"Australian Shares" versus "Listed Property" - 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, Direct 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 Listed Property (or real estate investment trust) securities over the 33 years from 31 March 1977, when suitable data for Listed Property first became available, to 31 March 2010. The Listed Property performance is based on returns from the ASX Property Trusts accumulation index and since 30 June 2002 uses the GICS (Global Industry Classification Standard) based index. The article is an update of a similar article published six years ago.

 

Let's examine what happened if $10,000 was invested at the start of the period, assuming that all investment income (i.e. dividends) was reinvested back in each sector, as occurs with some managed investments. Both portfolios are revalued monthly based on market values.

 

The following chart plots the results for the first 16 years. During the first 8 years of this period the results for the two portfolios were broadly similar but during the following 8 years the accumulated results for Australian Shares exceeded those for Listed Property.

The following chart plots the results for the last 17 years. During most of this period the accumulated results for Australian Shares exceeded those for Listed Properties. Between 31 March 2007 and 31 March 2009 the accumulated result for Listed Property fell a massive 68% (from $734,400 to $233,600) as a result of the impact of the Global Financial Crisis.

 

The next table summarises the results for the entire 33 year period:

 

$10,000 invested for  33 years

from 31/03/1977 to 31/03/2010:

 Accumulated to:

Australian

Shares

$862,500

Direct

Property

$331,700

 

Difference

 $530,800

Average annual

compound return

 

 

 

Standard deviation*

1st 8 yrs

2nd 8 yrs

3rd 8 yrs

last 9 yrs

        33 yrs

       33 yrs

20.3%

16.9% 

12.2%

 9.3%

 14.5%

 21.2%

20.2%

13.0%

10.9%

 2.6%

11.2%

 18.1%

 0.1%

  3.9% 

 1.3%

 6.7%

  3.3%

  3.1%

                                               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 returns for each year ending 31 March have been:

 

Note that the annual returns for the Australian Share portfolio were negative 6 times in the 33 years, whereas the annual returns for the Listed Property portfolio were negative 3 times. The annual returns for Australian Shares exceed those for Listed Property in 19 of the 33 years.

 

To give an indication of trends over the period, the next chart plots the 15-year moving average compound returns per annum. The 15-year moving average compound rate of inflation per annum, based on changes in the CPI, is also shown.

The final chart plots the 15-year moving average real returns per annum. The real rates are (1+a)/(1+c) -1, where "a" is the nominal moving average compound return per annum and "c" is the moving average compound inflation rate per annum based on changes in the CPI.

 

Disclaimer:   This article is intended to be a factual analysis of past investment returns.  It s 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.