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The InvestSMART diversified ETF portfolios returned between 7.21% and 14.38% in the 12 months to 31 December 2023. We are proud to share these exceptional results, 2023 was a bumpy year in markets and many people faced financial strain. We do not underestimate the resilience it takes from clients to stay invested and stick to their plan during uncertain times.  

Outperformance by design, not chance 

InvestSMART portfolios have consistently outperformed the majority of our peers (and there are hundreds of them) by 1% to 2% for nearly 10 years. This may not sound significant, but when you consider the compounding effect it is a sizeable amount. 

For example, a $10,000 investment in InvestSMART’s high growth portfolio since inception would be worth $20,036 net of fees. While the same investment in the average of our competitors’ funds charging an average of 1.13% would be worth $16,121.  

Our philosophy of diversification through broad based passive ETFs, low fees and time in the market (and, importantly, not trying to time the market) means InvestSMART achieves strong, consistent long-term returns. 

By sticking to the philosophy and not predicting market movements we won’t see our portfolios taking out top spot, but instead it will consistently see the portfolios tracking above the average their peers. 

"I can afford not to be the best investor in the world, but I can’t afford to be the worst" - Morgan Housel, The Psychology of Money 

A look back at 2023 

Annualised numbers hide the bumpy road of financial markets that regularly test investors’ resolve. 2023 was a volatile year full of wild market swings and distracting headlines, but those who were able to ignore the distractions and stay invested were ultimately rewarded. November and December saw lower than expected inflation and strong gains for markets around the world. 

As we have always said, to get market returns you must be in the market, which means experiencing the highs and lows.  

Challenges and distractions 

ETF investors have one job and that is to hold. In 2023 this was challenged on two fronts, one legitimate and the other not so. Household budgets were stretched with price inflation everywhere we looked. Savings were whittled down and liquid investments like shares were the next to go, putting well intentioned, responsible families investing for their future behind. 

Interest rate and recession speculation was the main distraction of 2023. The RBA target cash rate started the year at 3.10% and finished at 4.35% after five rate rises, most taking place in the first half of the year.  

Putting this in the distraction category isn’t to play down the impact, the distraction is the fact it is out of investors’ control. We also must remember, as the numbers above indicate, the market is forward looking. Once information is in the news it is digested, and the market moves on. 

Looking ahead 

There may already be a clubhouse leader for distraction of 2024 with the financial media having a field day with the SEC’s approval of the first Bitcoin ETFs. We believe the ASX will eventually follow suit. But you will not see cryptocurrency as an asset class in any of the InvestSMART portfolios anytime soon. 

All the asset classes we invest in are backed by real assets, tangible businesses, properties, bonds etc. These are income generating assets that can be valued. Bitcoin is not. The return comes from the speculation of selling at a higher price than you bought, that’s it. We do not speculate with client savings.  

A US election is always another major distraction, especially when Trump is involved. Once again, this is not something within your control as an investor. A study by U.S Bank shows slightly muted returns leading up to US elections as uncertainty builds followed by higher returns post the outcome.  

For people thinking about trading in and out of investments around this event we look to a favourite Howard Marks quote, “Why sell something you think has a positive long-term future to prepare for a dip you expect to be temporary? Doing so introduces one more way to be wrong (of which there are so many), since the decline might not occur.” 

Diversified Portfolio's ETF Insights

The story for 2023 was all about equities, specifically international equities and the big 7 technology companies: Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla. ASX:VGS, which represents international shares in the portfolios, returned 23.30% in 2023. It was responsible for the lion’s share of the growth in the portfolios. It’s interesting to note many economists were predicting falls in international markets and a recession at the start of 2023. These predictions didn’t pan out, but those who took heed of these warnings and divested missed out on incredible capital growth. 

The ASX 200, represented by ASX:IOZ in the portfolios, had a volatile year but produced positive returns of 12.29% when the market turned in November and December on better-than-expected inflation figures. 

Bonds have experienced an ‘uncharacteristic’ turbulent period over the last two years, enduring high inflation and interest rates. With both forecast to fall in 2024, bonds are likely to stabilise and as such many commentators believe that 2024 could be a good year for bonds. The role of bonds in InvestSMART’s portfolios is to provide a ‘cushioning’ effect when share markets fall. Occasionally bonds and shares fall together, as witnessed recently. For those who are invested with a long term horizon, this shouldn’t cause undue alarm, bond’s historical tendency to bounce back during market turmoil is likely to reinstitute itself again. ASX:IAF represents high grade Australian bonds and ASX:VBND represents global bonds in the portfolios. They returned 4.96% and 5.18% respectively in 2023.  

ASX:VAP, which represents property via Australian real estate investment trusts (A-REITs) returned 16.62%. This performance was on the back of the recovery from COVID-19 and strong performance of industrial and retail property sector, rebounding off the lows of recent years. 

ASX:IFRA, representing global (hedged) property, returned 0.08%. High interest rates and inflation of prices in materials and ongoing supply chain disruptions saw project costs blow out, resulting in IFRA’s lackluster 2023 performance. However, these income producing assets may make a resurgence in 2024 and beyond with growth driven by the transition to clean energy and spending to strengthen ground assets against increasing natural disasters.