Listed investments, including Australian listed property trusts (LPTs) and shares, have once again provided the best ‘real’ returns for local investors over the past two decades, according to the 2007 ASX/Russell Long-Term Investing Report.
The Report, commissioned by the ASX and prepared by Russell’s investment consulting team, investigates the performance of a range of investments over the past 10 and 20 years. The performance comparison takes into account the impact of personal tax rates, the tax treatment of various assets, and the spectrum of costs associated with different investments, in an effort to show investors the real-life impact of tax and borrowing on ultimate investment returns.
Now in its 10th year, the Report found that Australian LPTs outperformed all other sectors, delivering the best after-tax returns at the lowest and highest marginal rates, for both the ten and twenty year periods. Similarly, global listed property outperformed other asset classes such as Australian residential investment property and fixed interest.
Australian shares outperformed overseas shares, with returns bolstered significantly by the favourable tax treatment of shares compared to property and cash.
Those at the lowest marginal tax rate have gained the most with after tax returns almost equal to pre-tax performance, thanks to the franking credits system used by investors to offset tax already paid on company profits against the tax on their dividends.
Taking gearing into account, returns from both Australian shares and residential property increased by around three percent per annum. However, shares outperformed residential investment over the last decade at both the lowest and highest marginal tax rates.
Peter van Steensel, ASX General Manager Marketing, said the report provided valuable information for investors considering their medium to long-term investment strategies:
‘”We are very pleased to see that the three top performing investments over the 10 year period were all ASX-listed investments - Australian listed property, Global listed property and Australian shares. The returns on each of these three investment classes were at least three times the rate of inflation. This performance reflects the underlying strength and continued growth of the Australian securities market. This growth is mirrored in the record highs recently experienced in our benchmark index, the S&P/ASX 200, breaking through the psychologically significant 6000 point barrier.”
Andrew Pease, Investment Strategist for Russell Investment Group, said the Report taught some critical investment lessons: “Investors need to keep in mind that markets move in cycles and that the landscape changes significantly as the cycles evolve,” he said.
“Although listed property has shown very strong returns in the last 10 years, the Australian market has shifted radically over time, becoming more concentrated and less diverse. The growth of the Real Estate Investment Trust (LPT) markets in Europe, continuing development in Asia and strong performance of US property markets are now also translating into increased opportunities for Australian investors.
Many investors would no doubt be surprised with the finding that shares have done better than residential property. This means that the best strategy for investors is to take a diversified exposure across all asset classes and not just invest in one asset class in the hope that it produces the best returns over the next decade. Importantly, investors should take care not to base their expectations on the past decade’s returns.”
The complete Report may be found on the ASX website at: http://www.asx.com.au/about/pdf/asx_russell_long_term_investing_report_2006.pdf
And on-demand web-cast and summary may be found on the Russell website at: http://www.russell.com/au/investmentperformance/
