Investment performance and economic update: January 2025

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

ART’s QSuper Outlook portfolio, which is the MySuper default option for QSuper members under the age of 45, produced returns of 3.72% over the December quarter and 12.54% over the year to December 2024. Longer-term returns remain solid, with the Outlook option producing a return of 7.11% p.a. over the 10 years to the end of December 2024.

Other investment option returns can be found here. From 1 July 2024, QSuper’s investment options have changed. For information on all QSuper’s investment options, click here. The table below shows returns from the major publicly traded asset classes for periods to the end of December 2024.   

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

Share markets start the year strongly…

The performance of global share markets was mixed over the December quarter, with strong gains in US and Japanese shares offsetting negative returns in Europe and the UK. A weaker Australian dollar against a range of developed market currencies boosted the returns from unhedged international shares over the quarter and the year to December 2024. Australian shares lost ground, as gains in Financials, Industrial and Telecommunications shares were offset by significant falls in the Materials sector, particularly in Mining shares.

Most emerging share markets lost ground over the quarter. Ongoing concerns over the health of China’s economy and the potential impact of higher US tariffs weighed on Chinese share prices while political turmoil had a negative impact on Korea’s share market. However, very strong returns in smaller markets such as Argentina, Pakistan and Colombia and stronger emerging market currencies resulted in positive overall returns in Australian dollar terms for the quarter.

The US election outcome which resulted in the re-election of former President Trump as well as Republican control of Congress was greeted positively by share markets, on the expectation of further tax cuts and industry deregulation.

However, the response of global bond markets to the US election result was markedly different. Both global and Australian fixed income returns were negative for the quarter. The prospect of tax cuts, even wider budget deficits, and the likely inflationary impact of broad-based trade tariffs drove bond prices lower and yields sharply higher over the quarter.

After performing very well for much of 2024, Australian and global listed real estate securities (REITs) suffered sharply negative returns over the quarter, as higher bond yields reduce the relative attractiveness of the income from REITs.

The outlook and what is ART doing?

The global economy has continued to grow at a reasonable pace in 2024 and we expect growth to continue in 2025. Inflation has declined across much of the world, allowing most of the world’s major central banks to reduce official interest rates over the second half of 2024, although service price inflation remains higher than pre-COVID levels across much of the world economy. On balance we expect inflation to fall further and there remains some prospect of further interest rate reductions from central banks in Europe, the UK and elsewhere. However, prospects for further rate reductions in the US have become less clear over recent months. The labour market remains tight, and inflation is likely to rise sharply if the Trump administration follows through on plans for across-the-board tariff increases.  

Here in Australia, inflation has fallen, but progress in returning inflation to target has been slower than in other economies. Economic growth in Australia has slowed considerably and there has been some weakening in the labour market and a moderation in wages growth. However, the Reserve Bank of Australia remains of the view that the level of aggregate demand is above the economy’s supply capacity and that gap needs to narrow further before interest rates can decline. 

At ART we do not design portfolios based on our own or anyone else’s short-term economic, market or geopolitical forecasts. 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 December quarter and will continue to do so as opportunities present themselves. During the quarter, we raised our exposure to sovereign bonds as yields rose sharply – particularly in the wake of the US election result – and modestly reduced our equities exposure as share markets outperformed bonds over the quarter.  

At the end of 2024, our DAA strategy favoured bonds over shares. Within DAA’s shares allocation, we preferred Japanese, UK, and European shares over shares in the US and Australia. In fixed income, we are overweight in France, UK, US, Italy and Australia and maintain underweight positions in German, Japanese and Canadian bonds. And the DAA strategy’s currency exposure is underweight in the Euro, Swiss franc as well as the Canadian and Australian dollars, while favouring Asian and Latin American currencies. 

ART continues to hold a substantial allocation to private assets, particularly the key unlisted asset classes – private equity, infrastructure, property, and private credit. 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 infrastructure team committed more than A$1 billion to acquire an interest in Pattern Energy, the largest privately held clean energy infrastructure company in North America, with operations across the US and Canada. While Pattern’s portfolio is currently dominated by wind and transmission lines, the company is actively expanding into other technologies including solar, distributed generation, storage and hydrogen. 

Our private equity team made new commitments to external managers focused on opportunities in Australia/NZ, Asia and northern Europe. The team also made direct co-investments in a range of companies, including: a leading Australian logistics provider; a US waste management provider focused on servicing highly regulated and complex end-markets such as life sciences and advanced manufacturing; and a global operator of over 90 K-12 international schools, educating more than 100,000 students across more than 30 countries.  

Our real estate team committed additional capital to our US multi-family debt and equity strategies, which have delivered attractive long-term returns for members. In addition, the team moved to capitalise on what is anticipated to be an attractive entry point in Australian office property, by increasing our exposure to a high-quality office fund managed by Mirvac. 

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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.