The Affluence Fund Quarterly Report – December 2014

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In Australia, the ASX200 stock market index rose 2.2% for the quarter, but just 1.1% for the entire 2014 calendar year. Investors continued to favour companies with defensive earnings, US dollar earnings and high dividend yields. The Australian dollar continued its fall against the US dollar, ending the quarter at 82 cents per USD. Those overseas holidays continue to get more expensive.

Despite continuing weak economic data from Europe, a stronger US market helped world stock markets finish the quarter on a positive note. The falling Australian dollar meant that for the full year, global equities were the place to be for Australian investors. The US market rose 11% in 2014, well outpacing the Australian market. If you also allow for the fall in the Australian dollar, the increase for an Australian dollar investor was around 18%.

The surprising performance during the year was from bonds, particularly Australian Government Bonds. Yields on the Australian 10 year government bond fell by over 1% during the year as global investors sought out reletively higher income and safer returns from the Australian Government. Despite our own frustrations with successive Governments, Australian bonds are seen globally as one of the safest investments. And compared to other developed nation in the Northern
Hemisphere, the yields available on Australian bonds seem high.

Meanwhile, in the mysterious world of commodities, increasing supply levels in the energy markets finally put paid to the speculators and we saw oil prices go through a sharp correction during the quarter, following iron ore into the doldrums. This, predictably had a big negative impact on oil stocks.

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