The last 7 years has been a dismal time for the returns from Global Shares (international shares). Many investors that I am seeing are so frustrated that they are happy to call the 7 years a trend, and be done with these as investments althogether.
Which I think would be dangerous.
The poor performance in global shares has generally not been a sign that global investment markets have produces disasterous investment returns, rather that the Australian dollar has risen to 20 year highs at around 85 cents.
Take for instance the Vanguard index funds. These funds just hold all the investments that make up the global sharemarket index. The interesting thing is Vanguard have both a currency hedged version, and a currency unhedged version.
The version that takes out currency movements has returned nearly 7% a year over the past 5 years (to the end of April 2007). The version that exposes the portfolio to currency movements has returned -1.3% a year over the same period. The difference of about 8% a year has been the strengthening in the Australian dollar.
So where to from here? There seems no long term reason to think that global sharemarket returns will trail Australian sharemarket returns, so for the sake of diversification we carefully use global sharemarket returns in our portfolios.