Returns on the rise for shares post-GFC.

Patience has paid off for Australian investors who held on during highs and lows of the market during the Global Financial Crisis (GFC), according to boutique investment research and actuarial consulting company Precept Investment Actuaries.

In a research paper, entitled: ‘Independent Assessment of Historical Australian Share Market Returns over 20 years to 30 June 2013’, Precept Investment Actuaries challenges some pre conceived notions about returns for Australian share market investors.

The in-depth report provides insight into returns – taking into account both share price gains and dividends paid over the period – since the Global Financial Crisis and the implications for future returns.

The main findings of the paper are:

• The average annual long run return on a pre-tax basis over the last 20 years from the Australian share market was 9.6% p.a. excluding franking  benefits and 11.0% including estimated franking benefits.
• The average return of 9.6% over the last 20 years was achieved through an average price gain for shares of 5.2% p.a. and average dividend return of 4.1% p.a. This highlights the often overlooked importance of dividends and franking credits on long term investor returns.
• The Australian share market delivered a return of 22.8% including dividends for the 12 months ending 30 June 2013. This was driven by a rise in share prices of 17.3% for the year together with dividend income of 4.7% excluding franking.
• The 2013 year reflected a favourable sharemarket return of 16.4% for the first 6 months to 31 December 2012 followed by 5.5% for the subsequent six months to 30 June 2013.
• Returns throughout the GFC have been volatile and inferior despite a strong year in 2013. Due to the GFC investors have achieved an average market return of only 2.9% during the last 5 year period from June 2008 to June 2013. However the 20 year average market return is more representative.

According to Mark Hancock of Precept Investment Actuaries, the outlook for future returns remains uncertain. However, based on the last 20 years and even the 10 years prior to that, it would be statistically unlikely to have such another disappointing five year period going forward from 2013 to 2018.

“Future outcomes will depend on a range of factors including: how the global economies unfold from here, how corporate earnings respond and how investors perceive value and growth.

“When you take a step back it is evident that patience has been rewarded for Australian equity investors who experienced the prolonged and adverse period of the GFC,” Mr Hancock added.

Melinda Howes, CEO of the Actuaries Institute said the report reinforces the role modern actuaries play in providing research and analysis across a broad range of organisations and industries.

“As ever, actuaries are uniquely placed to objectively analyse and provide an impartial perspective on a variety of topics through long-term analysis, modelling and scenario planning.”

For a copy of the full paper ‘Independent Assessment of Historical Australian Share Market Returns over 20 years to 30 June 2013’ prepared by Precept Investment Actuaries please contact alice@honnermedia.com.au

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