A focus on long-term performance
Money magazine’s Best Retirement Innovator 20232
11 August 2023
The economic landscape has experienced significant changes since the beginning of the year. Join Super Insider host Anne Fuchs and Australian Retirement Trust’s Chief Economist, Brian Parker as they break down the latest market developments and investment conditions, interest rate changes, cost of living and what it all means for your super.
Anne: Hello and welcome to Super Insider, Australian
Retirement Trust's podcast series on investment markets, the economy and most
importantly, making sure you retire well with confidence. Today we're sitting
here in Meanjin otherwise known as Brisbane Turrbal
and Yuggera Country, and I'd like to pay my respects
to elders past, present, and emerging. Well, who am I? I'm Anne Fuchs Executive
General Manager of Advice, Guidance and Education here at Australian Retirement
And the team and I help our 2.2 million members make the
best possible decisions so that they can put their feet up and enjoy their
retirement. Now with me today is a bit of a celebrity economist. Brian Parker,
the Chief Economist here at Australian Retirement Trust who's wearing a new tie
and it's one of the reasons why our Consumer Price Index is not going down by
the looks of it.
How are you, sir?
Brian: Well, thanks very much and it's great to be
Anne: And today we're talking about what's been
happening the last quarter in terms of the economy, investment markets and
investment performance for Australian Retirement Trust.
Brian: Absolutely. But before we do that, we have to keep the compliance team happy. I know this is their
favourite part of the podcast. So, ladies and gentlemen, before we begin, I
need to let everyone know that what we're going to talk about today is general
information only. Any advice doesn't take into account
your personal situation.
You should consider your circumstances and think about
getting personal advice before acting on anything we discuss. You should also
consider the relevant Product Disclosure Statement and the relevant Target
Market Determination before deciding to acquire or continue to hold any
financial product from our website or by calling us on 13 11 84 if you have a
Super Savings account or 1300 360 750 if you have a QSuper account.
Anne: Well, that was a bit of a mouthful, Brian.
Brian: It was actually.
Anne: From a Super Insider point of view of which you
are, as the Chief Economist of one of Australia's largest funds, Brian. What
has been happening in the world of investing over the last quarter since we
Brian: Look it's been another pretty strong quarter
for financial markets. In fact, it really culminated, it's really sort of been
the culmination of quite a strong year for financial markets. You know, there's
an old adage that share markets climb a wall of worry
and there was certainly plenty of things to worry about in the last 12 months.
So, you know, rising interest rates, cost of living pressures, etc., you know,
stubbornly high inflation rates both here in Australia and internationally.
Brian: And yet despite all of that and again, of
course the ongoing war in Ukraine, but yet despite all
of that, we actually saw share markets around the world perform pretty
strongly, which is and that really did sort of turbocharge superannuation
returns over the course of the year. And that's certainly what we saw during
the June quarter as well.
Anne: You wouldn't sort of think it if you watch the
news every day and you just see what see the stories that are coming on the
news and to your point around rising interest rates, geopolitical risk, you would think that things are particularly dire and that's
that your investment performance in your superannuation wouldn't be great.
Brian: Yeah, that's right. But yet,
you know, the end of the day, given that most superannuation funds maintain a
fairly significant exposure to Australian and global equities, global shares,
you know, that really, and if you look at the major world share markets, you
talk about returns are better than 20% for the year. In fact, the Australian
share market kind of underperformed, you know, we only did 14% for the year and
so, you know, certainly shares did very, very well, bonds not so much so, it
was a very, very challenging year for fixed income markets. It's actually been a very challenging year or a challenging
couple of years for fixed income or bond markets because you've seen a sharp
rise in market interest rates and that means the price of bonds tends to fall.
And so, returns from fixed income haven't been great, but shares have done
very, very well.
Anne: So if you're looking
at the major economies around the world that feed into the investment
performance of our members retirement savings, Europe, USA, China, are any of
them in recession or do you think any of them are going to go into recession?
Brian: Yeah, it's a really good
question. I mean, right now Europe is in recession. It's a very mild one so
far, but certainly the eurozone economy has fallen into recession, so far, the
United States has actually held up very, very well.
You know, especially if you look at the numbers on employment, the US labour
market remains very, very strong.
Anne: What's driving that, Brian?
Brian: Just underlying very, very strong demand for labour,
that at the end of the day the US economy is proven to be a lot more resilient than
many people might have thought, including this little black duck six months
Anne: I'd never call you a black duck, but that's
Brian: A large duck maybe. But at the end of the day,
you know, so far, the US economy has proven to be very resilient. The Chinese
economy, you know, you might recall last year when you had another round of
COVID lockdowns in China and that certainly curtailed a lot of Chinese economic
activity. And as we went into 2023, I think everyone was expecting this big
surge in Chinese activity.
