Investment performance and economic update: October 2023

The QSuper Balanced Accumulation option returned -1.1% for the September quarter and 5.23% over the year to September 2023. Longer-term returns remain solid, with the QSuper Balanced Accumulation option posting a return of 6.65% p.a. over the 10 years to the end of September 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 September 2023.

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

Share markets generally lose ground over the quarter

Over the quarter, inflation and interest rate concerns have remained a key focus for financial markets. In addition, ongoing concerns over China’s growth prospects and worries over the inability of the US Congress to approve spending measures and prevent a US government shutdown also weighed on sentiment.

World share markets generated negative returns over the quarter. In the developed markets, losses in the US and the Eurozone more than offset solid gains in UK and Japanese share prices. In the emerging markets, very strong gains in smaller markets such as Turkey, Egypt and Pakistan were more than offset by losses in the larger Asian markets – China, Taiwan and Korea.

A weaker Australian dollar against both developed and emerging market currencies added to the performance of unhedged international shares over the quarter, and the year to September.

Australian share returns were also negative over the quarter. Losses in materials, healthcare and consumer staples shares more than offset gains in the consumer discretionary, financials and energy sectors.

Fixed income returns turn negative again over the quarter

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

Over the year, Australian and global bonds managed a small positive return, while rising official interest rates continue to boost cash returns. Higher bond rates as well as concerns over the economic outlook caused losses in listed real estate securities. Higher bond yields tend to reduce the relative attractiveness of the income provided by listed real estate investments.

While inflation remains well above central bank targets across much of the world economy, recent data has pointed to some easing in inflation pressures, prompting some central banks, including the Reserve Bank of Australia, to keep official interest rates unchanged over the quarter.

In contrast, the US Federal Reserve, the European Central Bank and the Bank of England continued to raise interest rates, while the Bank of Japan raised its allowable range for long-term bond yields, in a move seen as laying the groundwork for an eventual end to its policy of negative official interest rates.

The outlook and what is Australian Retirement Trust 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 remain likely, although the pace of interest rate increases has clearly slowed and the monetary policy tightening cycle may be close to an end.

Much of the rise in inflation 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.

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.

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.

How we reacted to market volatility

In response to significant volatility in bond and equity markets, we made a number of dynamic asset allocation decisions. We increased our exposure to bonds, particularly UK gilts, where the rise in yields has already priced in stubbornly higher inflation outcomes and made future returns increasingly attractive. Given more stretched valuation in some equity markets, the team reduced exposure prior to the recent equity sell-off.

In foreign currency, a further appreciation in the US dollar meant we marginally trimmed our long exposure, in favour of other currencies such as the Australian dollar, where recent depreciations have made them more attractive.

We continue 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 capital to a portfolio of US multi-family real estate debt. In private equity, we invested in Duck Creek Technology, a leading US based provider of software solutions to the property and casualty insurance industry. And in our private debt portfolios, we established a substantial private debt mandate focused on direct lending opportunities in North America.

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. 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.