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Investment strategy

April 2022

Australian Retirement Trust Chief Economist Brian Parker recaps our strong long-term investment performance despite the war in Ukraine and inflation concerns.

Longer-term returns remain strong

Australian Retirement Trust’s Super Savings Balanced option1 for Accumulation accounts produced a loss of 2.0 per cent after fees and superannuation tax for the March quarter and a gain of 10.0 per cent over the year to March 2022. Longer-term returns remain strong, with the Balanced option posting returns of 8.6 per cent p.a. over the last three years, and 9.3 per cent p.a. over the ten years to the end of March 2022. Returns for Australian Retirement Trust’s other Super Savings investment options can be found here.

The table below shows returns from the major publicly traded asset classes for periods to the end of March 2022.


Returns to 31 March 2022
3 months
%
1 year
%
3 year
% p.a.
5 year
% p.a.
10 year
% p.a.
Cash (Bloomberg AusBond Bank Bill)
0.0
0.0
0.0
1.0
1.8
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond)
-5.9
-5.5
-0.3
1.9
3.4
Global diversified fixed income (Bloomberg Barclays Global-Aggregate hedged to $A)
-5.0
-4.0
0.8
2.0
3.9
Australian listed property (S&P/ASX 300 A-REIT Accumulation)
-6.7
19.2
6.0
8.4
12.6
Global listed property (FTSE EPRA/NAREIT Developed, hedged to $A)
-3.5
15.7
4.2
5.9
8.7
Australian shares (S&P/ASX 300 Accumulation)
2.1
15.2
10.9
9.4
10.1
Developed market shares, in $A unhedged (MSCI World ex Australia)
-8.4
11.6
12.9
12.9
14.6
Developed market shares, hedged to $A (MSCI World ex Australia)
-5.0
10.9
13.6
11.6
12.7
Emerging market shares, in $A unhedged (MSCI EM)
-9.9
-10.1
3.0
6.3
6.7

Sources: Bloomberg, Australian Retirement Trust. Past performance is not a reliable indication of future performance.

The Russia-Ukraine crisis and inflation concerns affect share markets

After very strong performance in 2021, world share markets mostly lost ground over the March 2022 quarter. Inflation concerns and the likelihood that monetary policy would be tightened sooner and more aggressively than previously thought unsettled markets over the quarter. At the same time rising tensions between Russia and Ukraine, which culminated in Russia’s invasion of Ukraine in late February, produced further declines in share prices. Share prices in the Eurozone, because of its proximity to the Russia-Ukraine conflict and the emerging markets experienced the largest declines. US and Japanese shares also posted negative returns despite a reasonably solid recovery in March.

The Australian dollar and share market gains

A stronger Australian dollar detracted from the returns of both developed and emerging markets shares over the March quarter. Generally, when global financial markets are unsettled, the Australian dollar tends to decline in value. However, the war in Ukraine has triggered further gains in a range of commodity prices and therefore Australia’s position as a major commodity producer and net energy exporter suggests that our economy could benefit from the crisis. This was also reflected in the performance of the Australian share market which produced positive returns over the quarter, driven by strong gains in materials, energy and financials shares.

Fixed income returns remain sharply negative

Both Australian and global fixed income returns were sharply negative over the quarter. Bond yields have risen sharply as persistently high inflation in the US and elsewhere raised expectations that official interest rates would rise. After the central banks of Korea, Norway, New Zealand and the UK began raising rates last year, the US Federal Reserve raised official interest rates at its March meeting for the first time since 2018, and clearly indicated that further rate increases are likely over the remainder of 2022. In early April, the Reserve Bank of Australia signalled its intention to begin raising interest rates over the coming months.

The economic outlook amid the war in Ukraine and COVID setbacks

While growth in both the global and Australian economies is likely to be reasonably solid in 2022, the war in Ukraine is imposing significant shocks on the global economy. Growth is likely to be weaker and inflation pressures even more exacerbated because of the conflict. In addition, COVID-related setbacks to global growth, such as China is experiencing, remain likely, although much of the developed world has achieved sufficient vaccine coverage and economic resilience to limit the economic impact of these setbacks. Despite the adverse growth effects of the war in Ukraine and the ongoing risks from COVID, the world’s major central banks are likely to persist with planned rate hikes this year.

What does it mean for Australian Retirement Trust’s Super Savings investments?

Australian Retirement Trust’s Super Savings Dynamic Asset Allocation (DAA) strategy continues to favour shares over both fixed income and cash. As share prices fell in response to war in Ukraine, we carefully increased our exposure, a position which enabled us to benefit from an improvement in share market conditions in the weeks following Russia’s invasion. Within our shares exposure both Australian Retirement Trust and our international share managers continue to favour European over US shares on relative valuation grounds.

We maintain a significant exposure to foreign currencies. The Australian dollar has risen in value in response to the war in Ukraine. However, because the Australian dollar tends to fall sharply during most periods of market stress, a higher allocation to foreign currency is a means of providing additional protection to our diversified portfolios in the event of a further major share market correction.

Australian Retirement Trust continues to hold a substantial allocation to alternative assets, particularly the key unlisted asset classes – property, infrastructure, private equity and private credit. As a large superannuation fund, we have well-diversified portfolios of these assets that we expect will deliver strong long-term returns, while reducing our members’ exposure to share market volatility.

In February 2022, Australian Retirement Trust successfully acquired a 15 per cent stake in AusNet, the largest diversified energy network business in Victoria servicing over 1.5 million customers. AusNet owns and operates Victoria’s electricity transmission network, an electricity distribution network in eastern Victoria and a gas distribution network in central/western Victoria. In addition, the team increased our investment in Electranet, South Australia’s principal electricity transmission network. Our Super Savings real estate team increased its exposure to Australian resorts and holiday parks and divested its exposure to the Milton Green office park in Brisbane.

Help to choose your investments

There are a number of Australian Retirement Trust Super Savings investment options that give exposure to a diversified range of asset classes, including both public market and unlisted investments. In fact, Australian Retirement Trust offers Super Savings account members a range of 19 investment options to allow you to tailor your investments to your needs.

If you want more information or advice to decide which investment option or group of options best meets your needs, our financial advisers are here to help. Please give Australian Retirement Trust a call on 13 11 84.

1The Australian Retirement Trust Super Savings Balanced option has adopted the pre-merger investment strategy of the Sunsuper Balanced option. The Super Savings Balanced option has identical investments to the Balanced Pool in the Lifecycle Investment Strategy. Members invested in the Lifecycle Investment Strategy are invested 100% in the Balanced Pool until age 55.

Past performance is not a reliable indication of future performance. Australian Retirement Trust employees provide advice as representatives of Sunsuper Financial Services Pty Ltd (ABN 50 087 154 818 AFSL No. 227867) (SFS), wholly owned by the Australian Retirement Trust (ABN 60 905 115 063).