VIA_Index_Reaching_6000_2007_02_23.pdf (PDF - 48KB)

Melbourne, 23 February 2007 - Leading index manager, Vanguard Investments Australia (Vanguard) today pointed to the S&P/ASX 200 Index hitting the historic 6,000 mark, emphasising the benefits of applying a long-term, diversified approach to investing.


An investment of A$10,000 in the S&P/ASX 200 index over the past decade** would have grown to A$34,487#** - an average annual return of 13.2 per cent over the 10 year period.


However, Alla Kolganova Head of Australian Equities at Vanguard urged investors to be wary of headline performance numbers but look at what's left in their back pockets after fees and taxes.


Dr Kolganova said: "While many Australian investors would be delighted to share in the growth of the Australian market and see their funds rising, many would be unaware of the real return they receive after fees and taxes - which can be drastically different from the headline numbers."


New research from Morningstar1 which looked at the performance of the 15 largest Australian Share Funds showed an average return of 22.93 per cent in the 12 months to 31 December 2006.


The research also provided a breakdown of each funds' total return and what percentage was income versus growth. The income or distribution component of an investment return is taxed at an investor's marginal tax rate.


The research showed that the difference between an efficient manager and less efficient manager - ie one with less turnover and a higher percentage of the investment return derived from growth, rather than income - was as much as 27.19 per cent. A less efficient manager generated most of their investment return from income, which would adversely affect the net amount paid to the investor.


Of the 15 largest Australian Share Funds, only three managers including Vanguard managed their funds efficiently, with a lower proportion of the investment return derived from income rather than growth.
1 Source: Morningstar, as at 31 December 2006

The Vanguard Australian Share Fund produced a 24.09 per cent return# in the 12 months to 31 December 2006**, with 5.51 per cent of the return being derived from income and the remaining 18.58 per cent from growth.


Dr Kolganova added: "The market reaching 6,000 demonstrates the importance of investors adopting a long-term, low cost and diversified approach to investing.


"There are some good Australian equity managers in the market, but the key is how efficiently do they manage money and what is the net effect on the tax payer?"


The S&P/ASX 200 index reached 5,000 on 21 March last year.


**the above example is based on a 10 year period from 31/12/96 - 31/12/06, with an average return of 13.2% per annum. Past performance is not a reliable indicator of future performance.


#Return before fees, expenses and taxes, and assuming 100% reinvestment of distributions.


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