By Mark Rider, Chief Investment Officer, Brighter Super
18 August 2023
Despite continued high inflation, rising interest rates and concerns around economic growth, investment returns were strong in the last financial year (2022/23).
Markets have recently been cheered by inflation easing faster than expected. Economic growth has remained resilient, although on a slower trend. Unemployment rates remain at multi-decade lows in Australia, the US and much of the advanced economies.
Central banks in advanced economies appear to be getting close to a peak in interest rates, on expectations they are on track to bring inflation under control. Nevertheless, the prospect of a slowdown in growth, even recession, persists at home and abroad.
The Reserve Bank of Australia (RBA) raised interest rates two more times during the June 2023 quarter, bringing the cash rate to 4.1%. The RBA remains concerned that whilst inflation may have peaked, it is still too high and higher wages growth could reinforce inflationary pressures.
After falling in the first four months of the 2022/23 financial year, global equity markets have rallied from their October 2022 lows. US equities have led the way. Much of the weakness of the first nine months of 2022 has now been reversed, supporting returns of options with a higher growth asset allocation.
Resilient economic activity and moderating expectations for inflation both supported risk asset returns, dominating recent concerns linked to the US debt ceiling and risks to the stability of the banking sector. US equity returns have also been driven by enthusiasm over the potential for Artificial Intelligence to drive rapid earnings growth. A handful of technology stocks have dominated market gains, known as the ‘Magnificent 7’ stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla). The rest of the market has achieved positive but more muted returns.
The falling Australian dollar boosted overseas equities for Australian investors. The ASX posted a positive return for the year as well, but the bulk of this was concentrated in the first half of the financial year as commodity prices eased over the past 12 months.
In Asia, Chinese equities fell over the last quarter and the past 12 months. The post-lockdown recovery in the Chinese economy has slowed, with household consumption and consumer confidence both remaining below long-term trends.
Returns for the other asset classes have been mixed. Unlisted property returns turned negative as the year progressed, impacted by higher interest rates.
Returns moderated for infrastructure assets but were relatively resilient, given their inflation-hedging qualities. Private equity returns also softened, but there was a wide range of outcomes between higher-risk venture capital (weak) and small to mid-market buyouts (much more resilient) where Brighter Super invests.
Fixed interest (bonds) returns were weak while credit performed better as continued economic growth lowered the risk of default.
The latest data from industry analysts SuperRatings (June 2023)1 shows that Brighter Super’s MySuper option returned 10.62% in the 12 months to 30 June 2023.
Our MySuper option was the 5th highest-performing MySuper option across all super funds for this period. It was also the highest performing MySuper option for a Queensland industry fund.
The table below shows 2022/23 returns for some of our most popular investment options2.
|Investment option|| Returns for financial year 2022/23
(12 months to 30 June 2023)
Brighter Super members have benefited from our portfolios holding more listed equities and less private equity than many other super funds. The recent recovery in domestic and global listed equities have delivered excellent returns through many of our investment options.
We are also now seeing the benefits of a combined and reconfigured investment portfolio resulting from the merger with Energy Super in 2021. This work continues with the integration of Suncorp Super’s portfolio. We aim to deliver the best options across the merged funds to all members.
Economic growth is still moderating, and while inflation has fallen, it is still above the target ranges of most central banks, including the RBA, supporting higher inflation.
Central banks are walking a narrow path as they attempt to return inflation to their targets soon while avoiding undue economic pain. Too little a slowdown and inflation pressures are likely to persist as unemployment remains low and wages growth high, encouraging central banks to persist with high interest rates. Too much of a slowdown threatens recession and a return to weak returns.
The central banks’ success or otherwise in delivering a soft landing will be a key driver of investment returns in the 2023/24 financial year.
At times of market volatility, avoiding snap decisions is important. Superannuation is a long-term investment for most members, so keeping your investment timeline in mind is crucial when the market is turbulent.
I encourage our members to stay informed about super and engaged in how it is invested. We have a range of information and resources on our website to help you, including our series of seminars and webinars.
Before making decisions regarding your financial future, we recommend you seek advice.
If you already have a financial adviser, they can help you make informed decisions about your super.
If you do not have a financial adviser, Brighter Super’s in-house team of financial advisers is here to help you3. Types of financial advice include limited advice on a single issue, scaled advice for retirement planning, and comprehensive advice. To find out more, visit brightersuper.com.au/advice.
LGIAsuper Trustee (ABN 94 085 088 484) (AFSL 230511) (the Trustee) as trustee for LGIAsuper (ABN 23 053 121 564) (RSE R1000160) (the Fund) trading as Brighter Super. Brighter Super products are issued by the Trustee on behalf of the Fund. Brighter Super may refer to the Trustee or LGIAsuper as the context may be. This article may contain general advice which does not take into account your individual objectives, financial situation or needs. As such, you should consider whether it is appropriate in light of your own objectives, financial situation and needs prior to making any decision. You should consult a licensed financial advisor if you require advice which does take into account your personal financial circumstances. You should also obtain and consider the Product Disclosure Statement (PDS) before making any decision to acquire any products. A Target Market Determination (TMD) is a document that outlines the target market a product has been designed for. Find the PDSs and TMDs at https://www.brightersuper.com.au/governance.
This article contains information that is up to date at the time of publishing. Some of the information may change following its release. Any questions can be referred to Brighter Super by calling us on 1800 444 396 or by emailing us at firstname.lastname@example.org.