9 January 2017

Over the past week Australian shares were 1.6% higher. Shares in developed countries were 1.8% higher with the US market 1.7% higher. Shares in emerging markets gained 2.2%. The Australian dollar was 1.3% higher at 73.01 US cents. The 10 year bond yield in Australia was 0.08% lower at 2.68% while in the US, the 10 year bond yield closed the week 0.03% lower at 2.42%. The oil price gained 0.5% to 53.99 US dollars per barrel.

With 2016 behind us it’s time to have a look at how different asset classes performed through the year. All returns are for the accumulation index, meaning that dividends and coupon payments are reinvested. The table below lists the yearly returns for various asset classes.

 Asset class 2016 calendar year return
Australian shares  11.8%
Australian small cap shares  13.2%
Global shares excluding Australia (in local currencies)  8.9%
Global shares excluding Australia (hedged in AUD)
 10.3%
Global shares excluding Australia (unhedged in AUD)
 7.9%
Emerging market shares (unhedged)   8.6%
Australian listed property securities  8.1%
Global listed property securities (hedged into AUD)  6.0%
Australian bond composite Index  2.9%
Global bond composite   2.6%
Australian cash  2.1%

Source Bloomberg + AMP Capital. 

Overall 2016 was a year where taking risk was rewarded. We hold the view that it's appropriate to remain invested in riskier assets despite valuations being stretched in comparison to cash. This is near identical to what we mentioned in our end of financial year update.

Additional notes

  • Much of the annual return was driven by strong market performance in the last two months of the year, as markets appeared to react positively to a Donald Trump presidency.
  • Australian shares outperformed international shares and emerging markets.
  • A hedged exposure to global shares outperformed an unhedged exposure. This means that overall the Australian dollar rose against the currencies of the various countries represented in the index. The Australian dollar was largely unchanged against the USD but rose against other currencies.
  • After years of strong performance the returns from listed property securities lagged broader equity markets a little in 2016.
  • Bonds and cash underperformed more risky assets, consistent with our long term forecasts.

Despite concerns throughout the year, most notably including BREXIT and the US election, 2016 ended up being a good year overall. This was true for investment returns among nearly all higher risk asset classes. 2017 presents many challenges globally and domestically. We believe that predicting short term market returns is very difficult and one can easily spend a lot of time and resources speculating on the short term. Our focus remains on investing our member’s retirement savings for the long term.

Best wishes for the year ahead.

Signing off
David Bell

Past performance isn't necessarily an indicator of future performance.
All data sourced from Bloomberg and AMP Capital.