The first six months of the financial year were extraordinarily strong, as investment markets were driven by optimism about stronger global economic growth and the potentially positive impact of President Trump’s tax cuts on US company profits. Most global share markets performed extremely well during this period, especially those in emerging market economies and the technology sector.
In the second six months of the year this optimism had waned and markets had become wary of risks related to trade wars, rising interest rates and political events. During this period emerging markets suffered reverses on their earlier gains while developed markets generally strengthened. During this period we saw greater volatility in markets.
REI Super’s portfolios performed well under these pressures. Our Australian and international share market exposures provided above-average returns and bond returns were also solid. Our portfolio benefited in particular from our holdings in European shares – especially within the energy sector. Both listed and unlisted property delivered solid gains during the financial year as well.
For the financial year the Fund’s Balanced option delivered a net return to members of 7.72%, which again was well in excess of its performance objective of providing an annual net return of at least 3% above inflation.
The reason for constructing a well-diversified portfolio across different asset types is of course because the recent peaks and troughs are normal. In terms of the future outlook, history suggests that both shares and bonds have produced unusually high returns in recent years, fuelled in part by central banks’ running stimulus measures to kick start growth in many economies.
Our assessment is that at the present time, shares, property and bonds all appear expensive relative to past valuation, and therefore caution is warranted when it comes to making new investments.
We expect more short term volatility is ahead, which will create opportunities for the Fund to acquire assets at better prices. Our strategy is generally to only buy assets when they are well priced and when the market conditions indicate they have good prospects for future growth, with an acceptable level 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.