ART’s Balanced option for Super Savings accounts produced an after fees and superannuation tax return of 0.3% for the September quarter and 10.0% over the year to September 2023. Longer-term returns remain strong, with the Balanced option posting returns of 6.6% p.a. over the last 5 years, and 8.0% p.a. over the 10 years to the end of September 2023. Other investment option returns can be found here. The table below shows returns from the major publicly traded asset classes for periods to the end of September 2023.
Sources: Bloomberg, Australian Retirement Trust. Past performance is not a reliable indication of future performance.
Share markets generally lose ground over the quarter
Over the quarter, inflation and interest rate concerns have remained a key focus for financial markets. In addition, ongoing concerns over China’s growth prospects and worries over the inability of the US Congress to approve spending measures and prevent a US government shutdown also weighed on sentiment.
World share markets generated negative returns over the quarter. In the developed markets, losses in the US and the Eurozone more than offset solid gains in UK and Japanese share prices. In the emerging markets, very strong gains in smaller markets such as Turkey, Egypt and Pakistan were more than offset by losses in the larger Asian markets – China, Taiwan and Korea. A weaker Australian dollar against both developed and emerging market currencies added to the performance of unhedged international shares over the quarter, and the year to September.
Australian share returns were also negative over the quarter. Losses in Materials, Healthcare and Consumer staples shares more than offset gains in the Consumer discretionary, Financials and Energy sectors.
Fixed income returns turn negative again over the quarter
Australian and global fixed income returns were again negative over the quarter, as yields rose in most major world bond markets (bond prices fall as yields increase). Over the year, Australian and global bonds managed a small positive return, while rising official interest rates continue to boost cash returns. Higher bond rates as well as concerns over the economic outlook caused losses in listed real estate securities. Higher bond yields tend to reduce the relative attractiveness of the income provided by listed real estate investments.
While inflation remains well above central bank targets across much of the world economy, recent data has pointed to some easing in inflation pressures, prompting some central banks, including the Reserve Bank of Australia, to keep official interest rates unchanged over the quarter. In contrast, the US Federal Reserve, the European Central Bank and the Bank of England continued to raise interest rates, while the Bank of Japan raised its allowable range for long-term bond yields, in a move seen as laying the groundwork for an eventual end to its policy of negative official interest rates.
The outlook and what is ART doing?
The challenge facing the world’s central banks remains an extraordinarily difficult one: bring inflation back under control over a reasonable timeframe without causing a major economic downturn in the process. Further cash rate increases, both here in Australia and elsewhere remain likely, although the pace of interest rate increases has clearly slowed and the monetary policy tightening cycle may be close to an end.
Much of the rise in inflation we have seen over the past year or so is likely to ease further over the coming year (as supply chain pressures ease and key commodity prices stabilise or decline). However, labour markets generally remain very tight, and there remains a risk that faster growth in wages and labour costs will result in inflation remaining at unacceptable levels. On balance, we remain of the view that medium to longer-term inflation is likely to be somewhat higher than we saw in the pre-COVID years.
We do not design portfolios based on our own or anyone else’s short-term economic, market or geopolitical forecasts. And we have no way of knowing with any certainty how far or how quickly inflation will fall from here or when interest rates will peak. However, our investment team and our external investment managers do seek to capitalise on opportunities that inevitably emerge during times of heightened market volatility, such as we are currently experiencing.
ART continues to hold a substantial allocation to alternative assets, particularly the key unlisted asset classes – real estate, infrastructure, private equity and private debt. 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.
During the quarter, our real estate team invested in a portfolio of six private hospital and medical centre assets in Sydney, Brisbane, Perth and regional Queensland, as well as adding to our investments in US multi-family real estate debt and US healthcare real estate assets.
In private equity, we invested in HDFC Credila, the largest non-bank provider of education finance in India, as well as Duck Creek Technology, a leading US based provider of software solutions to the property and casualty insurance industry.
In our private debt portfolios, we continue to source attractive opportunities in private direct lending to middle market corporates in Europe, including Sogelink, a French provider of software to the construction industry as well as CloserStill, a UK based tradeshow and conference organiser. ART also established a substantial private debt mandate focused on direct lending opportunities in North America.
We have made several adjustments to our Dynamic Asset Allocation (DAA) positioning in response to changes in relative value between asset classes over the September quarter and will continue to do so as opportunities present themselves. ART’s DAA strategy slightly favours shares over bonds. Within DAA’s shares allocation, we prefer UK and Japanese shares over shares in the US and Australia. In fixed income, we have adopted an overweight position in UK and US bonds after a sharp rise in yields over recent months. Elsewhere, however, we maintain an underweight exposure to sovereign bonds in favour of small overweight to investment grade corporate bonds, as the additional yield on offer from these securities remains relatively attractive. And the DAA strategy’s currency exposure favours the Japanese yen and UK pound and Australian dollar over the US dollar, the euro and the Swiss franc.
Help to choose your investments
There are a number of ART investment options that give exposure to a diversified range of asset classes, including both public market and unlisted investments. In fact, ART offers 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 ART a call on 13 11 84.
Employees in the Australian Retirement Trust group provide advice to members and employers as representatives of Sunsuper Financial Services Pty Ltd (ABN 50 087 154 818 AFSL No. 227867) (SFS), that is wholly owned by the Trustee as an asset of Australian Retirement Trust. SFS is a separate legal entity responsible for the financial services it provides. Eligibility conditions apply. Refer to the Financial Services Guide at australianretirementtrust.com.au/fsg for more information.
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 Trustee as an asset of Australian Retirement Trust (ABN 60 905 115 063). The Australian Retirement Trust Super Savings Balanced option adopted the pre-merger investment strategy of the Sunsuper Balanced option from 28 February 2022. The Super Savings Balanced option has identical investments to the Balanced Pool in the Super Savings Lifecycle Investment Strategy. Members invested in the Lifecycle Investment Strategy are invested 100% in the Balanced Pool until age 55.
Australian Retirement Trust Pty Ltd ABN 88 010 720 840 AFSL No. 228975 Australian Retirement Trust ABN 60 905 115 063