Rest achieves strong Core Strategy financial year performance amid stubborn inflation

Rest, one of Australia’s largest profit-to-member superannuation funds, has recorded a strong return for its flagship Core Strategy investment option during the 2023/24 financial year, with the performance of international shares standing out amid ‘sticky’ inflationary pressures.

Rest’s Core Strategy MySuper default investment option delivered a one-year return of 8.67 per cent for the 2023/24 financial year, ahead of its long-term 10-year and 20-year average returns. With an average annual return of 8.29 per cent since its inception on 1 July 1988, Core Strategy continues to support the long-term financial interests of our 2 million members.

Rest’s low-cost Overseas Shares – Indexed option returned 18.07 per cent for the 2023/24 financial year, while Balanced – Indexed returned 12.17 per cent. The High Growth option also delivered 11.10 per cent for the financial year.

For Rest’s Pension members, the default Balanced investment option delivered a return of 7.56 per cent, also ahead of its long-term 10-year and 20-year average returns.

Rest Chief Investment Officer Andrew Lill said the results continued the fund’s consistently strong long-term performance and were delivered against the backdrop of global markets grappling with stubborn inflation and a challenging geopolitical environment.

“As we neared the end of last calendar year, Rest believed there was a significant risk that markets were declaring a premature victory over inflation,” said Mr Lill.

“Recent months have largely played out in line with our expectations that core inflation would be sticky and cash rates would be higher for longer.

“However, we’ve also seen that companies with strong balance sheets, higher profitability and strong earnings have achieved considerable gains.

“Our exposure to these higher-quality companies, such as many of the Magnificent 7 tech stocks at the forefront of artificial intelligence development, and our decision to stay fully invested in listed equities has been strongly rewarded.

“These shares have provided a great financial benefit for our members this past financial year. We have, in aggregate, around $4.5 billion invested in the Magnificent 7 through our Core Strategy option, which means a Rest member with an average balance would own more than $2,000 worth of shares in these companies.”

Mr Lill said that, while inflation is trending in the right direction in most developed markets, Rest still believes the world is heading into a period of higher structural inflation and greater macroeconomic volatility than experienced in recent times.

“It’s critical we maintain a well-diversified, resilient portfolio and the expertise to identify opportunities in this environment that add long-term value for our 2 million members,” said Mr Lill.

“Our exposure to the Magnificent 7 is an example of where we have identified a valuable opportunity and acted to maximise the benefit.

“We have also identified digitalisation as one of the megatrends that will shape the global economy over the long-term, so we are firmly of the view that the recent enthusiasm for AI and tech innovation is not simply a passing trend. We think more beneficial opportunities will appear thanks to the ongoing digitalisation of the economy and society.”

In addition to digitalisation, Rest has identified a series of other megatrends it believes will have significant influence on the future direction of the global economy and society: decarbonisation, deglobalisation, demographics, and debt and central bank policy.

Throughout 2023/24, Rest looked for investment opportunities that were expected to benefit over the long-term from these five megatrends.

“Around half our members are aged under 30 and will be retiring many decades from now. We have a clear focus on growing their retirement savings by harnessing the long-term factors that will drive the markets and the global economy over the coming decades and beyond,” said Mr Lill.

“At the start of this financial year, in recognition of the age profile of our members, our Board approved a higher weight to growth assets in Core Strategy. Following that strategic setting, we made significant investments in industrial property, such as our joint venture with Barings and our commitment to the Fidelity Real Estate Logistics Impact Climate Solutions (LOGICs) fund, which we believe are well placed to benefit from the deglobalisation of supply chains, the decarbonisation of the economy, and the digitalisation of commerce and retail.

“We also made a $1 billion commitment with Quinbrook Infrastructure Partners, which will provide exposure to a range of assets like green data centres, and solar and battery projects. The assets are expected to benefit from digitalisation and decarbonisation.”