Domestic equities top investment returns in 2004/05

Domestic equities outperformed all other major asset classes on an accumulation basis (ie – allowing for the reinvestment of dividends). The return of 26.2% locally compares to 11.1% for international equities (as illustrated in the table below).

The top 3 performing sectors were Energy, Information Technology and Health with Energy producing the highest return of 64.29%.

Financial Year Performance – 2004/05

The financial year also saw strong growth in the IPO market with Australia ranking 4th in the Ernst & Young global survey  of capital raisings.  220 companies listed on the ASX in 2004/05, compared to 180 in the previous financial year (up 20% in terms of value).  Almost a quarter of all capital raisings came out of Western Australia, illustrating the significance of the resource sector in this growth.

A large number of listings in the infrastructure sector also helped to contribute to this strong result.  The market capitalisation of infrastructure funds increased by 88% in 2004/05, assisted by a number of new high profile entities such as DUETs, ConnectEast Group and Hastings Diversified Utilities Fund.  Many investors are attracted to infrastructure due to stable underlying income streams, the opportunity to participate in capital growth and their defensive characteristics (due to their low correlation to traditional asset classes such as shares and property). 

Listed property continued to perform well providing investors with total returns of 17.9%.   The Australian listed property sector continues to ‘punch above its weight’ with Australian listed property accounting for close to 12% of the value of listed property globally. The sector has seen a number of changes within the year including a trend towards stapling (or internalisation of management) and an infiltration into overseas markets such as the US and Europe. However the top performers for the sector were domestic players including Macquarie Leisure (total return of 91%), ALE Property Group (63%) and Australian Hotel Group (58%).

For a full list of LPT and infrastructure fund returns visit www.asx.com.au/lmi.
Also look out for the streetTRACKS Exchange Traded Fund (ETF) over the S&P/ASX 200 listed property index (ASX code: SLF) which allows investors to track the listed property index without having to stock pick.

With a buoyant equity market, the warrants market also showed continued growth.  Both the number of trades and total value traded was up on the last financial year.  Instalments continued to be the most popular amongst investors and they had plenty to choose from.  Almost 1,000 new instalments were listed in the 04/05 financial year, up 45% on last financial year.  The strong demand for instalments by investors can be attributed to the ability to leverage returns in a bullish market while generating an enhanced dividend yield.

An example of how instalments can be used to trade for dividends can be seen by the Dividend Yield Play Portfolio Study undertaken by ASX over the past 12 months.  Visit www.asx.com.au/yield to view the performance.

In the options markets, covered call writing again proved popular with investors looking to enhance returns on shares either owned outright or purchased on margin. Buying calls was another strategy that was very successful over the last year on the back rising share prices.  Finally with the market at record levels portfolio hedging using the S&P/ASX 200 option contract (XJO) is now common place. 

To learn more about investment products including options, infrastructure funds and listed property, visit the ASX website and take a 3 minute audio class.  These Flash audio visual presentations will provide you with a basic understanding of the sharemarket as well as an overview of products and services offered by ASX.  Visit  http://www.asx.com.au/resources/education/index.htm and remember to have the sound turned on!

ASX is interested in your feedback, please email us any comments on this article.