Navigator today cautioned customers on making investment decisions for the new financial year based on market results from the past year (2003/04 financial year).
Navigator today cautioned customers on making investment decisions for the new financial year based on market results from the past year (2003/04 financial year).
Performance can differ greatly one year to the next - making it hard to predict results. This is well highlighted when comparing the most recent two financial years. Australian equities jumped from - 1.7% to 21.6%* and international equities (in $A) from - 18.4% to 19.4%*.
According to Stuart Fechner, Navigators research manager, the strong returns provided by equity markets over the past 12 months are well above the long term average and should not be expected year in year out.
"Its easy to fall into the trap of believing in an investment myth. For example, I often hear unfounded comments about whether you're better off investing into last years worst performing asset class or chasing the one that has just provided the best return."
"Some investors decide to invest into the last years worst performing asset class in the belief that returns can only get better the next year - this is sometimes referred to as a contrarian approach to investing," Stuart explained.
The opposite is when investors decide to invest into the asset class with the highest return from the previous year, in the belief its success will continue the next year - this is sometimes referred to as a chasing approach to investing.
Navigator has analysed the historical outcomes of these two alternative investment strategies utilising the returns achieved by the standard benchmark index of each asset class.
On a financial year basis in the period from 1985 to 2004, the chasing investment approach would have returned 12.1% per* annum for the investor compared with a 9.9% per annum* return for the contrarian investor.
However, if we analyse the historical outcomes of these approaches on a calender year basis over the same period, the chasing investment approach would have returned an average of 10.8% per annum* for the investor, compared with an 14.2% per annum* return for the contrarian investor.
"The outcome has turned on its head as this time the contrarian strategy has provided the best outcome! In summary, unfortunately there is no magical investment strategy," says Stuart.
Investors looking to change investment strategies should seek out financial advice before committing to any change of plan.
-ends-
* All Performance figures utilised are those provided by the following indices:
- S&P/ASX All Ordinaries Accumulation Index
- MSCI World Net Index in $A
- UBSWA Composite Bond All Maturities Index (Commonwealth Bank Bond Index prior to 30/9/89)
- SB World Government Bond Index in $A (hedged)
- S&P/ASX 200 Property Trust Accumulation Index
- UBSWA 90 Day Bank Bill Index.
Stuart Fechner is available for interview on 0407 839 080
Notes to editors:
- Aviva Australia is a group of two specialist financial services companies: Navigator and Norwich Union Life Australia Ltd. Portfolio Partners, the Australian funds management arm of Aviva plc, is a sister company. Through these companies we provide products and services in the areas of wealth creation, wealth management and wealth protection for more than 300,000 customers throughout Australia
- Globally, Aviva Australia is part of Aviva plc, the world's fifth largest insurance group, the largest insurer in the UK and one of the top five life companies in Europe. Aviva was formed in May 2000 through the global merger of CGU plc and Norwich Union plc
- Aviva is a leading provider of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities are long-term savings, fund management and general insurance. It has premium income and investment sales from continuing operations of A$78 billion, and more than A$624 billion of assets under management (as at 1 July 2004). The group has more than 56,000 employees and 30 million customers worldwide. Aviva is a leading provider of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities are long-term savings, fund management and general insurance. It has premium income and investment sales from continuing operations of A$78 billion, and more than A$624 billion of assets under management (as at 1 July 2004). The group has more than 56,000 employees and 30 million customers worldwide
- The information in this document reflects Norwich Union Life Australia Limited's (NULAL) and NULIS Nominees (Australia) Limited's ('NULIS') understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person and it is not a substitute for professional advice. Applications to invest in a financial product issued by Aviva, or any of its related entities, must be made by completing the application form attached to the applicable Product Disclosure Statement ("PDS"). A PDS is available from Aviva or your financial adviser. Before making an investment decision on the basis of the information above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the information is appropriate in the light of their particular investment needs, objectives and financial circumstances.