"Australian Fixed Interest" versus "International Fixed Interest" - an historical perspective and comparison

This article is one of a series of SuperMail articles by Colin Grenfell, who is a superannuation consultant and actuary and Associate Director of SuperEasy.

Each article compares the long term performance of two investment sectors, such as Australian Shares, International Shares, Listed Property or Fixed Interest, or financial indicators, such as the Consumer Price Index (CPI), Average Weekly Ordinary Time Earnings (AWOTE), 90 day Bank Bill Rates or 10 year Bond Rates.

This article compares the investment performance of portfolios of Australian Fixed Interest and International Fixed Interest securities over the 18 years from 30 June 1986 (when suitable data first became available for International Fixed Interest securities) to 30 June 2004. The Australian Fixed Interest portfolio is primarily invested in government bonds and contains no international securities. The International Fixed Interest portfolio is generally fully hedged back into Australian dollars. Both portfolios are revalued monthly based on market values.

First, let's examine what happened if $10,000 was invested in each of these two sectors at the start of the period, assuming that all investment income was reinvested back in each sector, as occurs with some managed investments:

 

The next table summarises the results:

 

$10,000 invested for 18 years

from 30/06/1986 to 30/06/2004:   

Australian

Fixed Interest

International

Fixed Interest

Difference

Accumulated to: $68,600 $63,200 $5,400

Average annual

compound return

 

1st 9 yrs 

2nd 9 yrs  

18 yrs  

14.4%

8.3%

11.3%

13.5%

8.1%

10.8%

0.9%

0.2%

0.5%

Standard deviation*

18 yrs   

7.4%

6.2%

1.2%

                                         Source: Austmod historical returns before tax and fees

 

* The "standard deviation" indicates, for normally distributed investment returns, that  approximately: 

 (a) one-sixth of annual returns are less than (average - standard deviation) 

 (b) two-thirds are in the range (average - standard deviation) to (average + standard deviation) 

 (c) one-sixth of annual returns are more than (average + standard deviation).

 

 

The year by year investment performance for each year ending 30 June has been:

 

The annual returns for both portfolios were negative in the year ending 30 June 1994.   

 

In 9 of the 18 years the return for the Australian Fixed Interest portfolio exceeded that for the  International Fixed Interest portfolio. 

 

To give an indication of the trends in investment returns (and inflation) over the period, the next chart plots the four year moving average compound returns per annum.  The four year moving average compound rate of inflation per annum, based on changes in the CPI, is also shown.  

 

Disclaimer:   This article is intended to be a factual analysis of past investment returns.  It is not intended, nor is it to be regarded, as investment/securities advice.  It does not take into account whether any particular investment or type of investment is suitable for your individual circumstances.  It is strongly recommended that you seek professional advice before making any investment choice or decision.