged) (18.6%), Australian Listed Property (18.5%), Global Listed Property (14.1%), Global Listed Infrastructure (Hedged) (13.7%) and Private Equity (13.1%).
The top performers over the 15-year period are Australian Shares (7.9%) followed by International Bonds (Hedged) (7.5%), and Australian Listed property (6.3%). Over the same 15-year period to 31 December 2016, International Shares (Unhedged) delivered a mediocre average annual return of 3.3%. Significantly better, but still not great for a higher risk asset, International Shares (Hedged) delivered an average annual return of 5.2% for the past 15 years. Cash delivered a heart-warming 4.6% over a 15-year period to 31 December 2016, outperforming International Shares (Unhedged).
Note: Figures over the 15-year period to 31 December 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 31 December 2016
|Asset Sector||1 Mth (%)||FYTD (%)||1 Yr (%)||3 Yrs (% pa)||5 Yrs (% pa)||7 Yrs (% pa)||10 Yrs (% pa)||15 Yrs (% pa)|
|International Shares (Hedged)||2.7||9.7||8.9||6.9||12.8||9.7||4.3||5.2|
|International Shares (Unhedged)||4.5||9.8||7.9||11.5||18.6||11.7||4.7||3.3|
|Australian Listed Property (A-REITs)||6.8||-2.6||13.2||18.0||18.5||12.5||0.3||6.3|
|Global Listed Property (REITs)||3.6||-1.1||6.0||10.6||14.1||11.9||3.1||–|
|Australian Unlisted Property||2.0||5.8||11.1||11.0||9.9||9.7||9.6||–|
|Global Listed Infrastructure (Hedged)||3.5||0.1||12.7||11.3||13.7||13.1||–||–|
|International Bonds (Hedged)||0.4||-1.4||5.2||6.3||6.1||7.2||7.4||7.5|
Source: Chant West, 19 January 2017 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: