• According to Atchison, commodities and properties are the only two asset classes which have outperformed inflation in FY22
  • We look at the best and worst performing asset classes over the last 10 years
  • Stockhead gets the Kev Toohey view on balanced future portfolios

An analysis of investment returns has revealed which major asset categories have outperformed and underpeformed inflation in the last decade.

The analysis, provided by investment advisor Atchison, shows that of the 16 major assets assessed for FY22, commodities and direct property were the only major asset classes to post returns above inflation (albeit underlying direct property valuations are outdated).

To put it in context, the headline CPI rate in Australia currently sits at 5.1% as of the March quarter.

 

Source: Atchison

All major equity and fixed interest asset classes that Australian investors are exposed to have effectively gone backwards in inflation-adjusted terms over the past 12 months.

Australian equities including small caps have returned below the CPI rate; while emerging markets and global government bonds were the worst two performing asset classes measured over FY22.

Inflation winners and losers in last decade

It’s the first time since FY09 that the majority of major asset classes have underperformed the inflation rate.

FY22 saw marginal differences between Australian equities, unhedged developed market equities, and hedged developed market equities (hedged means the currency risk has been taken out).

This means that all three were roughly as bad as each other when measured from 30 June to 30 June.

In terms of investment styles (value, growth, momentum etc), Atchison said all major styles have also posted negative returns over the 12 months.

 

Source: Atchison

2015 was the best year over the past decade as all markets except for commodities beat inflation that year. Mind you, the inflation rate in Australia in 2015 was only around 1.5%.

Meanwhile, 2018 was the best year for small caps investors, with that asset category leading the pack that year. To put it in perspective, the inflation rate in 2018 was around 1.9%.

Predictions ahead

So what would a balanced portfolio that might actually return a profit over the next 2 to 5 years looks like right now?

Kev Toohey, Principal at Atchison, told Stockhead that with rates now going up, term deposits would offer a good yield now in nominal terms.

“For a balanced portfolio, our base case model has a positive return from a typical portfolio structure of equities, bonds, and real assets,” Toohey said.

“However, the profitability for the scenario that sees a further leg down in both equity and debt duration exposures has increased, and therefore where possible introduction of alternative sources of positive return is continuing,” he added.

Toohey also believes that long dated assets like government bonds have been oversold in the current environment.

“Arguably duration is oversold, so an increase in long government bond exposure albeit must be willing to ride some continued volatility from the asset class,” Toohey said.

“Similarly, profitable technology and quality tilted Asian equites are areas of overselling that are of interest.”

 

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.