A strong but volatile quarter in the markets
The quarter to 30 September 2018 continued the trend of strong investment returns for members’ super accounts, thanks mostly to high returns in global share markets – particularly from the US market.
It was a quarter of two distinct periods, however, with strong returns in July and August and generally much lower returns in September.
We also, as usual, saw variations in the performance of different asset classes. For example, emerging markets were volatile and underperformed the developed markets.
Interest rates continued to increase in the US and the UK, while European and Australian interest rates remained more stable.
Our Balanced option continues its competitive long-term performance
Our Balanced option delivered a net return of 1.84% for the quarter, which was in line with the market indices.
Our Balanced option is continuing its competitive long-term performance. It has provided members with an average net return of 9.73% per annum for the seven years to the end of the quarter. And an average net return of 7.14% per annum over the past decade.
Where the returns came from
In the Australian share market, we saw quite strong returns in both July and August, partly offset in September with falls of approximately half of the previous two months’ gains.
Within our international exposures, the portfolio was rewarded in September by our bias towards Japanese shares, which had very high returns.
Investment markets are currently very sensitive and focused on the future direction of interest rate movements and also on the inflation outlook.
And as interest rates rise in the US, the high level of debt within Australia’s residential property market is becoming more of a focus.
We have recently seen banks tightening up on lending criteria, partly due to credit conditions, and partly in response to some of the lax lending practices identified by the banking and financial services royal commission.
The recent dynamics we’ve seen in residential property remind investors of the importance of maintaining a diversified investment portfolio such as our Balanced option.
Our short term and long term investment strategy
During the quarter we reduced our exposures in emerging market debt in favour of emerging market shares. We feel that looking forward, the characteristics of emerging market companies are stronger than their current share prices suggest.
We have maintained our bias to unhedged international shares, and we are underweight global property at the moment, again based on our forward-looking approach.
Our strategy where possible is to acquire assets when they are well-priced, and when market conditions indicate they have good prospects for future growth, with acceptable levels 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.