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Markets update

Damien Graham, Chief Investments Officer recaps what’s been happening in the market over the first quarter of the 2023/24 financial year, how that builds on what is expected for the rest of the year.

Interest rates, and uncertainty about where they’re heading, was the dominant theme over the quarter. The US economy is continuing to do better than expected, even in the face of previous rate hikes designed to slow it down. Strong performance from the US economy is good news, but it also means that the US Federal Reserve (the US central bank) is likely to keep interest rates ‘higher for longer’.

Higher for longer is now the key message in markets. Inflation is coming down but is remaining ‘sticky’ (not coming down quickly), and when this is combined with stronger than expected economic growth and a tight labour market (low unemployment) it means central banks may not cut rates in the near future, even if we’ve reached the end of the interest rate rises, as many believe.

At home, Governor Lowe presided over his last meeting as Governor of the Reserve Bank of Australia (RBA) and new Governor, Michele Bullock left rates unchanged at her first meeting in October. Her statement was very similar to Governor Lowe’s last, which made investors believe she may not deviate substantially from the course he set and maintain a steady outlook.

She said that on the one hand, “some further tightening of monetary policy may be required” (in other words more rate rises could be on the horizon), but on the other hand “data are consistent with inflation returning to the 2-3% target range over the forecast period”. Or in other words, inflation is coming down in line with expectations, so previous hikes are working. We’ll just have to wait and see.

Overall, given how many interest rate hikes we’ve had, and the speed with which they’ve been delivered, Australia’s economic growth has been better than expected.

On the other hand, household budgets are being affected by higher inflation and higher interest rates, particularly on mortgages. Australian households are understandably feeling cautious about their finances, and concerns have been made worse by the higher prices of petrol and electricity (in addition to higher mortgage costs). Spending has started to fall, and consumer confidence remains very low.

In better news, the labour market remains very tight, or in other words unemployment is still very low, although it did rise a bit over the quarter.

Michael Winchester, Head of Investment Strategy and Jacki Ellis, Head of Segment - Retirement, recap what’s been happening in the market over the first quarter of the 2023/24 financial year, how that builds on the 2023 financial year, and what’s expected on the run to Christmas.

Speaker 1 [00:00:00] Hi, I'm Michael.

Speaker 2 [00:00:01] And I'm Jacki.

Speaker 1 [00:00:03] We're here to give you an update on your super and how investments have performed recently and what we're doing to grow your super over the long term.

Speaker 2 [00:00:11] We'll also talk about the performance of our two most popular investment options. And for those who are retired or close to it, I'll talk about how to prepare for what's next and how to make the most of your savings.

Speaker 1 [00:00:26] This quarter, markets moved up and down, as usual, as investors reacted to different pieces of news. Some weaker economic data from China negatively affected the performance of Australian shares and kept our dollar down. There are positive signs that inflation may finally be coming down, but this might not mean interest rates will come down quickly. Some central banks are suggesting that interest rates could stay higher for longer and that we may not see any rate cuts next year. This caused longer term bond yields to rise over the quarter, now back at levels last seen in 2007. It all added up to a quarter of subdued and sometimes negative performance for many investment options. Remember, though, the short term ups and downs are normal in investing. The important thing is to focus on long term returns to build your super for retirement. Short term dips in your balance can feel concerning, but often the best thing to do is to stay invested and stick to your long term plan. Our high growth option, the default option for members aged 55 and under, returned 11.7% for the year to 30th September 2023, despite a small negative return for the quarter. It's also a strong performer over the long term, delivering 8.5% per annum over ten years. Conservative Balanced, our default option for retirement income accounts, has grown 8.2% for the year to September. The Conservative Balanced option is also performing well over the long term, with a return of 6.6% per annum over ten years. Both our high growth option and our conservative balanced option are top ten performers over ten years to June. Remember, strong long term returns add up over time and can mean more support for your retirement. In fact, about 40% of the income you receive in retirement could come from the return on your investments.

