Quarterly report – March 2019

Investments
17th May 2019

Investment markets – a snapshot

  • Markets clock strong quarter
  • US Federal Reserve keeps interest rates on hold at 2.5% p.a.
  • RBA kept interest rates on hold at 1.5% p.a.
  • Australian dollar closes at US70.90
Global share markets bounced back in the March 2019 quarter, recovering all of the losses experienced at the end of 2018. This recovery lifted the returns of our diversified options back into the black for the financial year.

Our MySuper Balanced option had a strong return of 5.3% for the quarter and 6.2% over the year to 31 March 2019. Over the long term, our Balanced option’s performance has also remained solid, returning 8.3% per annum over the last five years and 9.4% per annum over the 10 years to the end of March. Returns for our pension members were slightly higher because pension members don’t pay tax on investment earnings. 

You can see the returns for our other investment options over various time periods set out in the performance table.

The economic environment

Following the sharp correction experienced in world share markets in December 2018, the new year has brought happier tidings for investors, with indices for Australian and major developed markets posting double-digit returns for the quarter. 

Led by US markets, overseas shares, as measured by the index* climbed by an impressive 11.4 over the March quarter. Australian shares also saw similar gains and had their best three-month performance in almost a decade, with the S&P/ASX300 Accumulation Index advancing by 10.9%.

The US Federal Reserve signalled a more accommodative approach to policy setting and signs of easing US-China trade tensions both contributed to an improvement in investor sentiment.

On a less positive note, economic conditions in the Eurozone have remained weaker for longer than expected, promoting the European Central Bank to take steps to further boost growth. And, we still don’t have a Brexit agreement in the UK and the timing of this remains uncertain.

In Australia, the Reserve Bank of Australia (RBA) left the cash interest rate at 1.5% per annum during the March quarter. However, weaker than expected economic growth and continued low inflation has increased the chances of a rate reduction in the coming months.

The Australian dollar fluctuated in value throughout the quarter but ended close to the levels it started against the US dollar at US70.90.

*MSCI All Country World ex Australia Index (unhedged in AUD).

The key drivers behind our returns

SHARE MARKETS

The sharp rebound in overseas and Australian shares were a key driver of the quarter’s strong returns. The global share market recovery translated into a 11.4% gain for our Overseas shares and our Australian shares returned 10.7% - its best quarter since September 2009.

ALTERNATIVES

Our alternative investments delivered smaller but positive returns for the quarter. This included a 3.1% gain for our credit investments, 2.0% for infrastructure, 0.6% for private equity and 0.4% for absolute return.

These alternative investments tend to 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 modest positive return of 1.0% for the quarter.

FIXED INTEREST AND CASH

Both Australian and global bonds outperformed cash during the March quarter with Australian bonds performing particularly strongly. Longer-term bond yields fell across the world’s major bond markets, with the yield on Australia’s 10-year government bonds falling to an all-time low of 1.8% p.a. during March.

Our Fixed Interest Index (which is made up of global and Australian indices) returned 3.1% for the quarter. Australian cash returns were considerably lower with a return of 0.6%.

Members who are invested in options with a high allocation to these asset classes (in particular the Capital Guaranteed, Capital Secure and Fixed Interest options) received more modest positive returns for the quarter.

The outlook

While share markets have bounced back strongly – and many have returned to record highs over the March quarter – mainly due to the US central bank adopting a softer tone on interest rates, there are reasons to remain cautious.

Key concerns continue to be around global growth prospects, whether the US and China can strike a deal on trade and to what extent political and policy issues such as Brexit will have on markets going forward. Closer to home, Australia’s cooling housing market is one of many other risks being monitored.

As part of our active management approach, we’ll continue to assess the opportunities and risk in markets through 2019 and remind members that our approach to investing is designed to produce strong, consistent returns over longer periods.

Our investment portfolios, which we’ve diversified across asset classes, are carefully designed to give you real growth over time while also managing risk.

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