April 18 2023
Investment Update

March 2023 Quarterly Review

A message from Andrew Lill, our Chief Investment Officer

Rest Chief Investment Officer Andrew Lill

What an interesting start to 2023 we’ve had. While it’s only April, it certainly feels like investment markets have already packed plenty in.

Stepping away from the desk, a highlight for me so far this year was our Annual Members Meeting in February. It was a welcome change meeting some of our members in person as well as over zoom and answering your questions on everything from our investment strategy to our approach to sustainability.

Looking at markets, we understand that the headlines on the US regional banks and Credit Suisse may be unsettling for many of you. It was undoubtedly a bumpy period for share markets, but fortunately we saw some calm as regulators intervened.

While we believe these events more likely reflect the approach to risk management at these banks rather than a systemic banking crisis, as always we are closely monitoring the situation, and we continue to carefully manage the risks across our investment options.

We believe market conditions will remain volatile with the recent bank events being potential indicators for difficult conditions ahead as we start to see more impacts from higher interest rates. Market volatility is a normal part of the investment cycle though, and our experienced investment team has seen fluctuations many times before and expects to see them again. During these times, we remain focused on the benefits of broad diversification and strong investment risk management in our aim to deliver superior long-term investment performance for our members.

Performance update

Rest’s Core Strategy had a positive start to 2023, returning 2.36% over the quarter and 5.67% for the financial year-to-date (1 July 2022 to 31 March 2023) (Financial YTD). For Pension members, the default Balanced option delivered 2.16% for the quarter and 5.10% over the Financial YTD. 

Core Strategy (Super) to 31 March 2023

3 months (%) Financial YTD (%) 10 years (% p.a.)
2.36 5.67 7.28
3 months (%) 2.36
Financial YTD (%) 5.67
10 years (% p.a.) 7.28

Balanced (Pension) to 31 March 2023

3 months (%) Financial YTD (%) 10 years (% p.a.)
2.16 5.10 6.74
3 months (%) 2.16
Financial YTD (%) 5.10
10 years (% p.a.) 6.74

Source: Rest, 31 March 2023. 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.

Click here to view our investment performance

Market update: shares up, bonds up but it’s still choppy

Early on, 2023 felt like a continuation of 2022, with inflation and interest rate expectations driving market moves. Despite this backdrop, both shares and bonds initially responded well to data showing inflation potentially starting to slow, and a warmer than expected European winter eased the pressure on energy prices. 

But inflation and interest rate concerns persisted, and then the dual collapses of Silicon Valley Bank (SVB) and Credit Suisse brought new worries to markets (see our Banking Brief below). Overall, despite the disorder, the first three months of 2023 was one of strong performance for most listed asset classes^. Shares and bonds did especially well – a welcome change after the challenges of 2022.

Quarterly listed asset class performance


We remain cautious around the impact of tougher lending rules for people and businesses (a consequence of rising interest rates) and the risk of a slowdown in economic growth. As a result, throughout 2023 we have been positioned more defensively than in 2022 with a lower allocation to growth assets and a higher allocation to cash. Bonds are now offering an attractive source of income with interest rates higher than we have seen in many years, and they also have the potential to play a defensive role in a diversified portfolio through any dips in the share market.

As we noted earlier, we believe market volatility will remain, and the recent bank collapses provide a window into why we are cautious about the global environment. When facing uncertainty – we believe it’s important to stay disciplined, well diversified and focused on opportunities that deliver long-term results. 

The Banking Brief

Skip ahead to read about the Australian banks and what this all means for your super 

Born in the USA

It all started with the US regional banks. In early March, SVB became the largest US bank to collapse since the gloomy days of the 2008 global financial crisis (GFC). We know we talk about the importance of diversification a lot, and the failure of SVB highlights again why diversification matters – it’s not limited to just super investments! 

As the name Silicon Valley suggests, the bank’s customer base was focused on tech startups. This meant that a large chunk of the deposits held at SVB were from just this industry. 

Over the last 12 months, rising interest rates have caused a lot of pain for these startups as they received less funding from investors. This has meant that many startup companies have needed to withdraw their deposit money from banks to cover expenses. Unfortunately for SVB though, as their customer base was very concentrated, many customers withdrew their deposit money at the same time (otherwise known as a ‘bank run’). So, just like when you are investing, a lack of diversification does mean more concentration risk.

A bank run can be very problematic as banks often have this deposit money tied up in other investments and they can’t return it easily when a lot is requested at once. This led to significant financial losses for SVB and ultimately its demise.

Two other smaller regional banks (Silvergate Capital Corp and Signature Bank) also announced they would be winding up operations within that same week. As with SVB, these banks had a poorly diversified customer base and were major banks for cryptocurrency companies. So again, the lack of diversification left these regional banks very vulnerable to a bank run if cryptocurrency markets struggled (newsflash: they did). These banks therefore also failed as they were unable to meet the demand for deposit money.

The US Federal Reserve has now stepped in to guarantee bank deposits at SVB and Signature, providing some comfort to both their customers and markets.

The land of cheese, chocolate and one less bank

Days after the collapse of SVB, attention focused on the home of banking, Switzerland, as Credit Suisse became the next bank to tumble.

Credit Suisse had been struggling for several years after a series of scandals and significant financial losses, so when markets started to worry about the banking sector – Credit Suisse was a known weak link. Shareholders were worried and its share price quickly fell, with the final nail in the coffin delivered when its largest shareholder confirmed a lack of confidence in the bank’s future. In a matter of days, the Swiss central bank held emergency talks and UBS agreed to acquire Credit Suisse, in a deal which included guarantees from the Swiss government.

Credit Suisse share price

But what you want to know – could this happen in Australia? 

We believe that the issues that troubled the US regional banks and Credit Suisse are unlikely to play out in Australia. 


Australian banks have a diverse customer base

  • The US regional banks that collapsed lacked customer diversity. 
  • In Australia, household deposits make up a large portion of bank deposits and these are generally quite ‘sticky’.
  • When it comes to business deposits at the Australian banks, this is across a diverse mix of industries and so they are less vulnerable to the performance of a particular industry.

Australian banks are highly regulated

  • All banks in Australia are covered by one regulator, APRA who have strict rules. 
  • This means that Australian banks are required to hold substantial liquid assets (such as cash) as a buffer should customers start withdrawing money, this was not the case with the US regional banks. 
  • US regional banks are not held to the same standards, as the state-based regulators are far less strict and are not required to hold the same degree of liquid assets.

What does this all mean for my super?

It’s understandable why you might be a bit nervous right now, particularly with the comparisons to the GFC out there. It’s important to remember that there were many learnings from the GFC and subsequently regulations have also changed significantly, with major banks now generally in a better position to deal with volatile markets than they were in 2008.

The Core Strategy was positioned more defensively going into the events of March with a lower overall allocation to shares. The recent volatility in markets offered a timely reminder of the benefits of diversification and within our shares allocation, we are invested in many different companies across different regions and industries. Our exposure to the financial sector is spread across a number of different financial institutions (so not just banks but also businesses like insurance and asset management) and our exposure to banks had been reduced prior to the banking events of March.

Therefore, in the context of our highly diversified Core Strategy, the direct impact of these bank failures was limited. This highlights exactly why we hold a diverse range of investments for you; some perform better than others at different times which helps smooth out overall returns.

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