by David Blumenthal 2019 was a very strong year for the Six Park portfolios. Although December was a slightly down month (-0.5% to ‑0.9%), total gains for the calendar year were +7.9% to +23.1%, with our higher risk portfolios benefiting most from one of the best periods for equity markets in a decade. These results represent a marked turnaround from 2018, when a four-month sharemarket rout whittled portfolio returns down to -1.4% to +1.6%. At the time, our recommendation was that investors hold their nerve amidst the market turbulence. Those who did so were well rewarded over the course of 2019.
While we caution against assuming these above-average returns will persist for an extended period (markets are unpredictable and tend to mean-revert over time), we continue to advocate the advantages of our low-cost, globally diversified investment approach.
Over the past three years, our portfolios have now returned +4.4% to +10.5% per annum. These figures would have placed Six Park in the top 5% of all equivalent risk profile multi-asset managed funds tracked by Morningstar – a particularly pleasing result and one that underscores the benefits of our passive investment focus and thoughtful asset allocation strategies (under the guidance of our Investment Advisory Committee).
Asset class performance
All asset classes chalked up positive returns for 2019 in a somewhat unusual period of synchronised growth. Global equities were the standout performer, up +29.0% for the year. It is worth noting that this performance was in stark contrast to the sector’s +0.4% return in 2018. This performance differential is a useful reminder of the unpredictability of markets and a key reason why our portfolios are diversified across multiple asset classes and geographies.
International equities enjoyed one of their strongest years in a decade, surging +29% in 2019 (on an unhedged basis). While profit-taking and a 3.3% appreciation in the AUD (against the USD) resulted in a slight dip in December (-0.7%), returns for the full year were overwhelmingly positive across all major indices with the S&P 500 gaining +32.6% and the broader MSCI World index up +27.7%. Notwithstanding a deterioration in economic growth and global trade expectations over the course of the year, global sharemarkets benefited from interest rate reductions by all major central banks (which led to a re-rating in risk assets) and generally robust corporate earnings.
Infrastructure gained +23.8% in 2019, with falling interest rates helping to boost demand for ‘bond proxy stocks (such as infrastructure and real estate). Expectations of improved US/China trade relations (with a preliminary deal finally agreed in December) provided a further boost to port and transport operators.
Australian shares fell back -2.1% in December, with 17 of the ASX’s 22 sub-industry sectors posting losses as profit-taking and concerns over lacklustre consumer spending saw stocks retreat. Despite these declines, the ASX200 ended the year up +23.2%, the index’s best result since 2009. Record low interest rates were a key driver, with the RBA’s 3 successive interest rate cuts boosting investor demand for dividend-paying domestic shares. A relatively benign banking Royal Commission report, the surprise Coalition Federal Election victory (which removed uncertainty over Labor’s planned changes to dividend imputation) and rising commodity prices were other supporting factors.
Emerging markets returned +19.2% in 2019. Most of these gains were seen in the first and fourth quarters. A recovery in oil prices (on the back of OPEC’s decision to cut output levels) and tax cuts and other government stimulus measures by the Chinese government drove advances during the March quarter, while easing trade tensions and rising commodity price helped underpinned a strong December quarter result.
Global property gained +18.2% for the year, with investor demand for yield (amidst the falling interest rate environment) driving demand for real estate stocks. Annual returns would have been even higher were it not for the 3.3% appreciation in the AUD in December (which accounted for most of that month’s decline).
Fixed income gained +7.4% for the year, boosted by the RBA’s decision to cut official interest rates during the year. Falling rates have a positive impact on bond prices (lower rates mean higher bond prices) and have been the key driver of the sector’s advances during 2019.
Our cash yield ETF ended the year up +1.7%. These subdued results reflect the prevailing low-interest rate environment. The sector continues to be an important asset class in our portfolio given its high level of capital security and low risk correlation with our other ETFs.
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