Investment markets – a snapshot

Positive returns achieved despite challenges

The first quarter of 2023 was one of strong performance for most asset classes despite the volatility experienced by investment markets.

WRAP OF PERFORMANCE

All of our diversified investment options delivered positive returns for the first quarter of the year ending 31 March 2023. Our MySuper Balanced option delivered a strong return of 3.08%. Returns for the year to 31 March 2023, were also up by 2.17%. The returns for our pension members were slightly higher because pension members don’t pay tax on investment earnings. 

Suzanne Branton, CareSuper’s Chief Investment Officer commented, ‘We are pleased that our members’ savings will benefit from the positive investment returns. Our commitment to helping our members achieve a financially secure future remains unwavering. 

‘And while we recognise that the current economic landscape poses challenges, Branton continued, ‘we are confident in our dual investment approach. By focusing on delivering strong returns while managing risk effectively, we believe we can continue to navigate the ups and downs of the markets, providing sustainable outcomes for our members.’

Over the long term, our Balanced option’s performance has also remained solid, returning 8.17% per annum over the past 10 years to the end of March, comparing favourably to the median superannuation fund return of 7.39% per annum.^# 

You can see the returns for our other investment options over various time periods set out in the performance table.

WHAT HAPPENED IN MARKETS 

During the first quarter of 2023, investment markets experienced significant volatility, which understandably made investors nervous. These fluctuations (i.e. ups and downs) were influenced by various factors. These included concerns over rising inflation, geopolitical events and concerns that a recessionary environment was looming.

One of the most significant events during this period was the collapse of two regional US banks – California-based Silicon Valley Bank (SVB) and New York’s Signature Bank. These banks experienced heavy losses on their bond portfolio, triggering a massive run on deposits. These events shook investor confidence and led to a sudden drop in the share market and bond yields. However, regulators swiftly stepped in to provide emergency liquidity to financial institutions in order to restore confidence. This decisive action helped prevent a more substantial market downturn, providing stability and reassurance to investors. 

Another factor contributing to market volatility during this period can be attributed to the contrasting views among investors regarding the future actions of central banks and the impact of inflation. On the one hand, some investors believed that central banks would adopt a more relaxed approach later in the year, which would be generally positive for asset prices. Conversely, other investors believed that inflation would remain high, leading central banks to maintain higher interest rates for longer as a way to curb spending and bring inflation back to their target levels. This cautious outlook has added to investor apprehension, further impacting market confidence. 

Despite all the ups and downs, the overall performance for the three-month period ending 31 March 2023 was one of strong performance for most listed asset classes. Shares and bonds both performed well, which was a welcome change after the challenges of the previous year. 

Global share markets produced excellent returns for the quarter delivering 9.1% (unhedged in Australian Dollars), with US shares returning 7.7%.

The Australian market also performed well in the quarter with a return of 3.3%. The Consumer Discretionary sector had the highest return of 11.4%, followed by Information Technology and Communications at around 8.5%. However, Financials and Real Estate had underwhelming returns, with Financials being the worst at -2.3% due to global banking issues in March, affecting the overall Australian share market as they form a significant part of the market.⁺

The Australian bond market also performed strongly in the first three months of this year, rising by 4.6%.^ This significant rebound was mainly due to Australian Government bond yields going down, as markets started pricing in rate cuts later in the year, despite an absence of guidance from central banks. It’s important to note that after experiencing a considerable decline in bond prices last year due to the rise in bond yields, the market has made a remarkable recovery, with the 1-year return now back in positive territory. It’s important to remember that prices for bonds move in the opposite direction to interests rates. For more on how fixed interest works see our video here.

During the quarter, the RBA raised interest rates twice resulting in a total increase of 0.50%. This brought the official target cash rate to 3.60%. And on 2 May, the RBA increased interest rates again for the eleventh time to combat high inflation. This move set the cash rate target at 3.85%, the highest since April 2012. RBA Governor Philip Lowe acknowledged the high inflation rate of 7% and the importance of returning it to the target range as the reason for the rate hike.

LOOKING AHEAD

While there have been some significant ups and downs over each month in the financial year to date so far, the return for our MySuper Balanced option sits at 7.69%.* 

With only weeks remaining to the end of the financial year, we remain cautious in our outlook. 

According to Chief Investment Officer, Suzanne Branton, ‘While this is a pleasing result, we believe that market volatility is likely to remain. The recent bank collapses combined with the uncertain outlook for interest rates and tightening in credit conditions offers a clear perspective on why we remain cautious about the global environment. These events provide valuable insights into the reasons behind our cautious approach and emphasise the need for careful navigation of current market conditions. 

‘When facing uncertainty, we believe it’s important to stay disciplined, well diversified, and focused on opportunities that deliver long-term results. At CareSuper, we remain committed to helping our members achieve their retirement goals through careful and thoughtful investment management and selection. 

‘Active management and diversification will continue to define our key long-term investment strategy and help us to deliver strong stable returns for our members,’ Branton added.

^#SuperRatings Fund Crediting Rate survey SR50 Balanced (60-76) Index – March 2023.
⁺Source for market returns: Bloomberg
^Bloomberg AusBond Composite Index
*As at 16 May 2023.