Investment performance and economic update: April 2023

Australian Retirement Trust Chief Economist Brian Parker recaps our strong long-term investment performance.

The QSuper Balanced Accumulation option returned 3.18% for the March quarter and -0.16% over the year to March 2023. Longer-term returns remain strong, with the QSuper Balanced Accumulation option posting a return of 7.16% p.a. over the 10 years to the end of March 2023.

As part of a risk-balanced approach, QSuper Balanced invests more in unlisted assets, such as infrastructure, and has lower exposure to equities than traditional funds.

Returns for other QSuper investment options can be found here. The table below shows returns from the major publicly traded asset classes for periods to the end of March 2023.

Sources: Bloomberg, Australian Retirement Trust. Past performance is not a reliable indication of future performance.

Share markets produced solid returns over the quarter

World share markets produced solid returns over the quarter. All the major developed markets produced positive returns, with shares in Europe significantly outperforming Australian and US shares.

Emerging share markets also enjoyed good gains, with shares in the Czech Republic, Egypt, Taiwan and Korea producing double-digit returns for the quarter. A weaker Australian dollar contributed to the returns from unhedged international share investments.

Returns over the year to March more mixed

However, returns over the year to March were more mixed, although a weaker Australian dollar against a range of developed and emerging markets currencies boosted unhedged international share returns.

In the developed markets, US share returns, particularly in the technology sector, were negative, while returns elsewhere were positive, with European shares the strongest performing.

Australian share returns were slightly negative, largely due to negative returns among financials and consumer discretionary shares.

In the emerging share markets, most of the larger markets suffered negative returns over the year as the ongoing war in Ukraine, heightened geopolitical tensions and generally lower commodity prices impacted on returns.

Fixed income returns enjoyed a solid recovery over the quarter

Australian and global fixed income returns enjoyed a solid recovery over the quarter.

Bond yields generally fell on signs that inflation pressures may be starting to ease as well as indications that US and Australian official interest rates may be close to a peak.

The world’s major central banks continued to tighten monetary policy over the quarter with official interest rates rising in nearly all major economies.

Higher bond yields over the year to March severely undermined the performance of Australian and global listed real estate securities (REITs), as higher bond yields reduce the relative attractiveness of the yields available on property securities. However, lower bond yields over the quarter provided some support for REITs over the quarter.

The outlook and what is Australian Retirement Trust doing?

The challenge facing the world’s central banks remains an extraordinarily difficult one: to bring inflation back under control without causing a major economic downturn in the process.

Further cash rate increases, both in Australia and elsewhere, are almost certain, although the Reserve Bank of Australia has slowed the pace of its rate increases and may be close to completing its tightening cycle.

There is a risk of recession in a number of economies – partly reflecting the ongoing economic impacts from the war in Ukraine, but also the risk of monetary policy being tightened too aggressively.

While much of the rise in inflation seen over the past year or so is likely to fade in 2023 (as supply chain pressures ease and key commodity prices stabilise or decline), the medium to longer-term inflation is likely to be somewhat higher than we saw in the pre-COVID years.

We do not design portfolios based on our own or anyone else’s short-term economic, market or geopolitical forecasts. And we have no way of knowing with any certainty how long it will take for the markets’ inflation and interest rate fears to subside.

However, our investment team and our external investment managers do seek to capitalise on opportunities that inevitably emerge during times of crisis and heightened market volatility, such as we are currently experiencing.

Our asset allocations and recent investments

The QSuper Balanced option is designed to be less dependent on any particular market environment, such as rising share markets, to achieve the CPI+ return objective. The option has outperformed its return objective over the past 10 years and delivered annual returns above the objective more consistently than a traditional Balanced option.

Markets continued to grapple with high inflation and rising interest rates, and we made a number of dynamic asset allocation adjustments in response to the changing conditions through the March quarter.

We increased the portfolio’s exposure to bonds in the first half of the quarter, given higher expected returns associated with a potential rally in bonds if inflation showed signs of peaking.

As yields fell and bonds rallied, we then unwound some of this additional bond exposure. With greater recession concerns causing a correction in equities in the prior quarter, the resulting cheaper valuations also saw us increase our allocation to equities in the March quarter.

Australian Retirement Trust continues to hold a substantial allocation to alternative assets, particularly the key unlisted asset classes – property, infrastructure, private equity and private debt.

As a large superannuation fund, we have well-diversified portfolios of these assets that we expect will deliver strong, long-term returns, while reducing our members’ exposure to share market volatility.

During the quarter, our real estate team allocated over $300 million to BoColiving, a Norwegian provider of student accommodation.

In our private equity portfolio, we acquired a stake in Avalara, a US based provider of tax compliance software as well as invested in EdgeCore Digital, a growing provider of data centres across the US.

Help to choose your investments

How your super is invested can have a big impact on what you'll have in retirement. Our online advice tool or speaking with a financial adviser can help you select the right blend of QSuper investment options for you. Advice about your QSuper account is included with your membership.

Book an appointment today online or call 1800 643 893.

 

Past performance is not a reliable indication of future performance. QInvest Limited (ABN 35 063 511 580, AFSL 238274) is a separate legal entity responsible for the financial services it provides. Eligibility conditions apply. Refer to the Financial Services Guide for more information.