Rest’s Core Strategy has delivered returns of +6.10% for the quarter, and +3.41% for the year, ending 31 December 2020. For Pension members, the default Balanced option also ended December stronger, with gains of +5.38% and +3.57% for the respective 3- and 12- months ending 31 December 2020.
Yet again, overseas shares provided the best returns in the portfolio and were key drivers of the Core Strategy’s performance over the quarter. Australian shares were another standout performer. Steady returns from our unlisted property and infrastructure assets also added to gains, while solid returns from our bond holdings provided additional diversification benefits. With interest rates around the world sitting at virtually zero or negative; cash, unsurprisingly, lagged.
| 3 months (%) | 1 Year (%) | 10 Years (%pa) |
|---|---|---|
| 6.10 | 3.41 | 7.88 |
| 3 months (%) | 1 Year (%) | 10 Years (%pa) |
|---|---|---|
| 5.38 | 3.57 | 7.49 |
Returns are net of investment fees and tax, except Pension which is untaxed. 3 month returns are not annualised returns. Returns for the 10 year period are annualised returns. Past performance is not an indication of future performance. For more investment information including the latest investment returns, click here.
Longer term, Core Strategy’s performance has remained solid, returning +7.88% per annum over the 10 years to end December 2020. This is well above its investment objective of CPI + 3% per year over the longer term (rolling 10 year periods), and ahead also of SuperRatings’ median fund^.
Financial markets have proven remarkably resilient in the face of one of the most challenging years in modern times. With the Australian bushfires, the spread of COVID-19, tensions escalating between US and Iran, widespread rioting in the streets of America, economic shutdowns, global recessions, record job losses and the US election, 2020 will go down in history as a year of unprecedented change.
Yet, extraordinarily for global stock markets, the year closed much like it began: with stocks in a bull market – significantly outperforming bonds. During the year, stocks experienced one of their fastest and steepest bear market sell-offs on record. Then they sharply recovered to new record highs, as trillions of dollars in worldwide government stimulus was injected into global economies and global central banks reduced interest rates to zero or negative. This volatility highlights the importance of a long-term approach and staying calm during bouts of market panic.
Globally, the pandemic took a turn for the worse over the December quarter. But positive news on the US election front and the rollout of COVID-19 vaccines has impacted the markets favourably. This has seen overseas stocks – as measured by the MSCI World ex Australia index (in local dollars) – end on a high, up +12.3% over the quarter-, and +13.8% on the year- ending 31 December 2020. Again, US stocks led the way: the S&P500 rallied +17.8% over the year – marking the fifth year in the past decade in which it has posted gains of more than 15%.
For Australia, the past year has been a tale of two halves. Australia started the year on fire, literally, as damage caused by bushfires reached areas bigger in total land mass than entire countries like Cuba. Then, it was all about COVID-19. In response to economies being closed at home and abroad, our markets sold-off sharply in March 2020, hitting multi-year lows in record time. COVID-19 lockdowns and border shutdowns also tipped the Australian economy into recession for the first time in almost three decades in June.
Fast forward to December and the Australian stock market (ASX 300) has ended the year up by more than 40% from the March lows. It’s also up +13.8% for the quarter- and +1.7% for the year- ending 31 December 2020. Our handling of the COVID-19 health issues and a rapid response to provide fiscal stimulus and monetary support have been bright spots in the Australian market. As too, rallying iron ore prices due to supply constraints and rising steel demand in China. Not so bright, Australia’s relations with our largest trading partner, China, which deteriorated to a new low.
Swift government and central bank policies have been paramount to global markets avoiding a GFC -type scenario due to COVID-19. This effective policy management, along with progress made on COVID-19 vaccines, means re-opening to a new normal now appears to be in sight. But plenty of challenges still lie ahead
Recent economic data suggests the global recovery is progressing well. However, stock markets globally recovered at unimaginable speeds – leaving some valuations less attractive. Also, some factors may complicate a broad-based global recovery. Overseas, third and fourth wave COVID-19 infections accelerated by a mutating virus are evidence that coming out of lockdown can be harder than going in. Plus, even with viable vaccines, perceptions of vaccine safety and unequal vaccine access could impact a recovery from the pandemic.
In the US, Trump’s multiple challenges of his defeat in the 2020 US elections highlight the deep polarisation that plagues America. Without doubt, this divisiveness will complicate the incoming Biden administration’s ability to hit the ground running. Such challenges could have significant implications for the rest of the world as well, at a time when geopolitical risks remain high, and China is displaying its superpower ambition.
Bottom line, we live in an increasingly uncertain world. But often with risk and volatility there’s also opportunity. At Rest, we believe active management and diversification can add value over the long term. That’s why after March’s steep coronavirus-induced sell-off, we took the opportunity to increase the Core Strategy’s exposure to the shares asset class as part of our active investment management approach. In addition, we continue to see the benefits of diversifying across other classes. For example, investing in unlisted assets such as infrastructure, property and private equity. This is especially true in the current low-for-longer interest rate environment
