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The following is the output of transcribing from an audio recording. The transcript has been included to make the video accessible to people who are deaf or hard of hearing. Although all reasonable attempts have been made to ensure accuracy of the transcript, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors.

Anne: Hello and welcome to Super Insider, Australian Retirement Trust’s podcast series on investment markets, the economy and most importantly, making sure you retire well with confidence. Today we're sitting here in Meanjin otherwise known as Brisbane Turrbal and Yuggera Country, and I'd like to pay my respects to elders past, present, and emerging. Well, who am I? I'm Anne Fuchs Executive General Manager of Advice, Guidance and Education here at Australian Retirement Trust.

And the team and I help our 2.2 million members make the best possible decisions so that they can put their feet up and enjoy their retirement. Now with me today is a bit of a celebrity economist. Brian Parker, the Chief Economist here at Australian Retirement Trust who's wearing a new tie and it's one of the reasons why our Consumer Price Index is not going down by the looks of it.

How are you, sir?

Brian: Well, thanks very much and it's great to be with you.

Anne: And today we're talking about what's been happening the last quarter in terms of the economy, investment markets and investment performance for Australian Retirement Trust.

Brian: Absolutely. But before we do that, we have to keep the compliance team happy. I know this is their favourite part of the podcast. So, ladies and gentlemen, before we begin, I need to let everyone know that what we're going to talk about today is general information only. Any advice doesn't take into account your personal situation.

You should consider your circumstances and think about getting personal advice before acting on anything we discuss. You should also consider the relevant Product Disclosure Statement and the relevant Target Market Determination before deciding to acquire or continue to hold any financial product from our website or by calling us on 13 11 84 if you have a Super Savings account or 1300 360 750 if you have a QSuper account.

Anne: Well, that was a bit of a mouthful, Brian.

Brian: It was actually.

Anne: From a Super Insider point of view of which you are, as the Chief Economist of one of Australia's largest funds, Brian. What has been happening in the world of investing over the last quarter since we last spoke?

Brian: Look it's been another pretty strong quarter for financial markets. In fact, it really culminated, it's really sort of been the culmination of quite a strong year for financial markets. You know, there's an old adage that share markets climb a wall of worry and there was certainly plenty of things to worry about in the last 12 months. So, you know, rising interest rates, cost of living pressures, etc., you know, stubbornly high inflation rates both here in Australia and internationally.

Brian: And yet despite all of that and again, of course the ongoing war in Ukraine, but yet despite all of that, we actually saw share markets around the world perform pretty strongly, which is and that really did sort of turbocharge superannuation returns over the course of the year. And that's certainly what we saw during the June quarter as well.

Anne: You wouldn't sort of think it if you watch the news every day and you just see what see the stories that are coming on the news and to your point around rising interest rates, geopolitical risk, you would think that things are particularly dire and that's that your investment performance in your superannuation wouldn't be great.

 

Brian: Yeah, that's right. But yet, you know, the end of the day, given that most superannuation funds maintain a fairly significant exposure to Australian and global equities, global shares, you know, that really, and if you look at the major world share markets, you talk about returns are better than 20% for the year. In fact, the Australian share market kind of underperformed, you know, we only did 14% for the year and so, you know, certainly shares did very, very well, bonds not so much so, it was a very, very challenging year for fixed income markets. It's actually been a very challenging year or a challenging couple of years for fixed income or bond markets because you've seen a sharp rise in market interest rates and that means the price of bonds tends to fall. And so, returns from fixed income haven't been great, but shares have done very, very well.

Anne: So if you're looking at the major economies around the world that feed into the investment performance of our members retirement savings, Europe, USA, China, are any of them in recession or do you think any of them are going to go into recession?

Brian: Yeah, it's a really good question. I mean, right now Europe is in recession. It's a very mild one so far, but certainly the eurozone economy has fallen into recession, so far, the United States has actually held up very, very well. You know, especially if you look at the numbers on employment, the US labour market remains very, very strong.

Anne: What’s driving that, Brian?

Brian: Just underlying very, very strong demand for labour, that at the end of the day the US economy is proven to be a lot more resilient than many people might have thought, including this little black duck six months ago.

Anne: I'd never call you a black duck, but that's fine.

