Australian shares beating out global peers over the very long run

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Australian shares produced a total average annual compound return of 9.1 per cent over the past 30 years, easily eclipsing the 7.6 per cent returns of international shares and proving the importance of investing retirement savings in local assets.

An initial investment 30 years ago in the Australian sharemarket, without adding to it, would have grown more than 13 times.

Morningstar’s Michael Malseed says a big part of the reason for the outperformance of global shares over the past 15 years is US-listed tech companies

However, over a shorter timeframe of 15 years, international shares have done better, growing 10.1 per cent compared to 7.2 per cent for Australian shares, figures from research house Morningstar show.

The returns assume dividends are re-invested, and the effects of changes in currency exchange rates are included. The returns are before inflation.

Michael Malseed, director of manager research at Morningstar Australasia, says a big part of the reason for the outperformance of global shares over the past 15 years is the returns of US “mega caps”.

US-listed shares have a weighting in the global shares index of almost 70 per cent, and US-listed tech stocks play a big part in that weighting.

For example, US-listed Apple’s market capitalisation in US dollars makes it the biggest company in the world and comprises about 5 per cent of the total capitalisation of the global shares index.

“Over the past 15 years Apple shares, including dividends, have returned almost 30 per cent a year,” Malseed says.

The shares of the largest listed Australian company, BHP, have produced an average annual total return of just under 5 per cent a year over the past 15 years.

A startling feature of world sharemarkets is the rapid changes in the companies that dominate. Fifteen years ago, the biggest companies in the world included US stocks such as Exxon Mobil, General Electric, Chevron, Johnson & Johnson and Procter & Gamble. Now it is Apple, Amazon, Nvidia, Tesla, Alphabet and Meta.

“There has been a real compositional change with these new tech names, whose returns over the 15 years have been in the high double digits,” Malseed says.

For Australia, the biggest names are very similar to 15 years ago, with BHP and the big four banks still among the largest. “These are quite mature companies that have been compounding at mid-single digits over 15 years,” Malseed says.

The industry sector composition of the Australian sharemarket is also very different to that of global markets.

While the financial services sector comprises about 30 per cent of the Australian sharemarket, it makes up only 14 per cent of the world index. Basic materials, which include resources, comprise 24 per cent of the Australian market compared to 4 per cent of the world market.

Technology comprises 3 per cent of the Australian market compared to more than 20 per cent of the world market. “You get broader diversification of sectors on overseas sharemarkets,” Malseed says.

Australian companies tend to pay a higher proportion of their profits as dividends than overseas-listed companies.

These returns take no account of taxes. Australia’s dividend imputation system can see investors receive franking credits in addition to the cash dividend.

Sharemarkets can, at times, be a wild ride for investors, but as the numbers show, having exposure to shares is crucial to growing a nest egg by more than rising prices.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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