Investment performance and economic update: July 2023

The QSuper Balanced Accumulation option returned 0.82% for the June quarter and 3.98% over the year to June 2023. Over the longer term, the QSuper Balanced Accumulation option posted a return of 7.22% per annum over the 10 years to the end of June 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 June 2023.

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

Share markets produced solid returns over the quarter, and year to June 2023

World share markets produced solid returns over the quarter. While UK shares lost ground, the other major developed markets produced positive returns, with shares in Japan and the US significantly outperforming Australian and European shares.

Emerging share markets also enjoyed reasonable gains, with most markets producing positive returns. Shares in Argentina, Greece, Hungary and Turkey produced the strongest gains, more than offsetting declines in Chinese, Thai and Malaysian share prices.

The Australian dollar declined modestly against developed market currencies over the quarter, contributing positively to the returns from unhedged developed markets shares. However, the Australian dollar appreciated modestly against emerging markets’ currencies and therefore detracted a little from the performance of unhedged emerging markets share investments.

Australian share returns were positive over the quarter while underperforming most of the major developed markets. Shares in the IT, utilities, industrial and energy sectors were the best performing, while healthcare, materials and consumer discretionary share prices fell.

International share markets performed strongly over the year to June 2023. In the developed markets, Japanese and European shares were the best performers, while UK shares underperformed.

Most emerging share markets also generated positive returns over the year. Shares in Argentina and Turkey posted returns of better than 100% for the year, while shares in Egypt, Greece, Hungary and Peru were also among the best performers.

China was the worst performing emerging share market for the year. The China market experienced a double-digit decline as further COVID lockdowns and a disappointing economic rebound as lockdowns ended, weighed heavily on investor sentiment.

A weaker Australian dollar against a range of currencies boosted the performance of unhedged international shares over the year.

Fixed income returns turn negative again over the quarter

Australian and global fixed-income returns were negative over the quarter, as yields rose in most major world bond markets (bond prices fall as yields increase).

Over the year, Australian bonds managed a small positive return as the income from bonds offset declining bond prices. In contrast, bond prices in most international markets fell further than in Australia, resulting in a negative return for the year from global fixed income.

As inflation remained stubbornly high across much of the world economy, the world’s major central banks, including the US Federal Reserve and the European Central Bank, as well as the Reserve Bank of Australia, continued to respond with tighter monetary policy.

The increases in UK and Australian bond yields were considerably larger than elsewhere, as some higher-than-expected inflation data in both economies raised fears that the RBA and the Bank of England would need to raise official interest rates further than previously thought.

Australian listed real estate securities (REITs) gained some ground over the quarter relative to the broader share market. However, the rise in bond yields over the year to June continued to undermine the performance of both Australian and global REITs.

The outlook and what Australian Retirement Trust is doing

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

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

The Eurozone is currently experiencing a mild recession and there is a risk of recession in other economies – partly reflecting the ongoing economic impacts from the war in Ukraine, but also the risk of monetary policy being tightened too aggressively.

Much of the rise in inflation seen over the past year or so is likely to ease further over the coming year (as supply chain pressures ease and key commodity prices stabilise or decline).

However, labour markets generally remain very tight, and there remains a risk that faster growth in wages and labour costs will result in inflation remaining at unacceptable levels.

On balance, we remain of the view that medium to longer-term inflation is likely to be somewhat higher than we saw in the pre-COVID years.

However, it’s important to note that 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 far or how quickly inflation will fall from here or when interest rates will peak.

However, our investment team and our external investment managers do seek to capitalise on opportunities that inevitably emerge during times of 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 June quarter.

We increased the portfolio’s exposure to bonds in the second half of the quarter, as interest rates pushed higher and increased the expected return on bonds.

We increased exposure to equities at the start of the quarter and, after strong economic data releases and earnings supported equity gains, we then reduced equities at the end of the quarter as valuations became more expensive.

In foreign currency, we shifted more exposure to the US dollar, which benefitted from higher expectations for US interest rates.

Diversified portfolios of alternative assets

Australian Retirement Trust (ART) continues to hold a substantial allocation to alternative assets, particularly the key unlisted asset classes – real estate, 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 committed $180 million to a new industrial venture in Australia with Mirvac.

In addition, our infrastructure team internalised the asset management of ART’s interest in Heathrow Airport in the United Kingdom as part of the team’s ongoing work to realise cost savings for members following the merger.

In private equity, our focus remained on investing in defensive sectors and assets that are expected to remain resilient even through challenging economic conditions.

During the quarter, we closed on a co-investment in Sterling Pharma Solutions, a UK-based pharmaceutical development and manufacturing organisation that partners with many of the leading healthcare companies across the globe with revenues underpinned by long-term contracts.

And in private debt, we continue to see attractive opportunities in private direct lending to middle market corporates and during the quarter put in place a mandate with Partners Group to target senior secured corporate loans in Europe.

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 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. You can find out more about financial advice options at qsuper.qld.gov.au/advice or by calling us on 1300 360 750. Employees in the Australian Retirement Trust group provide advice to members and employers as representatives of QInvest Limited (ABN 35 063 511 580, AFSL 238274) that is wholly owned by the Trustee as an asset of Australian Retirement Trust. QInvest Limited is a separate legal entity responsible for the financial services it provides. Eligibility conditions apply. Refer to the Financial Services Guide at qsuper.qld.gov.au/guides for more information.