Q: Could you tell me if the American stocks have performed overall better than us in the last 12 months, or will they in the next 12 months, and do you think that in a super fund we should have some exposure to overseas shares at this stage or not?
A: Over the 12 months to 30 June, the Aussie market did a little better (in local currency terms):
- US S&P 500 (total return): 20.60%
- S&P/ASX 200 (total return): 22.75%
Total return includes dividends.
I must admit I was a little surprised by this as well (I thought intuitively that the US market had done better). For an Australian investor who considers investments in Australian dollars, the US share market has done a lot better because the AUD has fallen by around 15%. The iShares ETF (ASX Code IVV), which is based on the US S&P 500 and is denominated in AUD, has returned 34.95% for the year to 30 June.
I think you definitely should have some exposure to the US market. Timing is always the issue, however three factors suggest some exposure is warranted:
- While the US stock market may have priced some of this in already, the US economy is growing – whereas the Australian economy is arguably slowing;
- The strong correlation between Australian stock prices and US stock prices – it is very hard to believe that we can maintain a strong bull market in Australia without some positive lead from the USA; and
- Expectations that the AUD will go lower – it is more likely to be at 0.85 USD rather than 1.05 USD in 12 months.
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