Investment performance and economic update: July 2024

Australian Retirement Trust (ART) Chief Economist Brian Parker recaps our long-term investment performance.

The QSuper Balanced Accumulation option returned -0.46% for the June quarter and a gain of 5.35% over the year to June 2024. Longer-term returns remain solid, with the QSuper Balanced Accumulation option posting a return of 6.41% p.a. over the 10 years to the end of June 2024.

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.

We introduced a streamlined suite of investment options, available to all members from 1 July 2024. Members can choose from 15 carefully constructed investment options that cover a broad range of objectives, levels of risk and investment timeframes to suit their individual needs. Information on how Australian Retirement Trust’s (ART) default options, including the QSuper default option and all our investment options are changing, can be found here.

The table below shows returns from the major publicly traded asset classes for periods to the end of June 2024.

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

Share markets end the year strongly …

Global share markets in aggregate produced positive returns over the June quarter and very strong returns over the year to June 2024. All the major share markets produced good gains for the year, with Japanese and US shares outperforming those in Australia, Europe, and the UK.

Over the quarter, performance was mixed, with gains in the US, UK, and Japan more than offsetting negative returns in Australia and Europe.

French shares significantly underperformed, with prices falling in response to President Emmanuel Macron’s decision to call snap parliamentary elections, while in the UK markets were unphased by the Labour win in the July election.

Technology stocks – in particular, the so-called ‘magnificent seven’ US technology names – were the strongest performers over the quarter, and collectively now account for around one-third of the market value of the US S&P500 index.

Emerging markets shares also performed well over the quarter, with shares in Turkey, Pakistan, Taiwan, and India the best performers. Chinese shares enjoyed a positive quarter on signs of improvement in China’s growth prospects. However, returns for the year were negative as the challenges facing the Chinese property market weighed on market sentiment.

A stronger Australian dollar against a range of both developed and emerging currencies detracted from unhedged share returns over the quarter and the year to June 2024.

Australian shares produced a small negative return over the quarter as share prices for materials, energy and consumer discretionary companies declined. However, the return for the year was solid, albeit lagging the performance of global markets.

Global and Australian bonds reported small losses over the quarter as yields rose (and bond prices fell) in most of the world’s major bond markets. Over the year, bond returns have broadly stabilised after higher inflation and official interest rates led to negative returns in prior years. Although government bond yields generally rose over the year to June, strong returns from corporate and other non-government bonds led to modestly positive bond returns for the year to June.

Inflation pressures across much of the world have eased, allowing several central banks (most notably the European Central Bank and the Bank of Canada) to lower official interest rates. However, in Australia, some disappointing CPI data for May and comments from the Reserve Bank of Australia’s (RBA) Governor Michele Bullock raised fears of a restart in the tightening cycle.

The outlook and what is ART doing?

While inflation has declined across much of the world, including in Australia, it remains generally above central bank policy objectives. While we expect inflation rates to fall further, those falls are likely to be gradual, particularly as tight labour markets are continuing to put upward pressure on wages and labour costs in services industries where inflation rates have remained stubbornly high.

Several of the world’s major central banks have begun to reduce official interest rates and others, such as the Bank of England and the US Federal Reserve, are likely to follow over coming months. However, there remains some risk that the Reserve Bank of Australia may be forced to raise rates further in response to a lack of adequate progress in bringing inflation down.

At ART 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 the timing and speed of any eventual interest rate reductions.

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

We have continued to adjust our Dynamic Asset Allocation (DAA) strategy in response to changes in relative value between asset classes over the June quarter and will continue to do so as opportunities present themselves.

During the quarter, we reduced our exposure to equities as share prices continued to rise and slightly increased our holdings of sovereign bonds as government bond yields moved higher.

At the end of June 2024, our DAA strategy slightly favoured shares and bonds over cash. Within DAA’s shares allocation, we preferred Japanese, UK, and European shares over shares in the US and Australia.

In fixed income, we increased our overweight position in Australia and the UK, reduced the overweight position in US, and remained underweight in European and Japanese bonds. The DAA strategy’s currency exposure favoured the Norwegian krone, the Swedish krona, the Malaysian ringgit, the Chinese yuan and the Japanese yen over the Canadian and New Zealand dollars, the Czech koruna, and the euro.

ART continues to hold a substantial allocation to private 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.

Since the merger of QSuper and Sunsuper in February 2022, our private assets teams have been focused on consolidating our existing pools of unlisted assets, with that work now largely complete. Assets that were previously invested in on behalf of either Sunsuper or QSuper members are now held on behalf of all ART members.

While bringing our asset pools together, our teams have also continued to make new investments on behalf of our members. Our infrastructure and private equity teams have added to ART’s investments in data centres, committing to a substantial investment in EdgeCore Digital Infrastructure, a US based developer and operator of data centres.

The team also completed a new investment in AuditBoard alongside Hg Capital, a pre-eminent enterprise software investor. AuditBoard, is a leading audit, risk, compliance and environmental, social and governance (ESG) management software platform.

Our private equity team also committed to several new private equity funds, diversifying our exposure to the US private equity market by focusing on investments in smaller to medium sized healthcare, industrial and technology-enabled services companies.

Our real estate team has added to our Australian industrial property exposure through our investment in the Goodman Australia Industrial Partnership.

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.