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. 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 we believe it is important to take a long-term view when investing.
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 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 believe Australia is 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 Core Strategy 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.
Where Rest is investing to help offset volatility
One of our direct assets which has helped keep the portfolio resilient, is our investment in Warakirri Cropping (WC), which owns and operates farms. In fact, WC is one of Australia’s largest grain growers and is 100% owned by Rest members. Agriculture has performed very strongly with the war in Ukraine causing wheat supply shortages and driving price rises. Agricultural land values have also been rising in recent years, and hence this investment has benefitted from positive land revaluations across the portfolio.
WC supports associated business activities which provide further employment in rural areas including grain animal feed manufacturing and grain storage. In turn, this stimulates regional employment through the transport, logistics and packaging industries. Nation building in its true sense and one we are very enthusiastic to see continue.
WC use responsible farming practices and all farms are rainfed only. As an example, they rotate crops and minimise chemical use, which leads to better soil health and reduces environmental impacts.
Rest is recognised as a responsible investment leader
Our investment in regional farming is an excellent example showcasing our commitment to Responsible Investing (RI). Long-term investment returns are contingent upon healthy environmental and social systems. Protecting the investment returns of tomorrow requires action today to nurture the health of these essential systems.
Over the past year, we have made some great progress with our RI. Rest was recognised as an ESG Leader by Rainmaker in June. In September Rest was also recognised as a Responsible Investment Leader by Responsible Investment
Association Australasia (RIAA) in its 21st Responsible Investment Benchmark Report 2022. Then in October Rest’s Sustainable Growth Option achieved certification from RIAA’s Responsible Investment Certification Program – the leading initiative for distinguishing quality responsible, ethical and impact investment products in Australia and New Zealand.
Rest Investment’s Approach
Super is generally a long-term investment (even if you are in your 60s or 70s), so while investment markets can be unpredictable over the shorter term, they typically recover over the longer term as negative returns are smoothed out by positive returns. While past performance is not an indicator of future performance, when markets have historically rebounded following a period of negative returns, it has often been quick and strong. 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 our members’ retirement. Despite the outlook, our team remain focused on delivering competitive long-term returns to help your employees achieve their personal best retirement outcome.
