by David Blumenthal The 2017 financial year drew to a close in somewhat of an anti-climax. Almost all asset classes declined and just two segments (Australian shares and cash yield) managed to eke out small gains. Overall, the Six Park portfolios were down -0.5% to -1.5% for the month.
Despite this weakness, the Six Park portfolios still returned +2.6% to +11.5% for the year overall. Gains were highest across our growth-orientated portfolios (Balanced, Balanced Growth and Aggressive Growth). These portfolios benefited most from exposures to local, emerging market and international sharemarkets, which had all advanced very strongly during the year. Returns across our more defensive portfolios were lower, reflecting the prevailing interest rate environment, but still outperformed bank deposit returns (which averaged approximately 2% for the year according to RBA statistics).
| PERIOD | CONSERVATIVE | CONSERVATIVE BALANCED | BALANCED | BALANCED GROWTH | AGGRESSIVE GROWTH |
|---|---|---|---|---|---|
| 1 mth | -0.5% | -0.7% | -1.1% | -1.3% | -1.5% |
| 3 mth | 1.0% | 1.2% | 1.3% | 1.7% | 1.7% |
| 1 year | 2.6% | 4.9% | 7.6% | 9.3% | 11.5% |
Notes:
(1) Past performance is not indicative of future performance.
(2) Returns above are net of all Six Park fees (est. 0.50%, which includes all brokerage costs).
(3) No rebalancing, cash holdings or trading costs are included.
(4) The above calculations are based on the published closing prices for each ETF, not NAV. They assume dividend reinvestment but do not include any value for dividend imputation credits.
ASSET CLASS PERFORMANCE:
International equities, emerging markets and Australian shares were the standout asset classes for the year, posting stellar gains of 14.2% to 15.5%. This was in stark contrast to the 2016 financial year in which these sectors were the three worst performing asset classes.[1]
This performance inconsistency is a useful reminder of the unpredictability of markets and a key reason why all our portfolios are diversified across multiple asset classes and geographies.
[1] In the 2016 financial year, international equities, emerging markets and Australian shares returned just +0.6%, -9.5% and +0.2% respectively
Notes:
(1) The above returns are calculated using the closing prices for each ETF, not NAV, so may differ from those published by the ETF issuers.
(2) The Six Park portfolios did not hold investments in DJRE and IFRA prior to December 2016. Performance figures for full FY2017 period for these asset classes are included for comparative purposes only.
- International shares returned +15.5% for the year. This figure would have been even higher were it not for a 3.2% rise in the Australian dollar in June (which pushed markets down -2.5% in Australian dollar terms). From a global standpoint, 2017 was a year of generally positive economic and political developments. Despite initial fears, the European Union did not end up fracturing after the UK’s Brexit vote nor during the Greek debt renegotiations. Macron’s later presidential victory France in May helped to further enhance confidence. In the US, Trumps unexpected election victory heralded a surge in sharemarkets as investors reacted to Trumps pro-growth tax cuts and infrastructure spending plans. US markets were further boosted by better than expected economic growth data and solid corporate earnings (particularly amongst technology companies). Meanwhile in Asia, Japanese markets were strong on news of improving corporate profits and the Chinese economy remained buoyant and its currency under control. All these factors combined to help drive all key developed markets (US, UK, Europe and Japan) up over 18% over the year (in local currency terms).
- Emerging markets had a similarly strong year, rising +15.1%. The sector was buoyed by improvements in commodity prices, higher oil prices (particularly in the first half of the year) and a supportive global economic backdrop.
- Australian shares rose +14.2%, their best performance in three years. The majority of this gain came in the first half of the financial year as investors shrugged off fears of Brexit, Turnbull’s reduced majority government and President Trump’s election to focus on global growth prospects. The local market’s best performers were the consumer, mining and tourism stocks, with the latter two benefiting from rising commodity prices and soaring inbound tourism.
- Infrastructure stocks gained +10.6% for the year, bolstered by expectations of US President Trump’s infrastructure plans and announcements of new infrastructure spending in Canada (pipelines) and Australia (second Sydney airport plans). Almost of all these returns came in the second half of the year, fortuitously coinciding with our Investment Advisory Committee’s decision to add infrastructure into the Six Park portfolios.
- Returns across our bank deposit and bond ETFs were subdued, rising +2.1 and +0.01% respectively. This reflected the prevailing low interest rate environment, and in the case of the local bond markets, expectations of rising interest rates (explained more here).
- Global listed property was on the only asset class to decline in 2017, falling -5.1% over the year and -3.4% since our allocation shift to this asset class. The sector was impacted by falls across US, UK and Australian markets along with the 3.1% appreciation in the AUD. Although not an ideal outcome, global listed property still outpaced the local real estate market (which fell -5.5% for the year end)