"Australian Shares" versus "International Shares" - 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 diversified portfolios of Australian Shares and International Shares over the 25 years from 30 June 1982 (suitable data for International Shares first became available in 1982) to 30 June 2007. The article is an update of a similar article published over four years ago. However this latest article examines a period which starts 6 months earlier and finishes 4.5 years later - during the earlier 6 month period, International Share investment performance significantly exceeded Australian Share performance, but during the last 4.5 years Australian Share investment performance significantly exceeded International Share performance.

 

The International Share portfolio is not hedged against currency movements, which means that both currency and share price movements are reflected in the results for International Shares.

 

First, let's examine what happened if $20,000 (in Australian dollars) was invested in each of these two portfolios at the start of the 25 year period, assuming that all investment income was reinvested back in each portfolio, as occurs with some managed investments.

 

The following chart plots the results for the 25 year period. To show the relative sizes of the accumulated results for each portfolio, a logarithmic scale has been used. The ratio of the "Australian Share" results as a percentage of the "International Share" results is also shown.

 

 

Note that for the 19 year period from 30 June 1982 to 30 June 2001, the Australian Shares portfolio slightly underperformed the International Shares portfolio, but in the 6 year period to 30 June 2007, the Australian Shares portfolio significantly outperformed the International Shares portfolio.

 

The next table summarises the results:

 

$20,000 invested for  25 years

from 30/06/1982 to 30/06/2007:

 Accumulated to:

Australian

Shares

$759,760

International

Shares*

$414,430

Difference

 

$345,330

Average annual

compound return

 

First  13 yrs

Last   12 yrs

           25 yrs

17.27%

13.94%

 15.66%

18.05%

  7.56%

   12.89%

-0.78%

 6.38%

 2.77%

Standard deviation

           25 yrs

 15.74%

    22.37%

 -6.63%

                                                   Source: Austmod historical returns before tax and fees

 

* The International Shares portfolio is unhedged, and hence the above investment performance is significantly influenced by currency movements. To illustrate, if the portfolio value were hedged during the last 12 years against the United States dollar (or alternatively, against the Japanese Yen) then, disregarding hedging costs, the 7.56% annual average return for the last 12 years would have increased to 9.19% (or alternatively, to 12.65%).

 

The year by year investment returns for each year ending 30 June have been:

 

 

In 16 of the 25 years the return for the Australian Shares portfolio exceeded that for the International Shares portfolio. The annual returns for the Australian Shares portfolio were negative only 3 times in the 25 years compared with 7 times for the International Shares portfolio.

 

To give an indication of the trends in investment returns (and inflation) over the period, the next chart plots the seven year moving average compound returns per annum. The seven 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.