Investment Update
In the quarter to 31 December 2014 REI Super’s investment options continued to exceed their long-term return objectives. Most asset classes performed well during the period, with international shares again outperforming Australian shares.
Net investment returns (after fees and tax) for REI Super’s main investment options were:
|
Investment Option
|
3 Months to 31/12/2014 (%)
|
12 months to 31/12/2014 (%)
|
5 years to 31/12/2014 (average annual %)
|
|
Super Growth
|
3.91
|
9.19
|
8.53
|
|
Trustee Super Balanced (MySuper)
|
3.71
|
9.13
|
7.96
|
|
Super Stable
|
1.74
|
5.42
|
5.90
|
|
Premium Income
|
2.03
|
5.91
|
N/A (option only available from 2013/2014)
|
|
Super Cash
|
0.51
|
1.79
|
3.09
|
How the different types of investments performed
Australian shares
Australian shares1 returned 2.9% for the quarter. Returns from the different market sectors varied widely, however. Energy was the worst performing sector, as a result of the sharp decline in the oil price. The healthcare sector was the best performing sector, largely due to the rise in the Medibank share price following its float.
International shares
International shares2 outperformed Australian shares, returning 7.5%. Japanese shares were strong performers, as were US shares, with good economic data pushing markets to new highs.
Property
Property returns were strong over the quarter, with listed property doing particularly well. Australian listed property3 returned 11.3%, whilst international listed property4 returned 12.6%. Unlisted property continued to deliver solid returns, underpinned by the quality, stability and security of their rental profiles.
Bonds
Although the Australian cash rate remained unchanged, Australian bond yields fell over the quarter, which pushed Australian bond5 returns to 4.0% for the quarter.
International bonds6 also had a good quarter, returning 2.9%. This came as investors expected that interest rates around the world would remain low.
Cash
Cash returns remained steady over the quarter as the Reserve Bank of Australia (RBA) continued to hold the cash rate at 2.5%. We believe that with the currency falling and inflation low, it is most likely cash rates will remain unchanged for some time yet.
Outlook
With most asset markets enjoying another good quarter, valuations are looking on the expensive side. To date the coordinated support of central banks around the world has been a major driver of markets but in the next couple of years this position will likely change. This will see support for key markets reduced which will put more of a focus on asset fundamentals, i.e. quality of earnings, and balance sheets. This is all at a time when growth is slowing in many regions and inflation could turn into deflation. It is our view that the current level of many asset prices do not account for these pressures and the impact they might have on companies and markets. The likely consequence is that over the medium to long term many markets are set to fall, in some cases significantly.
In this environment one of our main concerns is the high price of some assets. We believe some asset prices are artificially high and therefore present risks to investors.
REI Super’s investment strategy
Returns for the REI Super investment options continue to exceed their longer term investment objectives. We aim to invest in assets that offer the best level of returns for the level of risk taken and his has been a key contributor to our performance. For example, our investment in Australian listed property and our recently increased holding in Japanese shares have helped to boost our performance. Our reduced holding in Australian shares has also contributed to our good performance.
Overall the portfolios still remain positioned to reflect the challenges markets still face but more just how expensive many markets remain. In this regard the portfolios remain well positioned to continue delivering on their longer term return objectives.
1 as represented by the S&P/ASX300 Accumulation Index
2 as represented by the MSCI AC World ex-Australia Index
3 as represented by the S&P/ASX300 Property Trust Accumulation Index
4 as represented by the UBS Global Real Estate Investors Index
5 as represented by the Bloomberg AusBond Composite Index
6 as represented by the Barclays Global Aggregate Index
Future investment performance can vary from past performance, and you should not base your decision to invest in REI Super simply on past performance. Past earning rates are not an indicator of future earning rates. The investment returns of REI Super are not guaranteed, and the value of the investment may rise or fall.
The information contained in this article does not constitute financial product advice. However, to the extent that the information may be considered to be general financial product advice, REI Super advises that REI Super has not considered any individual person’s objectives, financial situation or particular needs. Individuals need to consider whether the advice is appropriate in light of their goals, objectives and current situation.