Beware the Ides of March! The month of March lived up to its brutal reputation that all started on 15 March 44BC when Marcus Brutus stabbed Julius Caesar to death in the Roman Senate. Red ink flowed during March like the blood of Caesar. However, despite the dramatic headlines, markets have merely returned to a normal level of volatility. In fact, 2017 was the unusual year, with its very low volatility. We need to keep some perspective and understand that it is the norm, rather than the exception, to see a 10% correction at some point during any given calendar year. And when you do see that sort of correction, it often makes the 12 month trailing performance look very ordinary, as you can see in the 12 month numbers in our table.
|INDEX RETURNS AS AT 31 March 2018 (%)|
|1 month||3 months||6 months||One year|
|Domestic Listed Property||0.11||-6.19||1.12||-0.07|
|Global Listed Property||2.37||-5.30||-1.85||1.23|
|Australian Fixed Interest||0.84||0.87||2.32||3.28|
|International Fixed Interest||0.84||-0.09||0.81||2.89|
|S&P/ASX 200 Accumulation Index|
|MSCI World ex Aust TR Index $A|
|S&P/ASX 300 Property Trusts Accum Index|
|FTSE EPRA/NAREIT DEVELOP NR INDEX (A$ HEDGED)|
|Bloomberg Composite 0 + Years|
|BarCap Global Aggregate Index Hedged AUD|
|Bloomberg Aus Bank Bill Index|
The month of February finished up being almost flat, a surprise after the deep selloff early in the month.
Listed property, (local referred to as A-REIT’s and global as G-REITs) was down again on the rising interest rate curve. Although one never wants to stand in front of a freight train the value now emerging in listed property starts to look interesting at these levels. The longer term outcome will depend on bond yields.
Bonds are in the spotlight as a leading culprit in the increased volatility and the sell-off in the aforementioned A-REITs. The ten year US bond yields that we discussed at length in last months post continued to rise, peaking at 2.94% on 21 February. The yields appear to have run into some resistance at that level, but this could be merely a consolidating pause.
During the month, the S&P 500 index of US shares had a loss of 11.83%, which takes it into the ‘correction’ territory.
The month of December capped off a great year for investment markets. Good returns with unusually low volatility provided ‘many happy returns’ for balanced and growth investors.
Australian fixed interest turned in a negative return, as longer term rates rose during the month. A widely expected rise in the US Federal Reserve rates pushed their Fed Funds rate up to 1.5%, the same as the Australian Official Cash Rate. The only negatives for the major asset classes for the month of December were International Shares, and Australian Fixed Interest. In fact, international shares were mostly positive in December, but the 3.0% rise in the Aussie dollar turned those gains into a negative return for the month.
On the currency front, the strong Australian dollar was in fact more about the US dollar which weakened by 10% versus a trade weighted basket of currencies over the 2017 year. This is a perverse outcome very few would have predicted given the US central bank was just about the only major global central bank raising rates during the year.
The S&P/ASX200 Accumulation has now put in two solid months, following the October gain of 4.01% with another 1.64% in November. Twelve month returns are 14.61% almost double our expected annual 12 month returns of around 8.5%. This surge may have pulled forward some of the next twelve months expected gains.
Global markets also posted a good month, with gains of 3.24% and three month gains now at 11.33%. Emerging Markets, which we have favoured in our Managed Portfolios, are up 29.27% over the last year. We mentioned in the last update that Emerging Markets remain somewhat cheaper than developed markets, with arguably more to gain from structural reforms and demographic changes.
Real Estate Trusts
The A-REIT sector (real-estate trusts) saw gains of 5.29% for the month of November. This sector is coming back into favour after a sell-off based on concerns about higher bond rates and the arrival of Amazon which may (or may not) further hollow out the Australian retail sector.
The S&P/ASX200 Accumulation index finally put in a surge in October, with a gain of 4.01% in the month, shaking off a 6 month malaise. Twelve month numbers are back up to 16.13% almost double our expected annual 12 month returns of around 8.5%.
Global markets also had a good month, with gains of 4.29% and a rolling 12 month return that tops the charts at 22.53%. Emerging Markets posted even higher returns with a gain of 5.92% in October, and one year returns of 25.49%. Although vulnerable to negative events in the short term, Emerging Markets remain somewhat cheaper than developed markets, with arguably more to gain from structural reforms and demographic changes.
Bond markets improved in October, posting a gain of 1.09% on average. However one year gains are still muted at 1.64%, held back by long bond yields that are drifting higher, albeit at a slow pace.
The Australian market had a fair month in August. Mark takes us through the performance across the board to prepare us for what’s to come.
The Australian market had a fair month in August, with the ASX 200 Accumulation Index posting a 0.71% return for the month, which annualises out to around 8.5% which is within a few points of our expected long term returns. The commodities price was the action sector with Energy shares (+6.07%) delivered the biggest gains.
The rolling one year historic returns for the ASX200 Accumulation index is now 9.79%, rolling off some good periods in FY 2017 which saw a great return of 14.09%. Sentiment on Australia remains patchy. Banks, our largest sector have plenty of sceptics due to the high capital city house prices, and highly leveraged consumers. Our other big sector being materials, seems captive to sentiment about what China will do next.
Looking globally, the MSCI World Index gained 0.85% in AUD terms during August,