Speaker 2 [00:02:25] When it comes to investing your super, if you leave your investment choice to us, we do things a bit differently. As you grow older, we gradually mover your super from higher growth, higher risk options, to more conservative options that have more focus on protecting your savings. When you're younger, investing in high growth options makes sense because you have time to ride out the market ups and downs, and when you're older, managing investment risk more conservatively makes more sense. You want to focus on safeguarding what you've worked so hard to build up while still growing your investments. We call this our Lifecycle approach, and we believe it's the most effective strategy for growing your super over the long term.

Speaker 1 [00:03:08] Here are some real examples of where your super could be invested. In 2015, we invested in Bankstown and Camden Airports, an airport precinct in Western Sydney, now known as Aeria Management Group. Our property team saw the potential to develop the precinct beyond aviation, and it's now home to other growing businesses. It's also an important hub for emergency services, including police and ambulance helicopters. The Aeria precinct is part of our property portfolio and it's an unlisted or direct asset. We invest in a diversified portfolio of different types of property and this has helped our performance recently. We didn't have as much invested in sectors which have struggled like office and retail property. We also have around $17 billion invested in infrastructure like hospitals and ports, as well as emerging infrastructure sectors like renewable energy. Tilt Renewables is a good example of an investment we've made in the energy transition. It's a leading business and the largest owner of wind and solar farms in Australia.

Speaker 2 [00:04:18] When you've retired, you need your savings to keep growing, to keep up with the cost of living. That generally means staying invested in the market and not switching to options you might think are lower risk like cash. It can feel counterintuitive that sometimes taking on less investment risk can actually be quite risky if it means your savings don't last as long as you do. In this graph, you can see that a retired member who stayed invested in our pension option would end up with $4,700 more in income every year than the member who withdrew their money and put it in a bank account. When you're retired, if your savings fall, it's much more difficult to build them up again because you're no longer contributing to your super. That's why we invest differently with our conservative investment options for retirees. So if there's a market downturn, your super will typically fall less than the market. When you look at what makes a successful retirement, it's all about having a plan. And that's where we can help our members. We can provide expert advice to help you understand things like when you can retire, how much income you'll have to live on, and what you can do now to build your super. Plus you can use our super easy My Retirement Planner calculator to show how your income and lifestyle could look in retirement.

Speaker 1 [00:05:44] If you're concerned about market activity or you want to review your investments, make an appointment to speak to one of our experts to find out what super or retirement strategy is best for you.

September quarter performance update

Performance for the September quarter was subdued, and we saw low or negative performance from most of our investment options. Longer term performance remains strong.

Interest rate uncertainty put investors into a “risk-off” mood, or in other words they’re worried about investing in ‘riskier’ assets like shares, and this negatively affected share market performance. On the other hand, bond yields rose sharply as investors priced in their expectation that rates will be ‘higher for longer’.

In the end, it’s important to remember that short term market volatility, or ups and downs, are a normal part of investing as investors react to different events around the world, including geopolitical tension and conflicts.

Looking ahead

Ongoing geopolitical risks are likely to make markets more volatile and could make investors more risk averse which could negatively impact performance from shares.

At the same time, volatility from geopolitical activity can be difficult to predict, and what’s key is to focus on the long-term, because long-term returns are most important to a final balance at retirement.

Questions? We've got answers.

If you have any questions, speak to your planner at your next appointment. If you haven't scheduled one yet, call us on 1300 192 602 to book it.


This is general information only and does not take into account your specific objectives, financial situation or needs. Seek professional financial advice, consider your own circumstances and read our Financial Services Guide, any relevant product disclosure statement & Target Market Determination, before making a decision. Call us or visit our website for a copy. 

Past performance is not indicative of future performance.

Issued by Aware Financial Services Australia Limited (ABN 86 003 742 756, AFSL No. 238430), wholly owned by Aware Super (ABN 53 226 460 365) whose trustee is Aware Super Pty Ltd (ABN 11 118 202 672, AFSL 293340). For customer service please call 1800 620 305. Financial planning services are provided by Aware Financial Services Australia Limited, ABN 86 003 742 756, AFSL No. 238430. Estate planning services are provided by Aware Super Legal Pty Ltd (ACN 606 835 170), an Incorporated Legal Practice.