Over the past week Australian shares retreated by 0.3% with small company shares falling 0.9%. Shares in developed countries lost 1.2% with the US share market down 1.3%. Shares in emerging markets fell 1.7%. The Australian dollar slipped to 74.05 US cents. The Australian 10-year bond yield fell to 2.63%, with US 10-year bond yield also falling to 2.86%. The oil price leapt 8.1% to 74.15 US dollars per barrel.
The Australian share market is typically represented in mainstream media as the ASX 200 Price Index, which is a measure of the movements in share prices of the 200 largest and most liquid stocks in the Australian share market. Over the past financial year to June 2018 the index returned 8.3%.
It’s important to highlight that investing in the share market not only provides exposure to share price movements, but also to income or dividends paid by these companies. A more representative measure of share market performance is the ASX 200 Accumulation Index, which is a measure of the ‘total return’, including share prices and dividends. Using the ASX 200 Accumulation Index, a further 4.7% return from dividends lifts the total return to 13% over the past financial year.
Franking credits are a feature of the Australian share market, shared with New Zealand and Malta. Also known as imputation credits, franking credits are a type of tax credit that allows individuals to take advantage of the tax already paid by a company. Adding the benefit of franking credits provides a further 1.6% boost to total share market returns, taking the return to 14.6% over the past financial year.
The cumulative return comparing the ASX 200 Price Index, ASX 200 Accumulation Index and the ASX 200 Accumulation Index adjusted for franking credits is shown in the chart below. At Mine Super, we manage the Australian share portfolio by considering all three return sources.
Susan Chau | Senior Investment Analyst
Past performance isn't necessarily an indicator of future performance.
Data sourced from Bloomberg.