Investment returns update February 2016

The quarter to 31 December 2015 was a landmark one for financial and investment markets.

Key US interest rate decision

On 17 December the US Federal Reserve finally raised interest rates by a quarter of a percent. This was the first time since 2006 that they had done this, having kept rates at just above zero percent to help the country recover from the global financial crisis.  The increase was seen as a positive sign for the US economy and an indicator of its increasing strength.

The anticipation of the interest rate rise had a strong positive influence on investment markets during October and November.

Then the markets started focusing on “what next?” and again started to react to uncertainties such as slowing growth in China and the significant drop in the oil price.

REI Super’s returns held up well

REI Super’s Trustee Super Balanced option withstood the resulting volatility very well. We delivered a net return to members of 2.85% for the quarter and over the five years to the end of December we delivered an average annual net return of 8.57%. This compares very well to the median super fund’s balanced option return over the same period of 7.88%.

The main sources of strong returns in our portfolio were Japanese shares, which had a return of almost 10% for the quarter, and Australian listed property.

Volatility continued into the new year

Investment returns have fluctuated significantly during the month of January.

Several factors are behind the recent volatility, including continuing concerns about China’s slowing growth, and price falls in key commodities such as oil and iron ore.  Some investors are concerned that falling commodity prices may be a precursor to reduced global growth in the future.

What is the outlook?

The short-term investment outlook is for continued volatility based on uncertainty about the US and Chinese economic growth.

In the longer term we expect shares will have lower returns than those we have seen in the past 5 years – but at REI Super we also see a significant opportunity to make gains for members by investing cautiously in strong, well-priced assets. Our strategy continues to be active, cautious and opportunistic.

Remember your long-term goals

As always, we urge you not to over-react to short term market volatility. Superannuation is a long-term investment for most people and usually the best response to these short-term market fluctuations is to do absolutely nothing and to ride out the markets’ ups and downs.  Indeed, some of the short term dips in investment markets provide buying opportunities for astute investors.

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.