Investment Update Financial Year 2024

Performance (%)	1 year	10 years p.a.	20 years p.a.
Core Strategy (Super)	8.67%	6.75%	7.41%
Balanced (Pension)	7.56%	6.27%	7.11%

Source: Rest, 30 June 2024. 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 10- and 20-year periods are annualised returns. Past performance is not an indicator of future performance.

Core Strategy’s 2023-24 financial year results are ahead of its long-term annualised return objectives over 10 and 20 years and since its beginning¹, delivering on our commitment to provide strong returns for our members’ retirement.

To see how our other options performed, take a look here.

Shares were again the star performers

Rest’s Core Strategy and most of our diversified portfolios performed well, driven by another strong year of returns in shares. Overseas shares were led by large US technology companies, buoyed by advances in artificial intelligence, while in Australia, the technology and financial sectors were top performers.

Strong share markets delighted investors even though inflation proved to be stubborn! The global economy has held up well and most major markets have followed, resulting in gains across shares and other asset classes. Global central banks are keeping interest rates at higher levels to help achieve their inflation targets. Despite the higher interest rates and the pressures from a higher cost of living, robust employment in many developed markets is helping people to keep spending, one of the main drivers of economic growth.

We increased our exposure to overseas shares across the diversified options during the year. This included investments in some of the largest listed companies in the US, which went on to post strong returns in FY2023-24.

The graph below shows the performance of the asset classes we invest in. We can see that shares, credit, and alternatives did well, whereas unlisted property posted a negative return. This reflects the challenges faced by asset classes whose performance is very sensitive to higher interest rates.

This is why having a well-diversified portfolio is important as asset classes perform differently under different circumstances and timeframes.

Top tech maintained its momentum

Last year, we noted that the US mega-tech companies were the major drivers of US share market performance. This phenomenon continued throughout FY2023-24, with the largest seven technology companies (the “Magnificent Seven”) again growing by over 50%. Nvidia, which designs energy-efficient and programmable computer chips, has been the standout. In the 12 months to 30 June, Nvidia grew by 192%, which briefly made it the world’s most valuable company on 18 June 2024, until Microsoft regained the top spot two days later.

In the second half of 2023, we decided to increase Core Strategy’s exposure to international shares, including the US mega-tech companies. As at 30 June 2024, the Core Strategy option owned on behalf of its members shares worth close to $1 billion in each of Nvidia, Apple, and Microsoft. This means that for the average member’s balance of $37,000 in the Core Strategy option, $1,521 is invested in these companies.

We believe that the Magnificent Seven currently offer real value to the investment portfolio over the long term. Why?

They are innovative, and their products are in high demand.
The markets they serve are large and growing: software, cloud computing, telecommunications, and electric vehicles, among others.
They are financially healthy with excellent brand recognition, loyal customers, and cash reserves, so they can invest for the future.

The market generally expects artificial intelligence (AI) to improve productivity, not only for the tech companies, but for the broader economy. And their performance so far tends to show that the decision to invest in AI is a sound one.

Looking ahead

In the short term, we see challenges in inflation, higher borrowing costs, and geopolitics. We think the global share markets that have boosted member returns over the past financial year will find it difficult to sustain the same rate of growth in FY2024-25, although we still expect positive returns from them overall.

Although markets are still pricing in reductions to interest rates globally, our view is that inflation is likely to remain higher than central banks’ targets for some time. The outlook for bonds is improving with interest rates remaining high. We believe asset classes less sensitive to economic conditions, like infrastructure, should also enjoy solid returns.

As investors of our members’ retirement savings, we don’t focus on returns only from a single year. Instead, our investment strategy aims to deliver strong returns over the long term as we strive to maximise return outcomes for our members.

Over the longer horizon, we are positive about investment opportunities. AI and digitalisation are accelerating innovation at a rate not seen before. This creates new developments and new investment opportunities.

By adapting our portfolio and selecting the right long-term opportunities, we believe we can help our members achieve their best possible retirement outcomes.

1. The beginning date for the Core Strategy investment option is 1 July 1988. Performance against annualised return objectives uses a forecast CPI for FY2024 of 3.7%.

General

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