Sharemarket should produce best annual gains in 12 years

Sydney - Wednesday - September 28: The Australian sharemarket is on track to post the strongest annual returns in almost 12 years, according to ComSec's Economic Insights.
With two days remaining in the September quarter, the All Ordinaries Accumulation index is up 29.6 per cent on a year earlier - the largest annual rise in almost 12 years (December quarter 1993).
The best performing sector of the Australian sharemarket over the September quarter has been materials (up 19.2 per cent) while retailing has also posted solid gains of 17.2 per cent.
The strongest global sharemarket in the September quarter was Russia (up 39.4 per cent). Sharemarkets in Eastern Europe and Latin America outperformed during the quarter.
The 'hot' sector across the globe continues to be Energy, while the 'hot' region is Eastern Europe.
Interest in ethanol production has lifted the price of sugar to 5-year highs.

Investors delighted with returns
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Australian investors have every reason to be delighted by current sharemarket returns. Over the past year, total returns on Australian shares have risen by almost 30 per cent, the best annual gain in around 12 years.
But not only have returns on shares been solid, they have also been consistent.
Over the past two years, Australian shares have consistently recorded double-digit annual gains, a feat last emulated 18 years ago.
In contrast to the rocket-like performance in the late 1980s, recent gains on the sharemarket are sustainable with valuations still below longer-term averages.
The price-earnings ratio (ratio of share prices to company earnings) stands at 15.8, below the decade-average of 17.4.
China, India and the US are still driving the global economy but investors are showing plenty of interest in the growth potential of eastern Europe.
Sharemarkets of Eastern European nations were amongst the strongest performers over the September quarter with Russia leading the way.
A key driver of the performance of the Russian sharemarket has been interest in the energy sector. On Tuesday, the benchmark Russian RTS index rose by 3.1 per cent to a record high after President Vladimir Putin indicated that the country's oil and natural gas reserves had been "under-estimated."
Energy is clearly the 'hot' sector across global sharemarkets.
And not only are oil and gas in focus but also alternative fuels. On Tuesday raw sugar prices rose to 5-year highs, underpinned by strong demand and prices for ethanol.

RISK CONTROL

RISK CONTROL

Given the loss we have recommended taking in BTX, we thought it was worth touching base on the most important part of investing: risk control.

Risk is controlled by 4 simple processes in investing:

1) Calculating an accurate risk reward ratio. The more work that is put into understanding an investment and its risks and value, the better the odds of avoiding making errors of judgement in terms of risk/reward for each investment. The best way to not lose money is to avoid loss making investments in the first place, but that is not always possible.

2) Allocating capital. If you forced three fund managers to construct a portfolio with the same ten stocks, the performance of each fund would be different. How capital is allocated between the investments available is critical to success.

3) Insurance. Just like car insurance, it is possible to use derivatives to hedge positions and protect against adverse market movements. But like all insurance, it comes at a price and does not always provide a perfect hedge.

4) Stick to what you know. Many investment mistakes a made by those when they move away from their area of expertise. All successful investors have their own system or strategy and they stick to it. This strategy may be progressive and adaptive but the general discipline of sticking to the areas where you are competent applies to any field of endeavour.