Investment update March 2021

A message from our CIO Andrew Lill

Competitive performance continues at Rest

Rest’s Core Strategy has delivered a solid +2.88% return for the quarter, and double digit +18.95% return for the year, ending 31 March 2021. For Pension members, the default Balanced option posted gains of +2.24% for the quarter, and +17.26% for year, ending 31 March 2021. As Rest’s Chief Investment officer I am delighted that we can declare these returns for members at this time and look forward to a strong end to the financial year.

Our shares-based investments, both overseas and in Australia, were a key driver of these solid returns, particularly over the past year. Our investments in unlisted assets within the property and infrastructure space were also solid contributors. With interest rates at virtually zero or negative around the world, the past year has been more challenging for our bond and cash investments.

Core Strategy option to 31 March 2021
3 months (%) 1 Year (%) 10 Years (%pa)
2.88 18.95 7.88
Balanced option (Rest Pension) to 31 March 2021
3 months (%) 1 Year (%) 10 Years (%pa)
2.24 17.26 7.52

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.

Long-term performance also remains solid

Longer term, the Core Strategy’s performance has remained solid, returning +7.88% per annum over the 10 years to end March 2021. This is well above its investment objective of CPI + 3% per year over the longer term, and ahead also of SuperRatings’ median fund*. Compared to peers#, the returns of our Structured options (Capital Stable, Balanced, Balanced-Indexed, Diversified and High Growth) over 10 years, has also remained competitive. Over the last year we have successfully introduced new managers to our portfolios to maintain strong returns and keep fees low. We have also added to our exposure to share markets locally and globally, at the same time reducing our cash and property weightings. These changes have made positive impacts to the performance of our Core Strategy and Structured options.

COVID-19 one year on

What a difference a year can make. Last March, COVID-19 was declared a global pandemic - sending markets crashing down soon after. One year on, overseas stocks are up 70% from their March lows, and are now 16% above their pre-COVID-19 peak. When it comes to your super, this is precisely why it’s so important to maintain a long-term focus, and why it pays to remain calm, well diversified and invested through the market’s ups and downs. When you switch to a more conservative option, like cash, during bouts of market panic, not only do you risk locking in a loss, you may also miss out when markets eventually recover.

Another strong quarter for share markets

Shares pushed higher again in the March quarter, outperforming bonds. Global share markets as measured by the MSCI World ex Australia index (in local dollars) ended March on a high, up +6.2% for the quarter, and up a remarkable +51.1% for the year. In the US, the S&P500 index crossed the 4,000-point mark for the first time ever, while the MSCI Europe shares index also rallied, up +7.6% over the quarter. Investors have been encouraged by ongoing government fiscal and monetary stimulus, easing business restrictions and widespread vaccination rollouts. With more people being vaccinated, economic activity in numerous parts of the world has picked up, notably in the US, while the jobs recovery has steadily gained momentum.

Australia back to normal?

Australia’s stock market (ASX 300) climbed a further +4.2% over the quarter, and +38.3% over the year ending 31 March 2021. Economic data on the Australian domestic front was largely positive over the quarter, with housing the clear standout. In further sign Australia is in the midst of yet another housing boom, March CoreLogic data showed house prices rising at their fastest monthly rate in 32 years. The data on jobs was also encouraging ahead of the end to JobKeeper at the end of March, with February confirming almost as many people being employed in Australia as in the previous year, prior to the onset of the pandemic. Elsewhere, the Reserve Bank of Australia (RBA) left monetary policy unchanged and cash rates at 0.1% pa while again reaffirming it did not expect to raise interest rates until 2024 at the earliest.

World map economy

What comes next?

After a year of battling COVID-19, government debt has hit staggering proportions - growing well beyond the rise seen during the global financial crisis. Thanks to an extended period of persistently low interest rates, these growing debt burdens have been manageable. However, how low, for how long, these interest rates can stay at present levels remains to be seen. At some point, the ongoing roll out of COVID-19 vaccines is likely going to allow the economy to return to pre-pandemic levels. This growth, combined with the massive spending programs already committed to by governments across the world, has the potential to add to inflationary pressures, and lead to higher interest rates. And sharply higher interest rates, will have significant implications for all investment markets - shares, bonds, cash, and property -most of which are unlikely to be positive

To be sure, a spike in inflation is not yet in sight, and unlikely in the near term. But just as unlikely, are the types of gains delivered by the share market in the past year.

Inflation aside, much uncertainty remains around the geopolitical front, the US and Australia's ongoing trade tensions with China, climate change, and how the removal of government support measures will impact economies, amongst other issues. Rest has committed to reduce carbon emissions in our portfolios to net zero by 2050 and that work has begun in earnest in the first quarter of 2021. Such highly uncertain times is why, at Rest, we continue to believe that maintaining long term focussed, actively managed and well diversified is the most appropriate approach. It’s our belief that by employing a combination of the very best internal teams and external managers and actively managing the mix of investments in our Core Strategy, we can deliver on our commitment to strong stable returns for members. 

* SuperRatings Fund Crediting Rate Survey - SR50 Balanced (60-76) Index, February 2021
# SuperRatings Fund Crediting Rate Survey, February 2021