Over the last ten years, the share prices of the so-called 'bond proxies' have done incredibly well.
They say that on average the share market (represented by a broad index fund such as the Vanguard Australian Shares ETF (ASX: VAS)) goes up by roughly 10% per year.
Well, the bond proxies have comfortably beaten that benchmark. Below is the average annual total shareholder return for a list of infrastructure and real estate shares over the last ten years:
-
Sydney Airport Holdings Pty Ltd (ASX: SYD) – 19.5%
-
Transurban Group (ASX: TCL) – 12.8%
-
Auckland International Airport Limited (ASX: AIA) – 19.1%
-
BWP Trust (ASX: BWP) – 14.7%
-
Goodman Group (ASX: GMG) – 15.8%
-
Mirvac Group (ASX: MGR) – 15.4%
So what has been the biggest driver of that?
The biggest driver is likely to be low-interest rates that have increased the risk appetite for investors in search of higher yields than the low rates on bonds.
To be fair, ten years ago we were at the lows of the global financial crisis and the price of most asset classes have increased significantly since then.
Despite that, those returns don't seem to be sustainable going forward and some reversion to the mean might be due.
Also interesting to note is the performance over the same period of companies in sectors that benefit from higher interest rates such as banking:
-
Commonwealth Bank of Australia (ASX: CBA) – 11.2%
-
Westpac Banking Corp (ASX: WBC) – 9.3%
-
Australia and New Zealand Banking Group (ASX: ANZ) – 10.3%
-
National Australia Bank Ltd. (ASX: NAB) – 7.7%
As you can see, the performance of the big banks has not been as impressive over the same period. Granted, the banks have also suffered from concerns over regulatory and conduct issues but I think low-interest rates have also played a part.
So does this mean it's time to move away from bond proxies?
I certainly am not currently adding infrastructure and real estate shares to my portfolio at the moment. Instead, I am looking more at revolutionary companies such as these three.