Brian: A large duck maybe. But at the end of the day, you know, so far, the US economy has proven to be very resilient. The Chinese economy, you know, you might recall last year when you had another round of COVID lockdowns in China and that certainly curtailed a lot of Chinese economic activity. And as we went into 2023, I think everyone was expecting this big surge in Chinese activity.

And you've seen something of a surge, but it's kind of been a bit lame. The Chinese economy is growing and that's great and that's obviously very, very important for economies across the region, including Australia, obviously. But I mean, so far, the world economy has held up reasonably well. Europe is in recession, but I do think it's worth acknowledging that over the coming 12 months or so, given the fact that interest rates have risen very aggressively around the world, not just here in Australia, but interest rates have gone up aggressively, that is going to increasingly impact on the performance of a whole range of economies around the world.

So, you know, will we end up with a global recession? We think the risk of that is still pretty high, but suffice to say, I do think economic conditions are probably going to get a bit tougher as the as the as we get into 2024 just given the impact of higher interest rates.

Anne: So, what have been the themes that have really influenced why Australia's performed so well?

Brian: In an economic sense? (Yes), Yeah. I just think that when you look at the cost-of-living pressures that are out there and they're very, very real, so certainly low to middle income households, households with substantial mortgage debt, especially mortgage debt, that's been taken on in relatively recent years. People who are renting have certainly felt the pinch. But at the same time, when you look at the consumer, the Australian consumer, in aggregate, you know, consumers have still been out there spending for much of the last twelve months.

Anne: Yes, like you buying new ties for Super Insider, nice of you to do so.

Brian: Absolutely, it's not quite brand compliant. You of course are brand compliant as always, but at the end of the day, I just think that, yes, consumers actually have maintained decent spending in aggregate, but I also think that's probably going to slow down quite considerably. We're already starting to see some signs of that in some of the retail spending indicators, and it's really higher interest rates starting to bite.

Brian: And I think this is going to continue to impact on the Australian economy over the next 6 to 12 months.

Anne: So, since we met last, I'm delighted to note that another glass ceiling has been shattered at the Reserve Bank of Australia, so particularly excited to see that. What does that mean and what does that mean for interest rates if our members are wondering?

Brian: I don't think it actually means that much. Michele Bullock has been Deputy Governor of the RBA throughout this, you know, cycle of, you know, higher and higher interest rates. Would interest rates, would interest rate policy have been any different over the last year or two if Michele Bullock had been governor? I think on balance the answer to that is no.

And I don't think it really changes the outlook. I think given that, you know, Michele has been right at the very highest level of decision making in the bank for some years now, I don't think things would have been done any differently and I don't think the change of governor actually changes the outlook for rates terribly much.

Anne: And are you prepared to make any predictions? I know you.

Brian: I’m an economist, I don't do that right?

Anne: So, around inflation in particular and interest rates obviously you know, interest rates have been on hold for a little while now, the last two, but what's your view on where this might be heading with inflation seeming to trend down?

Brian: Yeah, look, I think it's when you look at the inflation figures, it's pretty clear that inflation in Australia has peaked. That, you know, you are seeing a slowdown in demand. We are seeing some of those sort of goods price pressures, supply chain pressures, commodity price pressures start to roll out of the system, but we think that that continues.

So, I do think inflation continues to grind its way lower over the coming years. For the Reserve Bank's perspective, you know, have they done enough with interest rates to slow down demand and to take some of the heat out of spending so that, that down trend in inflation can continue? I think the answer to that is yes. Could I rule out another rate increase? No, I couldn’t.

And it certainly the Bank has made it pretty clear that they still think there's a risk that they might need to do more, but, you know, given the fact that they've, they've you know, they've done nothing now for two straight meetings, yes, there's a risk of maybe one more increase out there, but, you know, interest rates are very, very close to a peak at the very least.

Anne: Do you think, though, unemployment is still very, very low and we are going to see an increase in migration to particularly skilled labour, is that going to impact, put any pressure on inflation, do you think?

Brian: I think it actually takes some of the pressure, some of the heat out of the labour market, if I can put it that way. And it's kind of complicated because on the one hand you bring in more migrants and that increases demand in the economy, which all other things being equal, might force prices up. But at the same time, to the extent that some of the some of the inflation pressure we've seen is being driven by, you know, labour shortages, especially in the Services sector, you bring in more people, you take some of that pressure off. (That makes sense.)