And you've seen something of a surge, but it's kind of been
a bit lame. The Chinese economy is growing and that's great and that's
obviously very, very important for economies across the region, including
Australia, obviously. But I mean, so far, the world economy has held up
reasonably well. Europe is in recession, but I do think it's worth
acknowledging that over the coming 12 months or so, given the fact that
interest rates have risen very aggressively around the world, not just here in
Australia, but interest rates have gone up aggressively, that is going to
increasingly impact on the performance of a whole range of economies around the
So, you know, will we end up with a global recession? We
think the risk of that is still pretty high, but
suffice to say, I do think economic conditions are probably going to get a bit
tougher as the as the as we get into 2024 just given the impact of higher
Anne: So, what have been the themes that have really
influenced why Australia's performed so well?
Brian: In an economic sense? (Yes), Yeah. I just
think that when you look at the cost-of-living pressures that are out there and
they're very, very real, so certainly low to middle income households,
households with substantial mortgage debt, especially mortgage debt, that's
been taken on in relatively recent years. People who are renting have certainly
felt the pinch. But at the same time, when you look at the consumer, the
Australian consumer, in aggregate, you know, consumers have still been out
there spending for much of the last twelve months.
Anne: Yes, like you buying
new ties for Super Insider, nice of you to do so.
Brian: Absolutely, it's not quite brand compliant.
You of course are brand compliant as always, but at the end of the day, I just
think that, yes, consumers actually have maintained
decent spending in aggregate, but I also think that's probably going to slow
down quite considerably. We're already starting to see some signs of that in
some of the retail spending indicators, and it's
really higher interest rates starting to bite.
Brian: And I think this is going to continue to
impact on the Australian economy over the next 6 to 12 months.
Anne: So, since we met last, I'm delighted to note
that another glass ceiling has been shattered at the Reserve Bank of Australia,
so particularly excited to see that. What does that mean and what does that
mean for interest rates if our members are wondering?
Brian: I don't think it actually
means that much. Michele Bullock has been Deputy Governor of the RBA
throughout this, you know, cycle of, you know, higher and higher interest rates.
Would interest rates, would interest rate policy have been any different over
the last year or two if Michele Bullock had been governor? I think on balance
the answer to that is no.
And I don't think it really changes the outlook. I think
given that, you know, Michele has been right at the very highest level of
decision making in the bank for some years now, I don't think things would have
been done any differently and I don't think the change of governor actually changes the outlook for rates terribly much.
Anne: And are you prepared to make any predictions? I
Brian: I'm an economist, I don't do that right?
Anne: So, around inflation in
particular and interest rates obviously you know, interest rates have
been on hold for a little while now, the last two, but what's your view on
where this might be heading with inflation seeming to trend down?
Brian: Yeah, look, I think it's when you look at the
inflation figures, it's pretty clear that inflation in
Australia has peaked. That, you know, you are seeing a slowdown in demand. We
are seeing some of those sort of goods price pressures, supply chain pressures,
commodity price pressures start to roll out of the system, but we think that
So, I do think inflation continues to grind its way lower
over the coming years. For the Reserve Bank's perspective, you know, have they
done enough with interest rates to slow down demand and to take some of the
heat out of spending so that, that down trend in inflation can continue? I
think the answer to that is yes. Could I rule out another rate increase? No, I
And it certainly the Bank has made it pretty clear that they
still think there's a risk that they might need to do more, but, you know,
given the fact that they've, they've you know, they've done nothing now for two
straight meetings, yes, there's a risk of maybe one more increase out there,
but, you know, interest rates are very, very close to a peak at the very least.
Anne: Do you think, though, unemployment is still
very, very low and we are going to see an increase in migration to particularly
skilled labour, is that going to impact, put any pressure on inflation, do you
Brian: I think it actually takes
some of the pressure, some of the heat out of the labour market, if I can put
it that way. And it's kind of complicated because on the one hand you bring in
more migrants and that increases demand in the economy, which all other things
being equal, might force prices up. But at the same time, to the extent that
some of the some of the inflation pressure we've seen is being driven by, you
know, labour shortages, especially in the Services sector, you bring in more
people, you take some of that pressure off. (That makes sense.)
What's really interesting is that
if you think about the last 12 months or so, we brought in over 400,000 new
migrants and yet the labour market swallowed them up whole. The unemployment
rate barely budged and that's really quite remarkable.
It shows you just how much demand for labour there has been out there and that
demand for labour has softened a bit.
But when you look at things like the level, the number of
job vacancies out there, especially the number of job vacancies relative to the
number of people looking for work, I mean, that ratio is still very, very high
historically, and not just here in Australia, it's also historically high in
the US and elsewhere. So labour markets remain very,
You know, things are easing, are they easing fast enough to
keep the central banks happy? Let's see over the next few months.
