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January 28 2022
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Investment Update

December 2021 quarterly review

Rest’s Core Strategy finished the year positively, returning 3.16% for the quarter and 13.15% for the 2021 calendar year. For Pension members, the default Balanced option also gained 2.39% over the quarter and 10.93% over the year.   

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Key performance drivers

After a small correction in November, global share markets rebounded again in December to post strong gains for the overall quarter. Whilst gains were more subdued in the second half of 2021 as markets started to consolidate following the strong rebound from the pandemic led sell off in 2020. Australian and International shares continued to be leading drivers of the Core strategy’s performance across the year.

Our investments in other asset classes such as property, agriculture and infrastructure also contributed to returns.

However, rising inflation and interest rates continue to provide some challenges in the more defensive sectors. Whilst investments in these sectors, such as fixed income, have registered lower returns they continue to play an important role in diversifying portfolios. 

Core Strategy to 31 December 2021

3 months (%) 1 year (%) 10 years (% p.a.)
3.16 13.15 9.36
3 months (%) 3.16
1 year (%) 13.15
10 years (% p.a.) 9.36

Balanced (Rest Pension) to 31 December 2021

3 months (%) 1 year (%) 10 years (% p.a.)
2.39 10.93 8.43
3 months (%) 2.39
1 year (%) 10.93
10 years (% p.a.) 8.43

All figures as at 31 December 2021. 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 ten-year period are annualised returns. Past performance is not an indicator of future performance. 

Over the long term, the Core Strategy has continued to perform well. The Core Strategy has returned 9.36% p.a. over 10 years, 6.92% p.a. over 15 years, 7.87% p.a. over 20 years, and 8.61% p.a. since its inception in 1988, comfortably outperforming its objective of CPI +3% per year over the long term (rolling 10-year period). The long-term performances of our Structured options (Capital Stable, Balanced, Balance-Indexed, Diversified and High Growth) over 10 years, have also remained competitive.

Leading the way: strength in shares

Shares continued to perform very strongly, showcasing an impressive ability to sustain returns and rebound strongly from the pandemic. Waves of coronavirus variants, from delta to omicron, and a global death toll well over 5 million people did not supress global and local share markets, with each recovery faster than the previous one.

Markets were buoyed by government stimulus and accommodative monetary policy which kept markets liquid and interest rates low.

Globally the MSCI ALL-Country World Index ex Australia delivered an impressive 26.5%, whilst the US’s S&P500 index had another sterling year, gaining 25.3%, following a 16% gain in 2020.

Locally, Australia’s S&P/ASX 300 total return index rose 17.5 per cent for the calendar year, with Communication Services and Consumer Discretionary the star performers. 

Inflation becomes a factor again

Throughout the pandemic, we witnessed a highly co-ordinated response from central banks around the world, with the major economies undertaking “bond-buying” programmes to stimulate the economy.

However strong economic growth has been met with pandemic related supply chain disruption which has sparked rising prices for goods, services and petrol, and especially human capital with businesses raising wages and improving conditions to attract talent. Rising oil prices have also contributed.

As a result, both consumer prices and inflation are rising rapidly globally, particularly in the United States where late in November, the inflation rate hit 6.8%, the highest since 1982. Major central banks have responded to the uplift in inflationary pressures by beginning to move away from emergency level policy settings.

With the US economy growing at a rate of more than five per cent, unemployment down to 4.2 per cent last month and clear labour shortages, the situation also mirrors the Australian economy. Australia’s inflation rate however remains at 2.1 per cent, within the target range. Despite prolonged lockdowns in Victoria and New South Wales, GDP was still up 3.9 per cent and unemployment down to 4.6 per cent.

The year ahead

We remain broadly positive on the outlook for global growth whilst noting that we expect it to be more muted across 2022, as growth moderates towards trend levels. While growth may have peaked, we expect it to remain at levels that support corporate earnings.

In 2022, we expect central banks to continue to slowly normalise monetary policy to help temper inflationary pressures. We believe that policymakers will be sensitive to the impact of rising rates and any changes will be measured.

Despite the acceleration of vaccination rates around the world, a new covid variant, Omicron, has threatened to derail the recovery with the holiday period punctuated by an explosion of new cases.

However, early indications are that the Omicron variant is unlikely to lower economic growth with lockdowns off the cards as we shift towards learning to live with the virus. Notably the massive number of cases is causing further supply chain disruption due to the vast numbers of close contacts in isolation.

Whilst Covid-19 remains a risk, world share markets continue to be optimistic about the global economy and continue to exhibit strength, with many share markets closing the year close to their all-time highs. We remain positive on the outlook for 2022 but watchful on developments in inflation and the impact that rising prices and interest rates may have on corporate earnings and asset markets more broadly. We continue to retain a highly diversified portfolio that provides both resiliency through a range of outcomes and competitive returns.