Quarterly investment update - September 2018

Investments
2nd November 2018

Investment markets – a snapshot

  • Some market volatility in September continuing into October
  • Ongoing US-China trade tension
  • Federal Reserve raises rates by 0.25%
  • The RBA kept interest rates on hold at 1.5% p.a.
  • The Australian dollar drops to US0.72 at the end of September
It’s been another solid quarter for CareSuper members with all our investment options delivering positive returns. Options with a higher allocation to overseas shares outperformed those with a higher allocation to fixed interest and cash.

Our Balanced option for super accounts returned 2.04% for the quarter and 10.14% over the year to 30 September 2018. Longer term returns remain strong, with the Balanced option posting returns of 9.86% per annum over the last three years and 7.97% per annum over the 10 years to the end of September. Returns for our pension members were slightly higher because pension members don’t pay tax on investment earnings. 

Returns for our options over various time periods are set out in the performance table .

The economic environment

Global financial markets performed well overall during the September quarter, despite ongoing US-China trade tensions, challenges in a number of emerging economies and the prospect of rising interest rates. The economic boom in the US continued to lead global markets thanks to record low unemployment and rising consumer confidence.

By contrast, the local economy remains somewhat mixed. While business conditions remain strong, the consumer and housing sectors are slowing. The RBA has kept interest rates on hold at 1.5% over the quarter to support the Australian economy and give households more time to manage down debt. The Australian dollar also weakened against the US dollar, ending September at US0.72 cents.

The key drivers behind our returns

Share markets

Overseas shares made the biggest contribution to our performance, with US and Japanese stocks leading the way. The overseas shares benchmark (unhedged) returned 6.73% for the quarter, benefitting from the strength in the US stock market and the fall in the Australian dollar from US0.74 cents to US0.72 cents.

Australian shares were up 1.5% for the quarter, after a wobbly month in September where returns fell to -1.19%. The telecommunications and healthcare sectors outperformed, while utilities, materials and banks underperformed.

All this is good news for our Balanced option, which has a greater allocation to global shares.

Alternatives

Our alternative investments posted solid returns over the quarter with private equity returning 3.06%, credit 2.12%, and infrastructure 1.96%.

These alternative investments perform differently to more traditional growth assets like shares and can offer attractive returns during times of market volatility. Apart from our Capital Guaranteed option, all our Managed options have considerable exposure to alternative assets.

Direct property

Our Direct Property option also produced a solid return of 1.94% for the September quarter. While residential property prices in Australia have been falling, our property investments are primarily in commercial real estate such as shopping centres and office buildings.

Fixed interest and cash

Bond markets provided relatively low returns as yields generally rose across most countries. Australian government bonds outperformed global government bonds, as the Reserve Bank held rates steady, while the US Federal Reserve hiked rates by 0.25% during the quarter.

Our Fixed Interest Index (which is made up of global and Australian indices combined) returned 0.33% for the quarter. Australian cash returns were slightly better, chalking up 0.5%. Members invested in options with a high allocation to these asset classes (in particular the Capital Guaranteed, Capital Secure and Fixed Interest options) received more subdued returns for the quarter.

The outlook

October has seen quite a bit of fluctuation in financial markets with the US and Australian share markets declining and even reversing some of the gains of the past year. Even so, the global economy still in good shape, thanks to the continued growth of the US economy.

CareSuper’s Chief Investment Officer Suzanne Branton says that regardless of what’s happening in the market the one thing all members should keep in mind is that super is a long-term investment.

‘It’s normal to see market cycles including periods of strong returns, followed by periods of more moderate and sometimes even negative return in the short term. The focus should be on decades, not days, months or even a year. The current market volatility is unlikely to have a significant impact on our members’ prospects over the long-term.

‘We’re prepared for more challenging investment conditions and have been cautiously positioned for some time. We’ll continue to work hard to identify quality investment opportunities and maintain our focus on diversification and active management going forward.’

Past performance is not a reliable indicator of future performance and you should consider other factors before choosing a fund or changing your investments.