by David Blumenthal 2017 was another strong year for the Six Park portfolios. Despite a mostly flat December, our portfolios ended the year with gains (after fees) of +3.7% to +11.2%(1).
Equity markets enjoyed robust returns in 2017, boosted by a resurgence in the global economy (which saw all major economies grow in unison for the first time in almost over a decade!), benign inflation and positive company earnings. On the back of these gains, our growth-orientated portfolios advanced +8.3% to +11.2%. These figures compare favourably to the returns of similarly constructed “multi-asset” managed funds in Australia. In particular, the returns on our Balanced and Balanced Growth portfolios (our most popular options) were higher than 78% and 68% of comparable funds tracked by Morningstar.
Returns on our more conservative portfolios (Conservative and Conservative Balanced) were more modest, reflecting both the prevailing low interest rate environment and these two portfolios’ lower risk positioning. These two portfolios nonetheless still outperformed a pure fixed income strategy, adding +3.7% and +5.7% for the year compared to average retail bank deposit rates of 2.3% over the year according to RBA statistics (link to http://bit.ly/2mDv6yY)
Overall, these results highlight the benefits of our low cost, globally diversified approach and the combination of our passive investment focus and thoughtful asset allocation strategies (under the expert guidance of our Investment Advisory Committee).
Six Park Portfolio Performance – December 2017
| PERIOD | CONSERVATIVE | CONSERVATIVE BALANCED | BALANCED | BALANCED GROWTH | AGGRESSIVE GROWTH |
|---|---|---|---|---|---|
| 1 mth | -0.2% | -0.1% | 0.0% | 0.0% | 0.1% |
| 3 mths | 1.7% | 2.6% | 4.0% | 5.1% | 5.8% |
| 1 year | 3.7% | 5.7% | 8.3% | 10.2% | 11.2% |
Notes
(1) Past performance is not indicative of future performance.
(2) All figures are illustrative in nature based on notional $50,000 portfolios which are assumed to have been fully invested at the start of the relevant period. Your actual investment performance may vary depending on factors such as the timing of your investment with us.
(3) All figures are pre-tax and are post Six Park’s fees and applicable ETF fees. The results are calculated using monthly closing prices for each ETF, not NAV. They assume dividend reinvestment (at the end of each month) but do not include dividend imputation. No cash holdings or rebalances are assumed.
ASSET CLASS PERFORMANCE:
All but one of the asset classes within the Six Park portfolios posted positive returns during 2017. The standout performer for the period was emerging market equities (up +20.9%) although global infrastructure, international equities and Australian shares all posted double digit returns. The poorest performing sector was international listed property, which grew reasonably strongly in USD terms (up over 7%) but still ended the year down ‑0.8% as a result of an offsetting rise in the Australian dollar (which reduced values in local currency terms).
Notes
(1) Performance figures are based on Six Park’s selected ETFs. Results reflect ETF closing prices, not NAV, so may differ from those published by the ETF issuers.
Emerging market equities gained +20.9% in 2017 – a figure which would have been even higher were it not for a 7.8% appreciation in the AUD over the year. This result is the highest return for the emerging market sector since 2009 and well above its longer run average of +4.8% over the last decade. Almost all emerging markets rallied strongly over the year, supported by strong capital inflows and buoyant global demand. Ongoing economic momentum in China helped propel its sharemarket up +21% (in USD terms) while Indian, South African and Brazilian markets also performed well on the back of positive political developments and commodity price gains.
Global infrastructure finished the year up +14.3%. While December was a poor month, especially for US utility stocks (given the combined impact of the US Fed’s rate increase and weather-driven wildfires), this was partly offset by gains across European and Australasian transport and power stocks. Overall the sector benefited from a year of supportive economic conditions, increases in public spending initiatives and expectations for only mild tightening in monetary policy by central banks in the developed world.
International shares returned +13.6% for the year. US shares recorded their best performance in 5 year, buoyed by a combination of robust economic growth, strong corporate profitability (particularly amongst technology stocks), low interest rates and expectations (now realised) of pro-growth corporate tax cuts. All major US indices hit a series of record highs across 2017, with the S&P 500 not only surging 19.5% for the year but doing with very low volatility. The S&P500 has now posted 15 consecutive months of positive returns (the first time since 1959) and experienced only four trading days with declines of more than 1% during 2017. European stocks also performed strongly, swept along by GDP growth across the Eurozone (including Greece which expanded at its fastest rate in almost a decade), relative political stability and a more gradual than expected reduction in monetary policy support by the central banks. Japan’s Nikkei index also grew strongly (up +19%), reaching its highest level in almost 3 decades as improved corporate earnings and a resounding victory for Prime Minister Abe’s ruling party helped boost investor optimism.
The Australian sharemarket ended the year up +11.5%. The majority of this gain came in the last quarter of the year, as global investor optimism and rising commodity prices helped push the ASX200 through 6,000 points for the first time in over 9 years. All but 4 industries posted gains for the year, with the best performers being healthcare, information technology and energy stocks (which all rose over +20%). Telecommunications remained the weakest sector (down -27%) for the second year running. Retailing stocks moved from 2016’s second best performer to the second worst sector in 2017, falling -13.2% for the year, highlighting the difficulties of “picking” winners based on past performances.
Annual returns across our fixed income and bank deposit exposures were relatively subdued at +3.4% and +2.1% respectively. This reflected the ongoing low interest rate environment which has seen the RBA maintain cash rates at a record low of 1.5% for 15 consecutive months. Local bond markets have also been impacted by expectations of an eventual tightening of yields and inflation concerns.
The global property market ended the year down -0.8%. Although most geographies and sectors of this market actually recorded reasonably strong gains on the back of improved earnings and a series of major merger/acquisition activities (European real estate trusts were up +29% in USD terms), these advances were offset by the strong appreciation in the AUD over the year.
Notes:
(1) Keen eyed readers will note our annual returns to December (+3.7% to +11.2%) were noticeably lower than the 12-month figures to end-November (+4.9% to +15.9%). This is mainly due to the drop-off of December 2016 from the latest annual calculations. December 2016 was a particularly strong month in which both Australian and US equities both surged +4.4%