After a big sell-off in May, (-4.01%) the S&P/ASX200 Accumulation index managed a small gain of 0.17% for the month of June.

That was better though than Global markets, where the MSCI World index (in Aust Dollars) lost 2.54% for the month.

Bond markets sold off during June as interest rates rose, and the A-REIT sector (real-estate trusts) also had a fall, losing 4.51% over the month.

In spite of those falls, stepping back a bit to look at the whole year shows a much brighter picture of returns. The table below looks at the major liquid asset classes over the last ten years.

 

Financial Market Update July 2017 - Index Returns as at 30 June 2017

 

There are a few notable points here.  The one, three and five year returns for Australian and International shares have been very positive overall. Yet, when looking at the 10 year numbers, the returns from those assets are below the Fixed Interest returns.  And, when looking at fixed income returns we see that the returns this year have been low, lower in fact than a simple ‘buy term deposits’ strategy. Clearly timing is important, yet we are often told that ‘market timing’ is a fool’s errand.  That debate is for another day, but we make the point that a thinking person needs to be able to bring into perspective the nuances of different rolling time frames.

As we now know from history, October/November 2007 was the peak of markets pre GFC. Markets all bottomed in about March 2009.  These ten year numbers in the table above look sick now, but 18 months from now, they will start to look fantastic as we roll off the prior periods, and have a starting point that is very favourable.

But we must beware of extrapolating with no reasonable basis.  Those five year numbers for the shares and property are unlikely to be repeated in the next five years.  The temptation for in-experienced investors is to chase last year’s winner.  Invariably rotation happens within markets.

What piques our interest is that which is out of favour.  And the A-REIT market falls into that camp being 11 months into a correction.  Our general view last year was that it was hard to find compelling value in the sector. As a result our exposures have been relatively low.  From 1 August to 12 July the A-REIT sector has declined 14.88%.  Those kind of moves get us interested.  Former market darling Westfield with global assets and Scentre Group holding the Australian Westfield centres, has been taken a big hit, down around 25% since the peak back in August 2016.

 

Financial Market Update July 2017 - ASX - Australian Dollar

 

 

Make no mistake, Amazon will not kill the retail mall.  And as the saying attributed to various wise men from King Solomon to Abraham Lincoln goes, “This too shall pass”!