Professional Investment Services Pty Ltd

Australian vs International Equities

Nominal Annual Returns1 (includes inflation) 1978 -2004

Aust & Int'l Shares: Nominal Returns 1978 -2004

80% 60% 40% 20% 0% -20% -40% 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

Aust Shares Inter'l Shares ($A)

1998

2000

2002

Both Australian and international shares have produced volatile returns of a similar magnitude. During the 1980s, Australian returns were dominated by highly volatile resources sector. Since the mid 1990s, Australian returns dominated by the less volatile financials sector (eg banks). In the late 1990s, international shares dominate by the tech boom. Since the year 2000 tech wreck, international shares have been in the doldrums. Observe the frequency of a negative return is similar for both Australian and international shares.

The returns include high inflation until early 1990s. Next charts remove inflation so are looking at the real returns.

Source: Financial Planning Association and Macquarie Bank Noll Moriarty, CFP. 8 Stringybark Drive, Aspley, Queensland 4034. Authorised Representative # 245078 Professional Investment Services, Australian Financial Services Licence 234951, ABN 11 074 608 558

2004
1

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Real Annual Returns 1978 -2004 Observe average returns are quite similar (9.3% pa Australian; 7.9% pa international).
Australian Shares: Real Returns 1978 - 2004
80%

International Shares: Real Returns 1978 - 2004

Aust shares
80% 60% Real Return 40% 20% 0% -20% -40% 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 7.9%

60% Real Return 40% 20% 0% -20% -40% 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998

Rolling 5 year

Intl' shares $A Rolling 5 year

9.3%

2000

2002

2004

2004

For reference, chart below shows result of nominal High-Growth blended portfolio of 50%:50% Australian and international shares:

Risk : Real Return

Geometric Return
10.0% 9.0% 8.0% 7.0% 16%

50% Aust & 50% Inter'l Shares: Real Returns 1978 - 2004 80% Real Return 60% 40% 20% 0% -20% -40% 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 Mean 9.0% Hi-Growth Rolling 5 year

18%

20%

22%

24%

26%

Risk (Standard Deviation) Aust shares Intl' shares $A Hi-Growth

The High-Growth blend has a lower volatility than 100% Australian shares yet achieves similar return. 2

Noll Moriarty, CFP. 8 Stringybark Drive, Aspley, Queensland 4034. Authorised Representative # 245078 Professional Investment Services, Australian Financial Services Licence 234951, ABN 11 074 608 558

Mean

Mean

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To smooth out annual variability, lets look at rolling 5-year returns:

Rolling 5-year Real Returns (1982 -2004)

40% 30% 20% 10% 0% -10% -20%

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

Aust shares

Intl' shares $A

Hi-Growth

Observe rolling returns of international shares have been of equal magnitude, or better, than Australian shares for most years (only exception during 2002-04 when international shares were suffering from tech boom hangover. Such hangovers dont last forever) Why Invest Internationally? Investing in overseas shares can help you increase your returns and reduce your risk by: providing a greater range of investment opportunities, providing greater growth potential, reducing short-term volatility of portfolio returns, reducing the overall level of risk for any given level of return, and reducing exposure to the Australian economy and currency. The Australian market represents 2% of total share market capitalisation around the world. If invest only in Australia, are missing out on 98% of the opportunities to profit.

Noll Moriarty, CFP. 8 Stringybark Drive, Aspley, Queensland 4034. Authorised Representative # 245078 Professional Investment Services, Australian Financial Services Licence 234951, ABN 11 074 608 558

2004

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There are many industry sectors in which Australia does not have a competitive advantage and are under-represented here. Investing in overseas shares is the only way to access high growth opportunities such as the worlds leading pharmaceutical, aerospace and electronics companies.

Investing in only the Australian market is over-exposed to financials and materials companies. Investing internationally obtains exposure to industry sectors including telecommunication services, IT and utilities. The diversification opportunities of international investment are very attractive. What about currency? Studies show that over the long term, a well-diversified portfolio of Australian and overseas shares has a lower risk of being adversely affected by currency movements than a portfolio of Australian shares alone and a better chance of benefiting from such movements. Currency fears are not a reason to avoid investing overseas.

Noll Moriarty, CFP. 8 Stringybark Drive, Aspley, Queensland 4034. Authorised Representative # 245078 Professional Investment Services, Australian Financial Services Licence 234951, ABN 11 074 608 558