What's really interesting is that if you think about the last 12 months or so, we brought in over 400,000 new migrants and yet the labour market swallowed them up whole. The unemployment rate barely budged and that's really quite remarkable. It shows you just how much demand for labour there has been out there and that demand for labour has softened a bit.

But when you look at things like the level, the number of job vacancies out there, especially the number of job vacancies relative to the number of people looking for work, I mean, that ratio is still very, very high historically, and not just here in Australia, it's also historically high in the US and elsewhere. So labour markets remain very, very tight.

You know, things are easing, are they easing fast enough to keep the central banks happy? Let's see over the next few months.

Anne: So, what does all of this mean? We've just published investment performance for our Australian Retirement Trust members. What does all of this mean in terms of the end result that our members are getting on their very precious retirement savings?

Brian: Look, it's been a reasonably solid year, especially for those portfolios that have had a significant allocation to equities. Equities have done very, very well. So, all other the things being equal, if you're in in a portfolio with a higher allocation to equities, you've done relatively well. If you're in a portfolio with a lower allocation to equities or a higher allocation to fixed income, you’ve probably still done okay.

The returns are probably been still on average pretty, pretty good, at least positive, but you haven’t done quite as well. So, it’s been that’s been pretty much the main differentiator over the last 12 months or so.

Anne: Swings and roundabouts. So if, you know, we have our QSuper members and members who are in the Super Savings, there are some different, I guess, investment philosophies that are at play that feed into those swings and roundabouts informing investment performance. What’s your, what's your message to our members around understanding investment performance on their account?

Brian: It's a really, really good question because certainly you've seen quite a, quite a significant gap between the performance of ART Super Savings portfolios and our QSuper portfolios. And a big part of the reason for that is the difference in allocations to shares and bonds. So, the way QSuper portfolios are designed, quite deliberately, is they're designed to achieve their long-term performance objective, and that's absolutely crucial.

At the end of the day, that's our main function as an investment team to, you know, deliver what's on the box if I can put it that way.

Anne: Yeah, over the 10 years.

Brian: Absolutely. Over rolling 10-year periods. And certainly, those portfolios have achieved their objectives by and large and that's great. But crucially, they're designed to do that by taking significantly less risk. So, what you tend to find with the QSuper portfolios is they tend to have a higher allocation to fixed income and a lower allocation to shares. And that certainly means that in a year like the last financial year, there has been a significant gap opened up between…

Anne: Because of this huge uptick in the share market.

Brian: Absolutely, because the Super Savings portfolios tend to have a higher allocation to shares and a lower allocation to bonds. Now, this is a bit of a swings and roundabouts game from one year to the next. You know, you will see differences in performance.

Anne: So, your message is if you're if you're losing sleep at night, we always say this. If you're losing sleep at night, that's a really bad you know, if you're losing sleep at night, how do you say it? I’ve gone blank.

Brian: I think it's, it’s a rule to live by. You know if you're doing something with money which is causing to lose more than

Anne: That's what it is.

Brian: about 2 minutes of sleep a night. It's your body telling you something. Your body is telling you you're taking too much risk or you're doing something wrong. And the best solution to that, I think, is to get advice. And this is where your team really comes into the comes into the, comes to the fore.

Anne: Or our, or external financial advisers who, there's 4 and a half thousand of them that work with us here at ART.

Brian: Absolutely. And to any of our members, if you are worried about what's happening with your portfolio or what's with the state of the world or markets, if you have a financial adviser, get on the phone and call that person and say, let's have a chat. If you don't have a financial adviser, contact Australian Retirement Trust.

Anne: Look, if you're wanting more information, going to our website is a great place to start. And if you have family or friends that are members of Australian Retirement Trust, we'd love you to share this podcast with them so that they can also understand how their retirement savings are invested. What's your one final message for our listeners, Brian?

Brian: Oh, look, I think at the end of the day, let's remember that superannuation is the longest-term investment any of us are ever going to have.

Anne: Besides maybe the family home if you buy it and you never move.

Brian: Well, at the end of the day, if it's a family home, is it an investment or is it a consumer good that you’re actually using?

