The New Year has arrived, and while we look forward to 2015 let us go back and check out 2014 and the year that it was for investors.
The table below shows how the three core asset classes performed over the last 12 months ending December 2014 as represented by the key indices.
|S&P 200 Accumulation Index||5.6%|
|S&P 200 Industrials Accumulation Index||11.4%|
|MSCI World Index ex Australia (in $AUD)||15.0%|
|CASH & FIXED INTEREST|
|Bloomberg AusBond Composite Index||9.8%|
|Bloomberg AusBond Bank Bill Index||2.7%|
|Property Council/IPD All Property Index – Retail*||10.0|
|Property Council/IPD All Property Index – Office*||9.3|
|Property Council/IPD All Property Index – Industrial*||11.4|
|CoreLogic RP Data- HomeValues Index – Houses – Australian 8 capitals||12.6|
|CoreLogic RP Data- HomeValues Index – Units – Australian 8 capitals||10.0|
|*Figures available to end of September 2014.|
As can be seen, 2014 provided Australian investors with decent returns, although it did have a few surprises. The first one was the turmoil in oil and commodity prices in the latter part of the year, which saw the overall Australian share market index deliver 5.6% after performing much higher for most of the year. The other surprise, also due to the volatility in the markets, was the performance of the fixed interest index with a return of just under 10%.
Australian investors who invested abroad were well rewarded with the global index return of 15.0%, its best for several years. Meanwhile, direct property performed very well in all the various sectors, while, perhaps to no surprise, cash was the laggard. At 2.7% cash just kept ahead of inflation, expected to be around 2.3%
So what may 2015 possibly bring? Firstly, we see interest rates, both locally and overseas as being important drivers of investment outcomes. In Australia, rates are expected to stay at 2.5% for the near future with growing views of a possible decrease. Other things being equal this will prove positive for property and shares but not so good for conservative investors relying on cash/fixed terms. Overseas, the interest rate mood is likely to be determined by the United States. The economy there has seen material improvements and the Fed is considering increasing rates from the current (almost) zero rate. Applying the same logic as above, this is not so good for property and US shares.
Elsewhere, Europe and Japan are still struggling to attain meaningful growth while China is mixed. In contrast, India is expected to grow quite strongly which is likely to be positive for their property and share markets.
Of course there are geopolitical issues (Russia, Middle East) that may create further uncertainty, despite the apparent ability of investment markets to overlook the disturbing developments so far.
So, 2015 should be an interesting year with reasonable expectations, risks and opportunities. Importantly, while the 12 months’ performance is entertaining to review, it is full of “noise and disruptions”. Investing for the future requires taking a view, planning for it and trying to avoid the noise and the disruptions.
|Index returns for period ending 31 December 2014|
|1 year (%)||5 years (% pa)|
|MSCI World ex Australia Index (A$)||15.01||12.50|
|MSCI World ex Australia Quality Index ($A)||19.19||15.19|
|S&P/ASX 200 Accumulation Index||5.61||6.76|
|Market Vectors Australia Equal||10.15||7.92|
|Market Vectors Australia Banks Index||8.62||12.69|
|Market Vectors Australia A-REITs Index||25.92||14.18|
|Market Vectors Australia Energy & Mining Index||-9.86||-3.41|
|Emerging market equities|
|MSCI Emerging Markets Index (A$)||6.93||3.72|
|Australian fixed income|
|Bloomberg AusBond Composite 0 Yr Index||9.81||7.33|
|Bloomberg AusBond Bank Bill Index||2.69||3.83|
Sources: Market Vectors, Morningstar, UBS. Results are calculated to the last business day of the month and assume immediate reinvestment of all dividends and exclude costs associated with investing in the ETF. You cannot invest directly in an index. The above performance information is not a reliable indicator of current or future performance of the Index or ETF, which may be lower or higher.
Nick Stratus, Solid Financial Advisers, 22 January 2015