Investment Matters

CY-17 it’s a wrap

The end of the year / start of new one gives us a chance to look back with a broader perspective than we often consider.  We start this year with a wrap of CY-17 – from an Australian and international perspective.   

And although there has been much beach time over the first month of this year, the markets have actually been trading.  We will also look at how the year kicked off.

CY-17

The Australian market (All Ordinaries) delivered good returns for investors in CY-17: +7.8% plus dividends.  The larger cap end of the market ASX200 was not quite as strong, as compared to the broader All Ordinaries; it returned 7.0% plus dividends.

Globally, the Australian market had a reasonable year comparatively.  But not fantastic:

 

Source: IRESS, First Samuel

Why?

It is interesting to look at the composition of the Australian market.  If we look at the performance of individual sectors:

 asx 200 performance
Source: IRESS, First Samuel

This shows us that it was really a good year for the Australian market.

Except for Telstra (the major constituent of Telecom Services, XTJ).

And except Financial Services excluding Property Trusts (XXJ) – driven by the big four banks. 

Utilities (XUJ) traditionally have a lower return, and risk, compared to the broader market.  Similarly re Property Trusts (XPJ), but not always.

Even Consumer Discretionary (XDJ) delivered an almost 10% return, notable given the challenging retail trading conditions and Amazon overhang.

Conclusion

In the Australian market - without significant diversification, and heavily influenced by the big-4 banks - it is important to select specifically what you do and don’t invest in.   Each investment needs to stand on its own individual merits.

In many ways, it was pretty easy to see what was coming in relation to Australia’s banking sector – although, as always, the exact timing and specific details were uncertain.   What wasn’t uncertain was the high risk of underperformance.  Telstra was in the same boat – starting 2017 with unsustainable dividends and operating challenges.

As such, 10%+ equity returns in 2017 should have been expected from the Australian market. By way of comparison, First Samuel clients' equity allocations returned around 18% after fees.