If you have your own super fund with a strong home bias in your portfolio, you won't have been doing that well.
Diversification is good and the only free lunch in investing. However, limiting diversification to Australian shares, plus cash and fixed interest, is resulting in subdued returns.
The 2016 Russell Investments/ASX Long-Term Investing Report shows most domestic asset classes have lost momentum in recent years.
Over the past decade, Australian shares produced an average annual total return, including dividends, of 6 per cent, assuming they were held inside super. That was better than global shares that are hedged to remove the exchange rate effects, which returned 5.5 per cent.
However, over the past several years some overseas sharemarkets have done better than Australian shares.
Lower returns and higher volatility than normal are likely to continue for some time.
Peter Gunning, the Sydney-based chief executive of the Asia-Pacific arm of Russell Investments, says investors should consider making use of a wider range of alternative assets and strategies, including international investments.
Gunning says Australia's resources boom, which took the local currency to unprecedented heights, is over and China's growth is slowing. And Australian corporate profit growth is likely to remain subdued.
The strong home bias of DIY fund trustees is confirmed by the latest SuperConcepts Investment Patterns Survey. It finds that among the DIY funds it administers, the typical exposure to Australian shares is almost 40 per cent.
The survey shows DIY fund trustees have been rotating out of the largest stocks, such as the big banks and Telstra, and into smaller companies in search of growth and yield.
However, the total exposure to Australian shares of the typical DIY fund has stayed about the same.
The DIY funds have almost 20 per cent in cash and short-term deposits and 12 per cent in fixed interest.
The 10-year government bond yield recently fell to a record low, which means the market believes the prospects of further cuts to the official cash rate are likely.
If the Reserve Bank cuts the cash rate further, interest paid on cash deposits and term deposits, which are already paying next-to-nothing after inflation, will pay even less.
The typical DIY fund's exposure to international shares remains low at only about 13 per cent, according to the SuperConcepts survey. That is an exposure that could possibly, depending on personal circumstances, be bumped up.
With the advent of exchange-traded funds (ETFs) it has never been easier or cheaper to invest overseas. ETFs are listed on the Australian sharemarket and track, or mirror, the returns of markets and prices, including those of commodities.
Chris Brycki, the founder of Stockspot, an online investment adviser, crunched the numbers on which ETFs have particularly low correlations to Australian shares and other domestic investments.
The best diversifiers away from Australian shares and other domestic investments include gold, followed by global consumer staples and global real estate; the prices of each are tracked by at least one Australian-listed ETF.
Sydney Morning Herald