Anne: Well, you probably get superannuation much earlier now too, so I'll retract that one. Yes.

Brian: But look, super is a very, very long-term investment and so let's make sure that we think about superannuation as a long-term investment and understand that from one year to the next returns are going to be somewhat volatile, that, you know, share markets are by nature very volatile. Investment returns will be volatile and the long-term reward, if you like, for tolerating, accepting that volatility is a better long-term return and a better retirement outcome.

Anne: Sensational, well look Brian, it's always fun. Chief Economist extraordinaire. So, thank you to our listeners and viewers. We hope you've enjoyed it. If you have to tell your family and friends, you can find us on Spotify, on Apple Podcasts, and we'll look forward to you joining us again soon.

Brian: Thanks Anne.

 

The following is the output of transcribing from an audio recording. The transcript has been included to make the video accessible to people who are deaf or hard of hearing. Although all reasonable attempts have been made to ensure accuracy of the transcript, in some cases it may be incomplete or inaccurate due to inaudible passages or transcription errors.

Hello everybody my name is Brian Parker I’m the Chief Economist at Australian retirement trust.

Since the worst of the COVID financial crisis in March 2020 up until the end of 2021 we've seen very strong investment returns particularly from share markets both here in Australia and globally. In fact, we've seen very strong returns for over decade leading up to the end of 2021.

But 2022 to date has been far more challenging. Share market conditions remain very volatile. While the war in Ukraine continues, markets are now largely focused on inflation, interest rates and the risk of a significant downturn in the world economy. In short, markets are worried that central banks may overdo it – raising rates too far and causing a recession rather than delivering some kind of ‘soft landing’.

We know that many of our members – particularly those members approaching or in retirement – are worried about their investments in this environment. With that in mind, let me share with you some key messages to keep in mind when you’re thinking about what, if anything, to do with your superannuation.

Firstly, it's important to remember that superannuation is the longest-term investment that many of us will ever have and Australian Retirement Trust’s diversified options have delivered very strong long-term returns. And because superannuation is a long-term investment, we do not manage portfolios on the basis of our own or anybody else’s short-term economic or market forecasts.

Further interest rate increases from the world’s central banks (including our own RBA) are inevitable, but we have no way of knowing with any certainty just how far rates will need to rise in order to slow demand and bring inflation down.

While much of the rise in inflation we have seen over the past year or so is likely to fade, for example, as supply chain pressures ease and key commodity prices stabilise or decline - this is likely to take some time and over the medium to longer-term inflation is likely to be somewhat higher than we saw in the pre-COVID years.

Nor can we predict when geopolitical events may emerge as issues for financial markets and nor can we predict how they will play out. The war in Ukraine is a case in point. Even well-regarded geopolitical and military experts have no idea how the war in Ukraine evolves from here.

Crises, recessions, market downturns, are near impossible to predict in advance, but they are inevitable.

For someone in their late teens or early 20s, starting their first full-time job, they will likely experience maybe five, six or seven major market downturns over their working life.

But every crisis every recession every downturn comes to an end - bar none. There is always a light at the end of the tunnel and that light is not a train it's the end of the tunnel!

What we also know is that periods of market volatility where share prices fall significantly also provide opportunity, the opportunity to buy assets at much more attractive prices. That is what we pay our investment managers to do on your behalf. That’s also what the investment team at Australian Retirement Trust is paid to do, and that is exactly what we're doing in this environment.

And we also know that the long-term reward for tolerating periods of short-term volatility where share prices can fall sharply, is higher long-term returns. Ultimately investors are rewarded for risk -that’s how markets work over the long term.

However, we also know that all our members are different. Our members are at different stages of life. They have different appetites for risk. They have different long-term investment goals. They all have different plans for retirement. For those of our members approaching or in retirement who are invested in either of Australian Retirement Trust’s default options, your exposure to the volatility of share markets has already been reduced – because we don’t want your retirement plans derailed by sharp falls in share markets.

For any of our members who are concerned about what’s happening in markets or who want to make sure that the Australian retirement Trust investment option that you have is right for you, please contact us. For members with QSuper accounts please call us on 1300 360 750. For Australian Retirement Trust Super Savings members please call us on 13 11 84. We are here to help.