Growth assets outperform, weak Australian dollar boosts unhedged asset returns

Key Insights.

  • Growth assets such as equities and real estate outperformed defensives and alternative investments
    during the 2018 financial year.
  • The weak Australian dollar relative to most other currencies enhanced the returns of foreign
    investments for unhedged investors.
  • Defensive assets have been more volatile than expected as long-term and short-term interest
    rates normalize.

Growth Assets outperform defensives and alternatives

An analysis of periodic returns for major asset classes are presented in Exhibit 1 with the data-set ranked
on the basis of 1-year returns in an ascending order. The highest returns were experienced by Australian
Small Caps (S&P/ASX Small Ordinaries) with 24.25% annualised returns followed by commodities
(Thompson Reuters commodity index) and Emerging market Real Estate (FTSE EPRA NAREIT). Other equity
indices also saw high returns with Australian Equity broad market (S&P/ASX All Ordinaries), Global
Equity (MSCI World Ex Australia) and EM Equity (MSCI EM) all delivering double digit returns over the
past 12 months. The FTSE Emerging Market REIT Index was ranked second on growth which is somewhat
misleading due to its it is denomination in USD (further discussed in Exhibit 3 and 4). Hedge funds and
Developed Market REITs had high single digit returns, however, infrastructure and fixed income assets
delivered weak results due to rising interest rates and inflationary expectations.

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