Investment update December 2019 quarter

Some highlights in the way we’ve invested

Western Australia’s largest windfarm:

The Collgar Wind Farm is one of Australia’s largest wind powered renewable energy generators, displacing between 480,000 and 660,000 tonnes of greenhouse gas emissions each year. Rest has been involved with Collgar since construction began in 2010, and previously held a 40 per cent stake in the project before acquiring the remaining 60 per cent from UBS Asset Management’s Real Estate & Private Markets Infrastructure business.

Trump, trade and the end of a remarkable decade

Sharemarkets globally continued to rally through December, ending the year, and the decade, on a high note. And, what a decade it’s been. The ‘10’s will go down in the history books as a global ‘recession-less’ decade dominated by much geopolitical uncertainty, yet still strong price growth across multiple asset classes due to record low interest rates and extraordinary central-bank intervention.

Global policymakers to the rescue

International shares, as measured by the MSCI All Country World ex Australia Index (unhedged in AUD), gained +4.3% over the December quarter- and +28.0% over the year- ending 31 December 2019. US equities were again the standout performer; the S&P500, for instance, surged to all-time highs, up +4.3% over the fourth quarter and +29.2% over the year in 2019. A key driver was global central bank measures - led by the US Federal Reserve, European Central Bank and Bank of Japan - to keep monetary conditions accommodative and interest rates lower-for-longer to sustain the economic expansion.

Lower for longer Aussie interest rates

In Australia, the S&P/ASX300 Accumulation Index managed to add +0.7% over the quarter, and +23.8% over the year ending 31 December, despite ongoing weakness on the domestic growth front. Most notably, business investment has remained lacklustre, and consumer spending, subdue, due to anaemic wage growth and high household debt levels.

More uncertainty and greater volatility

While not impossible, it would be unrealistic to expect a repeat of last year’s double digit returns in 2020. Concerns around the possibility of a US recession have largely eased thanks to fresh stimulus from the Federal Reserve, but the world economy has moved into a slower phase of expansion. With slower global growth, expect corporate profitability to also trend lower, at a time when many assets are already fairly valued.

Looking ahead

At Rest, our focus remains on delivering competitive long-term investment performance for members. Protecting members from downside risks is equally important to us. Staying well diversified, disciplined and long term focussed is key to achieving this. That’s why, while much has been said about the sharemarket’s highs, don’t expect Core Strategy's portfolio-based returns to match the market.