A quarter of record highs
Investment markets rebounded strongly in the March quarter, in stark contrast to the December quarter before. By the end of March, markets had actually returned to or were again approaching all-time highs. This major change in sentiment was driven largely by the US Federal Reserve pausing further interest rate increases for the time being.
Some of the rises achieved in markets for the quarter were more typical of what one might expect to see over the course of a year. These were quite broadly based across Australian and international shares, Australian and global listed property and fixed income.
Reflecting these exceptionally high returns, REI Super’s Balanced option achieved a net return of 6.20% for the quarter, which was slightly above the median super fund Balanced option return of 6.09%, and the Growth option achieved a 7.69% net return.
A major contrast to the quarter before
The immense difference between the March quarter and the December quarter before it illustrates how volatile the markets are at present, and how important it is to take a much longer term perspective than a single quarter with your super investments.
Over the longer term, the Balanced option is continuing to provide healthy average annual net returns, with an average of 7.42% per annum over 5 years, 8.6% per annum over 7 years and 8.9% per annum over 10 years.
Mixed signals in the markets warrant caution
At REI Super we are very mindful of the mixed signals we’re currently seeing in investment markets. In pausing future interest rate increases, the US Federal Reserve is signalling its concerns about the future health of the US economy and slowing global growth.
Interest rates are now at or close to record lows, which means that central banks, (such as the Reserve Bank of Australia), have much less flexibility to stimulate their economies by further cutting rates if economic weakness does occur.
Meanwhile, share markets are extremely bullish at present. Overall the US share market has been rising for ten years, which is now the longest bull market run in history. Investment professionals see that in many cases prices appear inflated and bear little relation to the fundamental qualities of a company.
Our strategy in this tumultuous environment
Because of the mixed signals we’re seeing in the markets, we’re managing investments in order to manage the downside risks. This means we are positioning the portfolio with a bias to value stocks, we’re being defensive where possible, and we’re avoiding investing in companies that we believe have questionable fundamental values. We favour those investments that have stable earnings profiles, which we believe should perform better in periods of slower growth or a market downturn.
It appears that volatility will remain the norm in markets for the foreseeable future and we have been easing back on some of our share exposures. We are also holding an allocation of cash in the portfolio, to deploy quickly when assets become more sensibly priced.
While these are interesting times for investors, it’s important to remember that superannuation is a long-term investment and that ups and downs in markets are normal.
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.