2020-21 saw investment returns rebound – expect more modest but still good returns this financial year

July 7th 2021

20-21 investment rebounds main image

Key points

  • 2020-21 saw investment returns rebound after the coronavirus hit depressed 2019-20 returns.
  • Key lessons for investors from 2020-21 were to: allow that share markets look ahead; timing markets is hard; don’t fight central banks, and turn down the noise.
  • Over the next 12 months, returns from a well-diversified portfolio are likely to be slower but still solid.



The past financial year saw a spectacular rebound in returns for investors as the focus shifted from the recession to recovery against a backdrop of policy stimulus and vaccines. This note reviews the last financial year and takes a look at the outlook.


The big developments of the last financial year

A year ago, many were wondering whether share markets had gone bonkers as they pushed higher despite lots of bad news. To be sure there were big negatives over the last 12 months:

However, for investors in well-diversified portfolios the bad news was dominated by the good, in particular:


Strong returns more than making up for a poor 2019-20

With the recession and profit slump associated with coronavirus already factored in and giving way to recovery, and vaccines and stimulus providing confidence it would continue, the past financial year has been very strong for growth assets.

Global shares returned 37% in local currency terms. A rebound in the growth-sensitive Australian dollar saw this reduced to a still very strong 28% in Australian dollar terms.

Australian shares returned 28% helped by a sharper rebound in the Australian economy, a surge in profits and numerous companies reinstating or increasing their dividends. Of course, this followed a 7.7% loss the previous financial year.

Reflecting the growth rebound, listed property rebounded and unlisted property and infrastructure also saw a good recovery.

Of course, bonds performed poorly as bond yields rose and cash had a near-zero return reflecting the near-zero cash rate.

This drove very strong returns from balanced growth super funds of around 19% after fees and taxes. Over the last five years, super fund returns averaged around 8.5% pa which is not bad given sub 2% bank deposit rates and inflation.


20-21 investment rebounds 1
Source: Thomson Reuters, AMP Capital


Australian residential property prices also surged on the back of ultra-low rates, various incentives and economic recovery resulting in their strongest 12-month gain since 2004.


Key lessons for investors from the last financial year


The worry list weighing on the outlook

Share markets have had strong gains from last year’s lows (US shares are up 94%, global shares are up 83% and Australian shares are up 60%) and are no longer unambiguously cheap so the easy gains are likely behind us. And as always there remains a worry list to contend with.


The positives are likely to ultimately dominate

These negatives have the potential to cause a correction in share markets. However, there are a bunch of positives that are ultimately likely to dominate in terms of investment markets.

  • First, while coronavirus cases may be on the rise again the vaccines are keeping a light shining at the end of the tunnel. They don’t appear to be completely effective against getting infected by the new variants, but the evidence suggests they are 90%+ effective in preventing serious illness requiring hospitalisation and causing death. In the countries that are further advanced in vaccination (eg, Israel, the UK, most of the US, Europe, etc.) this should allow reopening to continue without rising new cases overwhelming the hospital system, ie, learning to live with coronavirus. For those countries further behind in reaching herd immunity – like Australia – it likely means a continuing reliance on snap lockdowns to keep case numbers down and head off bigger outbreaks that overwhelm the hospital system and send economies backwards. But the evidence so far is that snap lockdowns don’t derail the recovery. And global production schedules point to plenty of vaccines being available later this year enabling Australia and other vaccine laggards to proceed down the same path as other advanced countries later this year or early next in terms of avoiding lockdowns.
  • Second, while inflation pressures have picked up this is mainly evident in the US and largely reflects pandemic related distortions. Other countries including Europe, Japan and Australia are seeing far less of an inflation spike.
  • Third, this in turn will likely keep central banks gradual in removing ultra-easy monetary policy with rates likely to remain low for a long while yet. We don’t expect the first rate hikes in the US and Australia till 2023 (and Europe and Japan are a long way behind that) and even then it will take several years to reach a tight monetary policy that threatens economic activity and company profits.
  • Fourth, against this backdrop while we have probably seen the peak in terms of growth momentum globally, the recovery is likely to continue as the rollout of vaccines progressively allows more countries to safely reopen, pent up demand is spent (evident in about $US2.5trn of excess savings in the US and about $200bn in Australia) and monetary policy remains very easy.


20-21 investment rebounds 2
Source: Bloomberg, AMP Capital


  • Finally, while traditional valuation measures for shares show them to be expensive, they continue to look okay relative to still-low bond yields. This is particularly evident in Australia with a grossed-up dividend yield of 5% or so for the year ahead well above bank term deposit rates of around 0.5%.
20-21 investment rebounds 3
Source: RBA; AMP Capital


What about the return outlook?

While there is a risk of a short-term correction in shares and returns are likely to slow from the pace of the last year, overall returns from well-diversified portfolios are still likely to be reasonable over the next 12 months.


Things to keep an eye on

The key things to keep an eye on are: covid hospitalisations and deaths in more vaccinated countries; inflation; central banks; growth momentum; and tensions with China.


If you have any questions about this please contact us.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.