A volatile quarter
Investment markets experienced significant volatility in the quarter ended 31 March 2018, which was in stark contrast to the previous quarter and also the previous year, which were exceptionally strong.
This was driven by global concerns about interest rate rises and also fears of the US entering a trade war with China, as a result of Donald Trump’s trade programs.
Most super funds’ portfolios responded to the short-term volatility by delivering flat or slightly negative returns for the quarter.
REI Super’s Balanced option had a net return of -0.08% for the quarter. The long-term returns on the Balanced option remain excellent, however, with average annual net returns of 8.57% for the five-year period and 8.25% for the seven-year period to 31 March 2018.
International shares
Most global sharemarkets fell during the quarter.
The IT sector of the global sharemarket dampened returns significantly, after having risen strongly over the previous six months. This was partly a reaction to the Facebook data scandal.
Fortunately, REI Super’s investments in the IT sector are currently focused more on hardware than software firms, so we had some immunity to the loss of value in Facebook.
Australian shares
The Australian sharemarket fell by 3.9% for the quarter, with financial stocks detracting from returns as a result of the adverse findings of the banking royal commission.
However, REI Super’s Balanced option’s lighter than average exposure to Australian shares, our careful global positioning and our defensive stock selection meant that our Balanced option’s total return was only marginally negative.
Our perspective on the markets … and our strategy
We are seeing signs of inflation emerging in the US and we think now that inflation risks are rising globally. In response, we have been increasing our investments in inflation linked bonds, which will provide the Fund’s investments with some protection from increases in inflation.
We still think that Australian and US sharemarkets are relatively expensive and our share investments are currently lower than average. Currently we are preferring to invest in Japan, emerging markets and some European sectors where there is better value.
We’re looking favourably at commodities (which mainly means energy and metals) at present. Historically we have seen commodities tend to do well when inflation starts to rise.
Outlook
The last 12 months have been unusually strong for investment markets, and we expect modest returns for the remainder of this calendar year.
Our strategy remains to keep the portfolio well diversified. We are staying disciplined in our investment process and will look to take advantage of well-priced opportunities as they emerge, always being conscious of risk.
Go to the investment performance section of our website to see investment returns of all of REI Super’s investment options.
Note: Past returns are no guarantee of future performance, and investment returns of less than one year should not be relied upon as any guide to future performance.