Quarterly report - September 2019

Investments
5th December 2019

Investment markets – a snapshot

•    Volatile quarter but positive results for investment markets overall
•    Central banks cut interest rates during the quarter
•    Australian dollar closes at US67.00

A slowing global economy and ongoing geo-political developments created volatile share market conditions in the September quarter, but in the end, it was a positive quarter for returns across all asset classes and CareSuper’s investment options.

Our Balanced (MySuper) option delivered a solid return of 1.9% for the quarter and 6.7% over the year to 30 September 2019. Over the long term, the Balanced option’s performance remained strong, returning 8.7% per annum over the last 10 years to the end of September 2019. Returns for our pension members were slightly higher because pension members don’t pay tax on investment earnings.

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

The economy and markets

The first quarter of the new financial year proved a volatile one for investors, with share markets both here and overseas fluctuating between positive and negative returns each month. This was largely due to concerns around the outlook for economic growth as well as the escalation in trade tensions between the US and China. Other geopolitical developments during the quarter that contributed to the uncertainty were the ongoing Brexit saga, the drone strikes on a Saudi oil facility, the Hong Kong riots, and the announcement of an impeachment inquiry into President Trump’s interactions with the Ukraine.

Against this backdrop, and to help stimulate growth and prevent an economic downturn, the world’s central banks eased monetary policy during the quarter.
The European Central Bank reduced the cash rate to negative 0.5% and re-booted its asset buying program again to bolster growth in the euro-zone economies.

The US Federal Reserve cut its target cash rate twice during the quarter reducing it to 2% per annum, and then again in October to take the cash rate to 1.75%.

Similarly, the Reserve Bank of Australia also cut interest rates in July, and again on 1 October, with the target cash rate now at 0.75%

With our cash rate moving well below the US’s, the Australian dollar fell by over 3% in value against the US dollar, down to 67 US cents at 30 September 2019. It also fell against the Japanese yen but held its value against the euro.

Benefiting from the central banks’ easing of monetary policy, the Australian share market returned 2.6% and the US share market was up by 1.7% for the quarter. Asian and emerging markets were weaker, reflecting their exposure to trade tensions.
 
Australian and global bond markets also performed strongly over the quarter, as bond yields fell globally. The yield sensitive asset classes, such as infrastructure and property also posted strong returns.

The key drivers behind our returns

Shares

CareSuper’s Australian and overseas shares were amongst the best returns in the portfolio and were significant contributors to the returns in the Balanced option this quarter. Our Australian shares asset class returned 3.4% and our overseas shares returned 2.3% for the quarter.

Alternatives

Returns from our alternative investments were also positive with infrastructure and private equity helping to lift performance. Our infrastructure investments returned 1.7% and our private equity investments particularly had a strong quarter, with a return of 3.3%. Our absolute return and credit investments delivered more modest returns of 0.4% and 0.8% respectively.

Direct Property

Our direct property investments produced a solid return of 1.5% for the quarter.

Fixed Interest and Cash

Bond returns also supported this quarter’s performance, rising strongly in August when returns from shares were impacted by volatility. Our Fixed Interest Index (which is made up of global and Australian indices) return 1.9% for the quarter.

Our cash returns were considerably lower with a return of 0.4% – driven largely by the low and declining interest rates in Australia.

The outlook

While the new financial year started positively in investment markets, there are reasons to remain cautious in our outlook. Market conditions are likely to remain challenging for all investors due to the uncertainty of geo-political risks, slowing global economic growth and the potentially limited effectiveness of low interest rates to stimulate the economy. In this regard, we anticipate that investment returns in the coming years will be lower compared to what we’ve seen over the past decade.

In the meantime, we’ll continue to monitor the risks of an economic downturn, as well as the responses from central banks and policy makers to manage these risks and make any necessary adjustments to our investment strategy and portfolio positions to maximise long-term returns for members.

Asset class performance figures shown are all before tax and all figures have been rounded to one decimal place.

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