Investment update December 2020
| 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 |
Solid long-term performance
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^.
A year of unprecedented change
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.
From bull to bear to bull in a year
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.
Defying expectations
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%.
A new normal on the horizon
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
Taking advantage of opportunities
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