Professional Investment Services Pty Ltd
Australian vs International Equities
Nominal Annual Returns1 (includes inflation) 1978 -2004
Aust & Int'l Shares: Nominal Returns 1978 -2004
80%
Aust Shares
60%
Inter'l Shares ($A)
40%
20%
0%
-20%
-40%
Both Australian and international shares have produced volatile returns of a similar magnitude.
During the 1980s, Australian returns were dominated by highly volatile resources sector.
Since the mid 1990s, Australian returns dominated by the less volatile financials sector (eg banks).
In the late 1990s, international shares dominate by the tech boom. Since the year 2000 tech wreck,
international shares have been in the doldrums.
Observe the frequency of a negative return is similar for both Australian and international shares.
The returns include high inflation until early 1990s. Next charts remove inflation so are looking at
the real returns.
1
Source: Financial Planning Association and Macquarie Bank
Noll Moriarty, CFP®. 8 Stringybark Drive, Aspley, Queensland 4034. Authorised Representative # 245078
1
Professional Investment Services, Australian Financial Services Licence 234951, ABN 11 074 608 558
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Professional Investment Services Pty Ltd
Real Annual Returns 1978 -2004
Observe average returns are quite similar (9.3% pa Australian; 7.9% pa international).
Australian Shares: Real Returns 1978 - 2004
International Shares: Real Returns 1978 - 2004
80%
80%
Aust shares Intl' shares $A
60%
Rolling 5 year
60%
Rolling 5 year
40%
40%
7.9%
20% 9.3%
20%
0%
0%
-20%
-20%
-40%
-40%
For reference, chart below shows result of nominal  High-Growth blended
Risk : Real Return
portfolio of 50%:50% Australian and international shares:
10.0%
50% Aust & 50% Inter'l Shares: Real Returns 1978 - 2004
9.0%
80%
Hi-Growth
60%
Rolling 5 year
8.0%
40%
9.0%
20% 7.0%
16% 18% 20% 22% 24% 26%
0%
Risk (Standard Deviation)
-20%
Aust shares Intl' shares $A Hi-Growth
-40%
The High-Growth blend has a lower volatility than
100% Australian shares yet achieves similar return.
Noll Moriarty, CFP®. 8 Stringybark Drive, Aspley, Queensland 4034. Authorised Representative # 245078 Professional Investment Services, Australian Financial
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Services Licence 234951, ABN 11 074 608 558
Real Return
Real Return
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Mean
Mean
Geometric Return
Real Return
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Mean
Professional Investment Services Pty Ltd
To smooth out annual variability, lets look at rolling 5-year returns:
Rolling 5-year Real Returns (1982 -2004)
40%
30%
20%
10%
0%
-10%
-20%
Aust shares Intl' shares $A Hi-Growth
Observe rolling returns of international shares have been of equal magnitude, or better, than
Australian shares for most years (only exception during 2002-04 when international shares were
suffering from tech boom hangover. Such hangovers don t last forever& )
Why Invest Internationally?
Investing in overseas shares can help you increase your returns and reduce your risk by:
" providing a greater range of investment opportunities,
" providing greater growth potential,
" reducing short-term volatility of portfolio returns,
" reducing the overall level of risk for any given level of return, and
" reducing exposure to the Australian economy and currency.
The Australian market represents 2% of total share
market capitalisation around the world.
If invest only in Australia, are missing out on 98% of
the opportunities to profit.
Noll Moriarty, CFP®. 8 Stringybark Drive, Aspley, Queensland 4034. Authorised Representative # 245078
3
Professional Investment Services, Australian Financial Services Licence 234951, ABN 11 074 608 558
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Professional Investment Services Pty Ltd
There are many industry sectors in which Australia does not have a competitive advantage and are
under-represented here. Investing in overseas shares is the only way to access high growth
opportunities such as the world s leading pharmaceutical, aerospace and electronics companies.
Investing in only the Australian market is over-exposed to financials and materials companies.
Investing internationally obtains exposure to industry sectors including telecommunication services,
IT and utilities. The diversification opportunities of international investment are very attractive.
What about currency?
Studies show that over the long term, a well-diversified portfolio of Australian and overseas shares
has a lower risk of being adversely affected by currency movements than a portfolio of Australian
shares alone and a better chance of benefiting from such movements.
Currency fears are not a reason to avoid investing overseas.
Noll Moriarty, CFP®. 8 Stringybark Drive, Aspley, Queensland 4034. Authorised Representative # 245078
4
Professional Investment Services, Australian Financial Services Licence 234951, ABN 11 074 608 558