Mr and Mrs Vincent have $50,000 of non-superannuation savings invested in a managed fund operated by Morrison Investments. The fund has equal exposure to each of the following asset classes: Australian Equity, Australian Bonds, Cash, International Equity, International Equity (Hedged), International Bonds (Hedged) and A-Reits. You are tasked with checking the performance of the fund.

	Mean Annual Returns		Std. Dev of Annual Returns
Australian Equity	10-Year	7.8%	Whole period	21.5%
	20-year	10.2%
	Whole period	13.3%
Australian Bonds	10-Year	6.3%	Whole period	6.8%
	20-year	6.9%
	Whole period	10.0%
International Equity	10-Year	6.8%	Whole period	20.9%
	20-year	8.3%
	Whole period	13.1%
International Equity (Hedged)	10-Year	9.2%	Whole period	17.6%
	20-year	9.9%
	Whole period	12.6%
International Bonds (Hedged)	10-Year	7.4%	Whole period	6.3%
	20-year	7.9%
	Whole period	11.1%
A-Reits	10-Year	5.9%	Whole period	17.7%
	20-year	10.3%
	Whole period	12.0%
Cash	10-Year	4.5%	Whole period	4.4%
	20-year	5.1%
	Whole period	7.8%

2. Now compare your returns calculations to Exhibit B which is a graph taken from Morrison Investments annual report for this managed fund. Note that your average and the average reported in the annual report use the same set of annual returns. Explain why they are different (your calculated mean should be higher). (3 marks)

Exhibit B: Gross returns for 10 years to December 2020 Growth managed fund Balanced managed fund Conservative managed fund Global listed property (unhedged) Global shares (unhedged) Global shares (hedged) Cash Global bonds (hedged) Australian bonds Australian listed property Residential invesment property Australian shares 0.0 2.0 4.0 6.0 8.0 10.0 Notes: *Only before-tax returns have been calculated. Compound returns are calculated over a 10-year period to December 2020. The returns are equivalent to the per annum compound returns that investors would have received for an investment in the particular asset class if they invested in an equivalent portfolio over the two periods. The Australian listed property measure is based on the returns implied by the S&P/ASX 200 Property Trust (Accumulation) Index. Acquisition and disposal costs, such as brokerage and stamp duty (where applicable), have been factored into the return calculations. Assumptions have been made with respect to the tax treatment of listed property income, including the component of tax-free income (abolished in July 2002) and tax-deferred income. The residential property measure is a population-weighted average return calculated across major capital cities. Increases in value are based on median house prices obtained from the Real Estate Institute of Australia. Data from the Australian Bureau of Statistics is used to make adjustments for capital improvements. Net rental income allows for vacancy rates, maintenance EXPEUCES, management fees, governance charges, land tax and insurance. Acquisition and disposal costs include conveyancing, stamp duty and agent's fees. All returns are net of costs. Past performance is not a reliable indicator of future performance. Exhibit B: Gross returns for 10 years to December 2020 Growth managed fund Balanced managed fund Conservative managed fund Global listed property (unhedged) Global shares (unhedged) Global shares (hedged) Cash Global bonds (hedged) Australian bonds Australian listed property Residential invesment property Australian shares 0.0 2.0 4.0 6.0 8.0 10.0 Notes: *Only before-tax returns have been calculated. Compound returns are calculated over a 10-year period to December 2020. The returns are equivalent to the per annum compound returns that investors would have received for an investment in the particular asset class if they invested in an equivalent portfolio over the two periods. The Australian listed property measure is based on the returns implied by the S&P/ASX 200 Property Trust (Accumulation) Index. Acquisition and disposal costs, such as brokerage and stamp duty (where applicable), have been factored into the return calculations. Assumptions have been made with respect to the tax treatment of listed property income, including the component of tax-free income (abolished in July 2002) and tax-deferred income. The residential property measure is a population-weighted average return calculated across major capital cities. Increases in value are based on median house prices obtained from the Real Estate Institute of Australia. Data from the Australian Bureau of Statistics is used to make adjustments for capital improvements. Net rental income allows for vacancy rates, maintenance EXPEUCES, management fees, governance charges, land tax and insurance. Acquisition and disposal costs include conveyancing, stamp duty and agent's fees. All returns are net of costs. Past performance is not a reliable indicator of future performance