Top assets for a post-boom world
The boom is over: long live the boom. A greying developed world, China’s slowdown and the faltering performance of the BRICS (Brazil, Russia, India, China and South Africa) has made investing far more challenging in the post-Global Financial Crisis environment. Which assets should financial planners, private wealth managers or other investors consider for top returns?
First of all, it is time to farewell the high double-digit returns regularly achieved prior to 2007. From an average 11.9% annual return by Australian diversified funds from 1982 to 2007, a new study by AMP Capital projects that average medium-term performance will drop to around 7.5% to 8% a year.
In this new world, asset allocation will be critical in maximising returns, with Asian and emerging market stocks likely to perform well compared to other more traditional asset classes. Here are some of the expected top performers:
* Asia (excluding Japan): Leading the pack with a forecast total return of 10.7%, comprising 8% growth and 2.7% yield. As noted recently by AMP Capital’s Chief Economist, Shane Oliver, China remains cheap compared to inflated U.S. markets, with the rest of region likely to follow its lead.
* Emerging market shares: Another top performer with a forecast 10% total return, made up of 7% growth and 3% yield. From Indonesia to the Philippines, emerging markets particularly across Asia are seeing stronger economic growth and improved management, despite the effects of U.S. monetary tapering.
* Australian shares: Fortunately for local investors it is still profitable as well as safe to invest at home, with the domestic market set to return 9.5%, and with the effects of franking credits factored in it could even outperform all others with a 10.8% gain. Aussie investors love yield and this is reflected in the high yield contribution to total returns, comprising 4.3% versus 5.2% in growth.
* Unlisted infrastructure: Another strong performer with a forecast gain of 9.5%, comprising largely yield (6%) and growth (3.5%), reflecting the long-term income potential of infrastructure assets such as ports, railways and roads.
* Unlisted commercial property: With a forecast gain of 8.5%, this sector should not be ignored, particularly for yield-focused investors, given that yield accounts for 6% and growth 2.5% of the total expected return.
Beyond the top four, the next best expected performers are global Real Estate Investment Trusts (REITs) (8% forecast total return), Australian REITs (7.8%) and a diversified growth mix (7.7%), followed by world shares (in local currencies) at 6.9%.
The motto for investors: asset allocation is now paramount. Choosing the right assets is now critical to future returns.
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