The Motley Fool

Is it time to stay away from ‘bond proxies’?

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:

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.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Atlassian.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can find Kevin on Twitter @KevinGandiya.

The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Transurban Group. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

FREE REPORT: Five Cheap and Good Stocks to Buy now…

Our Motley Fool experts have FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.7% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.