Anne: So, what does all of
this mean? We've just published investment performance for our Australian
Retirement Trust members. What does all of this mean in terms of the end result that our members are getting on their very
precious retirement savings?
Brian: Look, it's been a reasonably solid year,
especially for those portfolios that have had a significant allocation to
equities. Equities have done very, very well. So, all other the things being
equal, if you're in in a portfolio with a higher allocation to equities, you've
done relatively well. If you're in a portfolio with a lower allocation to
equities or a higher allocation to fixed income, you've probably still done okay.
The returns are probably been still
on average pretty, pretty good, at least positive, but you haven't done quite
as well. So, it's been that's been pretty much the main differentiator over the
last 12 months or so.
Anne: Swings and roundabouts. So
if, you know, we have our QSuper members and members who are in the Super
Savings, there are some different, I guess, investment philosophies that are at
play that feed into those swings and roundabouts informing investment
performance. What's your, what's your message to our members around
understanding investment performance on their account?
Brian: It's a really, really good
question because certainly you've seen quite a, quite a significant gap between
the performance of ART Super Savings portfolios and our QSuper portfolios. And
a big part of the reason for that is the difference in allocations to shares
and bonds. So, the way QSuper portfolios are designed, quite deliberately, is
they're designed to achieve their long-term performance objective, and that's absolutely crucial.
At the end of the day, that's our main function as an
investment team to, you know, deliver what's on the box if I can put it that
Anne: Yeah, over the 10 years.
Brian: Absolutely. Over rolling 10-year periods. And certainly,
those portfolios have achieved their objectives by and large and that's great.
But crucially, they're designed to do that by taking significantly less risk. So,
what you tend to find with the QSuper portfolios is they tend to have a higher
allocation to fixed income and a lower allocation to shares. And that certainly
means that in a year like the last financial year, there has been a significant
gap opened up between'
Anne: Because of this huge uptick in the share
Brian: Absolutely, because the Super Savings portfolios
tend to have a higher allocation to shares and a lower allocation to bonds.
Now, this is a bit of a swings and roundabouts game from one year to the next.
You know, you will see differences in performance.
Anne: So, your message is if you're if you're losing
sleep at night, we always say this. If you're losing sleep at night, that's a really bad you know, if you're losing sleep at night, how do
you say it? I've gone blank.
Brian: I think it's, it's a rule to live by. You know
if you're doing something with money which is causing to lose more than
Anne: That's what it is.
Brian: about 2 minutes of sleep a night. It's your
body telling you something. Your body is telling you you're taking too much
risk or you're doing something wrong. And the best solution to that, I think,
is to get advice. And this is where your team really comes into the comes into
the, comes to the fore.
Anne: Or our, or external financial advisers who,
there's 4 and a half thousand of them that work with
us here at ART.
Brian: Absolutely. And to any of our members, if you
are worried about what's happening with your portfolio or what's with the state
of the world or markets, if you have a financial adviser, get on the phone and call that person and say, let's have a chat. If
you don't have a financial adviser, contact Australian Retirement Trust.
Anne: Look, if you're wanting more information, going
to our website is a great place to start. And if you have family or friends
that are members of Australian Retirement Trust, we'd love you to share this
podcast with them so that they can also understand how their retirement savings
are invested. What's your one final message for our listeners, Brian?
Brian: Oh, look, I think at the end of the day, let's
remember that superannuation is the longest-term investment any of us are ever
going to have.
Anne: Besides maybe the family home if you buy it and
you never move.
Brian: Well, at the end of the day, if it's a family
home, is it an investment or is it a consumer good that you're actually using?
Anne: Well, you probably get superannuation much
earlier now too, so I'll retract that one. Yes.
Brian: But look, super is a very, very long-term investment
and so let's make sure that we think about superannuation as a long-term
investment and understand that from one year to the next returns are going to
be somewhat volatile, that, you know, share markets are by nature very
volatile. Investment returns will be volatile and the long-term reward, if you
like, for tolerating, accepting that volatility is a better long-term return
and a better retirement outcome.
Anne: Sensational, well look Brian, it's always fun.
Chief Economist extraordinaire. So, thank you to our listeners and viewers. We
hope you've enjoyed it. If you have to tell your
family and friends, you can find us on Spotify, on Apple Podcasts, and we'll
look forward to you joining us again soon.
Brian: Thanks Anne.
This podcast is brought to you by Australian Retirement Trust Pty Ltd (ABN 88 010 720 840, AFSL No. 228975) the trustee for Australian Retirement Trust (ABN 60 905 115 063) (the Fund).