Rest records strong returns for calendar year

Rest, one of Australia’s largest profit-to-member superannuation funds, has recorded a strong return for its flagship Core Strategy investment option during calendar year 2023, but warns inflationary pressures and macroeconomic volatility pose risks in the year ahead.

Rest’s Core Strategy super default investment option delivered a one-year return of 9.58 per cent for calendar year 2023, helped in part by the buoyant performance of international shares in the year’s closing months.

More importantly, Core Strategy has delivered strong long-term returns of 8.26 per cent per annum since its inception on 1 July 1988.

Also of note, were strong performances from Rest’s High Growth and Sustainable Growth options delivering returns of 11.58 per cent and 10.37 per cent, respectively, in calendar year 2023.

Rest Chief Investment Officer Andrew Lill said it was an optimistic conclusion to the calendar year, but noted there were still significant inflationary pressures in the global economy. He said super funds will have to be more selective to continue generating strong returns for their members.

“I’m pleased with the strong performance we’ve delivered to our nearly 2 million Rest members during the past 12 months. It’s important to remember that super is a long-term investment, so we continue to focus on a much farther horizon than any single year,” said Mr Lill.

“A number of markets appear to be pricing in cash rate cuts over the next 12 months and the outlook for 2024 is certainly pointing to softer growth. But we believe there’s considerable risk that markets are anticipating a speedy return to the low-inflation, low-cash rate environment we experienced for a decade in the 2010s.

“That decade was highly unusual compared to the preceding 100 years. We’ve also seen past instances of inflation rebounding after signs of moderation.

“It’s likely we are heading into a period of higher structural inflation, as well as greater macroeconomic volatility, than we’ve experienced in recent times.

“We are focused on five megatrends impacting society and markets that, on balance, we expect to be inflationary. Investors will need to be very selective in this environment and we are focusing on assets that are well placed to benefit from these megatrends.”

Rest is using the identified megatrends to inform the fund’s scenario modelling for future market expectations. The five megatrends are:

• decarbonisation
• deglobalisation
• demographics
• digitisation, and
• debt and central bank policy.

Mr Lill said the megatrends were an important factor informing Rest’s investment decisions, because they offer the prospect of long-term growth that transcends inflationary, interest rate and volatility cycles.

“The majority of our members will retire in a world that has been decisively shaped by these megatrends. We believe they are generating attractive long-term investment opportunities in all asset classes across our whole portfolio,” said Mr Lill.

“Using decarbonisation as an example, Rest has a long-term track record in supporting the development of renewable energy infrastructure across Australia, and we’ve made significant commitments to assets that will support the energy transition. There are opportunities in other asset classes too, such as green bonds in fixed income, and more energy-efficient commercial properties.

“Other examples, include our exposure to next generation infrastructure with data centres and telecommunications networks that are expected to benefit from ongoing digitisation, and Australian industrial properties, which are experiencing strong demand in part due to the onshoring of supply chains you see with deglobalisation.

“We will continue to actively look for investment opportunities that are poised for long-term growth amid these megatrends, so we can help our members achieve their personal best retirement outcomes.”