October 26 2022
Investment Update

A message from the Rest Chief Investment Officer Andrew Lill - September quarter 2022/2023

Rest Chief Investment Officer Andrew Lill

“While still early days, this financial year has so far been one of the toughest for financial markets for decades.  We understand how it can be unsettling to hear news that is filled with scary commentary about the financial markets. But there are proven strategies to help manage through these market ups and downs – and keeping a long-term view can help us focus on what really matters. It can also help remind us that headlines are meant to be attention grabbing, but not necessarily enjoyable.

Market corrections are normal – and to some extent expected. The fact that their timing can’t be predicted makes them challenging. It’s why experienced investors like those working at Rest spend time actively managing risk within our options, as well as keeping focused on returns.

It’s also helpful to remember that market volatility can present opportunities for a long-term investor who is able to look past the near-term noise. As the well-known and influential investor Warren Buffet noted in a letter to his shareholders during the Global Financial Crisis of 2008-2009,

‘Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.’”

Rest’s Core Strategy option returned 0.23% over the quarter, whilst for Pension members, the default Balanced option delivered 0.37%.

Core Strategy (Super) to 30 September 2022

3 months (%) Financial YTD 10 years (% p.a.)
0.23 0.23 7.58
3 months (%) 0.23
Financial YTD 0.23
10 years (% p.a.) 7.58

Balanced (Pension) to 30 September 2022

3 months (%) Financial YTD 10 years (% p.a.)
0.37 0.37 6.99
3 months (%) 0.37
Financial YTD 0.37
10 years (% p.a.) 6.99

Source: Rest, September 30, 2022. Returns are net of investment fees and tax, except Pension which is untaxed. The earnings applied to members’ accounts may differ. Investment returns are at the investment option level and are reflected in the unit prices for those options. Returns for the ten-year period are annualised returns. Past performance is not an indicator of future performance.

Market and economic update

Share markets recovered well during July and early August, only to unfortunately fall away again in late August and into September. Initially markets were driven by investors seeking to pick up cheaper assets after the recent share market weakness. However, the gains were eroded over September as markets reacted to increasing uncertainty across global economies. Higher than expected inflation, large increases in interest rates and the negative impact of the war in Ukraine on energy prices and economic growth have all been key factors impacting performance. The weakness in September is a timely reminder that in the short-term markets can be very volatile. However, over the longer term this volatility is generally smoothed out and these periods of uncertainty often provide excellent opportunities to acquire great investments at cheaper prices. This is exactly why it is important to take a long-term view of investing.

The inflationary effects following the pandemic and the Russian-Ukraine war have contributed strongly to the current uncertain global backdrop. This calendar year has also been characterised by aggressive rate increases by many major central banks. In the United States, inflation and the raising of interest rates by the US Federal Reserve, has seen a deterioration in the growth outlook. Meanwhile, the UK and Europe are both in the midst of an energy crisis, due to the uncertainty surrounding gas supplies. In the UK, in an effort to revive the economy, surprise tax cuts were announced which were received poorly by financial markets. There were concerns that the cuts would add to inflationary pressures and as a result, UK government bonds and the currency market were severely impacted. The British pound plunged to 35 year lows against the US dollar, prompting the UK’s central bank to intervene in an effort to prop up bond and currency markets. The outlook for both the UK and European economies looks poor heading into a Northern Hemisphere winter and coming at a time when energy supplies remain highly uncertain. Both economies are expected to enter recession in the coming quarters.

Australia’s economic position looks somewhat better than many other developed economies. The latest economic data* shows Australia’s annual GDP growth rate at 3.9%, the highest year on year growth in a decade. We would expect this to slow down as our central bank, the Reserve Bank, continues to raise rates. Australia is relatively self-sufficient in terms of energy production, and our ability to export energy and commodities continues to benefit us. We are more insulated from, but not immune to, the global slowdown. 

Rest Investment’s View

We believe that we will continue to see investment markets remain volatile against a backdrop of significant global economic risks. During 2022, our team have been positioning the portfolio more defensively in anticipation of a more uncertain outlook and rising inflation. This has meant that we have generally had a lower allocation to growth assets and a higher allocation to cash. We continue to watch markets for opportunities to buy quality assets at more attractive prices. Due to the higher inflationary backdrop, bonds have not provided their usual stabilising influence. This is where our diverse range of exposures across the portfolio have provided some degree of resilience to help offset the volatility we’ve been seeing in share and debt markets. This includes investments in unlisted assets such as Infrastructure, Property and Agriculture.

Rest Investment’s Approach

We believe the key to managing through volatile times is to:

  • have a well-diversified portfolio
  • have a strong focus on quality assets;
  • remain alert and nimble to opportunities that will benefit members over the longer-term.

There is no doubt that this remains a challenging period in which to invest and to stay ahead of inflation, which is our long-term goal for your retirement. Despite the outlook, our team remain focused on delivering competitive long-term returns to help you achieve your personal best retirement outcome.

*Source: ABS GDP 2021-2022, reference period June 2022

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