Aussie funds earn higher, but more volatile, returns

The orthodox strategy of fund managers and trustees to steadily increase their investment in overseas stock markets isn't delivering results, and has failed to do since this approach became common in the 1990s. The investment return in 2004 of most broadly based funds will once again be low, depending on their exposure to overseas shares. So far in 2004, Australia's S&P/ASX 200 Index is up 19.4 per cent. Wall Street's S&P 500 Index is up 7 per cent in US dollars, but is only up by half that much in $A. London's FTSE 100 is up by 6 per cent in sterling, and 11 per cent up in Australian dollars. Tokyo's Nikkei Index is up by only 3.7 per cent in yen, and 4.8 per cent in Aussie dollars. Fund researchers Intech said Australian shares are returning about 9 per cent pre-tax over the long term, and about 8.9 per cent after tax. The long-term after tax return on international shares is lower, at 8 per cent, but the gap is outweighed by the extra volatility.