Overview
- Both stocks and bonds fell over the quarter as recessionary risks continued to loom, and rates continued marching higher.
- Inflation and interest rates continue to dominate the market narrative, with “higher for longer” now the consensus.
- Longer-term performance is still positive, demonstrating the value of patience and not responding at every twist and turn.
Brief on Asset Classes for Q1 2023
Global Shares
The MSCI World Ex-Australia NR Index revealed a slight dip of 2.7% in the quarter, but an impressive 12-month return of 20.6%. When converted to Australian dollars, the quarterly and annual returns were -0.4% and +21.6%, respectively, due to the AUD's depreciation against major currencies. Energy and Communication Services were the only sectors showing positive returns, while all other sectors had negative returns.
Norwegian and Israeli equities led the pack in developed markets, while Turkish and Malaysian equities outperformed in emerging markets.
Australian Shares
The Australian market faced a tough quarter with the S&P/ASX200 accumulation index returning -0.8%. Energy, Consumer Discretionary, and Financials sectors performed positively, while all other sectors lagged. For the 12 months Australian shares posted a strong return of 12.9%.
Bonds
Bond yields rose over the quarter due to continuing inflation in the U.S, resulting in a drop of 2.1% in the global benchmark index and generated a small return of 0.5% for the year. Similarly Australian bonds fell 0.3% for the quarter but managed to post a positive return of 1.6% for the year.
Global Property & Infrastructure
Domestic and global listed property, along with global infrastructure, showed negative results in line with global equities.
Currencies
The U.S. dollar gained strength against most major currencies, with the Australian dollar slipping to 64 US cents from 66 US cents at the start of the quarter.
Unlisted Assets
Unlisted infrastructure returns were 2.0% for the quarter and 12.4% for the year whilst unlisted property posted a -1.6% for the quarter and -4.4% for the year driven by rising capitalisation rates.
Q1 Impact on the Balanced Portfolio
Despite the fall in financial markets during the quarter, our Balanced portfolio generated a net investment return of 9.3% for the 12-month period. Portfolio activity over the quarter included:
- The Balanced Portfolio stayed slightly under the target risk level during the quarter.
- There was slight activity within equities, with the significant change being the inclusion of some Australian banks due to their appealing valuations.
- The portfolio carried on with its transition to the revised strategic asset allocation with additional investments made in unlisted infrastructure and unlisted property within healthcare.
- Our strategy is aimed at being opportunistic and focusing on market segments with embedded value.
Looking Ahead
Despite setbacks in Q1, a long-term view reveals that global stocks have consistently produced an annual gain of 7.2% over the past three years and 6.6% over five years. These figures underline the importance of patience and not reacting to every market change. However, it's essential to acknowledge risks such as the lack of earnings growth. The outlook for corporate profits remains unclear, indicating our portfolio's need for robustness and judicious diversification. We remain committed to seeking exposure to assets with strong prospects while balancing risks with defensive exposures.
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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.
The information contained in this article does not constitute financial product advice. REI Super does not give any warranty to the accuracy, completeness or currency of the information provided. Although REI Super makes every reasonable effort to maintain current and accurate information, you should be aware that there is still the possibility of inadvertent errors and technical inaccuracies. REI Superannuation Fund Pty Ltd ABN 68 056 044 770, AFSL 240569, RSE L0000314 Trustee of REI Super (ABN 76 641 658 449), SPIN REI0001AU, RSE R1000412. MySuper unique identifier 76641658449129