Sharemarket Perspectives

The CommSec Mums and Dads share index – an index of commonly-held shares – is within sight of record highs. Importantly the index measures total returns on shares (share price changes as well as dividends) – as all investors do – or least should do. 

Today the CommSec Mums and Dads index stands at 323.8, down just 1.4 per cent on the record high set in April 2013. The All Ordinaries Accumulation index stands 5.6 per cent below the record high set in November 2007.

Any investor that bought and held Telstra shares since 1999 is now ahead on their investment courtesy of consistent dividends over time.   

What does it all mean?

Many investors are disappointed by the performance of Australia’s sharemarket. They conclude that Australia’s economy is in far better shape than the US, but in the US the Dow Jones and S&P 500 index are either at or near record highs. In part, the current perceived under-performance of Australian shares is because of unfavourable comparisons. Essentially, the share prices of mining and energy companies soared in late 2007 when the mining boom was in full swing. So it may take a little longer for the All Ordinaries and ASX 200 indexes to reach the highs set at that time.

But the comparison between Australia and the US is also somewhat unfair because it fails to take into account the greater tendency of Australian companies to pay dividends to shareholders. For some companies, the payment of relatively high dividends can be the primary factor attracting the attention of budding shareholders.    

In the late 1990s, CommSec put together a share index called the Mums and Dads index – a portfolio of commonly-held shares such as household names or companies the subject of demutualisations or privatisations. Many shareholders got their start in the sharemarket by investing in these companies.

Today the CommSec Mums and Dads index is just over 1 per cent away from the record highs set in April. The broader sharemarket – the All Ordinaries Accumulation index – stands 5.6 per cent from the highs set in November 2007 – still constrained by the performance of companies in mining and energy sectors.

For many investors the CommSec Mums and Dads index provides a more accurate perspective of the performance of equity market investments. Many of the components have posted stellar gains over the past year driving financial wealth of households to new record highs.      

What do the figures reveal?

The CommSec Mums and Dads share index, as it currently stands, is made up of nine companies: AMP, CBA, IAG, Qantas, Suncorp Group, Tabcorp, Telstra, Wesfarmers and Woolworths. Other companies that were included in the past have been absorbed into the index such as Colonial, Coles Myer and NSW TAB. 

Many of these companies were the subject of privatisations or demutualisations over time while the major retail groups such as Coles and Woolworths are also in the index.

The CommSec Mums and Dads share index currently stands at 323.8, 1.4 per cent down on the record high set in April 2013. Over the past year, total returns on the Mums and Dads index (share prices and dividends) has lifted by 23.9 per cent, slightly ahead of the 21.5 per cent increase recorded by the broader market (All Ordinaries Accumulation index).  

Over the past year returns grew fastest for IAG (up 62.6 per cent), Suncorp (up 56.3 per cent), CBA (up 31.7 per cent) and Telstra (up 30.8 per cent), Slowest growth of returns was recorded by Tabcorp (up 10.8 per cent) and Qantas (up 15.4 per cent).

If mining heavyweights BHP-Billiton and Rio Tinto were added to the CommSec Mums and Dads index, returns would have lifted by 19.9 per cent – slower than the broader sharemarket. 

What is the importance of the index?

The CommSec Mums and Dads share index provides a valuable perspective on the performance of shareholdings over time. The index measures changes in share prices as well as dividends and other capital returns made to investors.

What are the implications for interest rates and investors?

Sometimes it pays to get a different perspective on things. The general assumption is that the sharemarket has a long way to go to reach record highs. But by focussing on just changes in share prices rather than share prices and dividends, investors and analysts alike would be missing perhaps the key component that is most responsible for generating returns on the investment.

The latest results on the performance of commonly-held shares confirms other data showing that household financial wealth levels in Australia are either near or at record highs.

Once the election is out of the way, investors will again focussing on underlying economic “fundamentals” like the performance of investments, low inflation, attractive interest rates and relatively low unemployment. The economy has potential to lift markedly once the election is removed from the sight of consumers and businesses.

Craig James