Investment update - February 2020

Investment markets – a snapshot

All of CareSuper’s diversified options delivered strong performance during the December quarter, making 2019 one of the highest performing years of the past decade. But despite these generally strong returns, we retain a cautious outlook.

Watch the latest investment update video with CareSuper, Chief Investment Officer, Suzanne Branton.

Wrap of performance

CareSuper’s MySuper Balanced option earned 2.6% for the quarter and 14.3% for the full twelve months to 31 December 2019. Longer-term returns remain strong, with the Balanced option posting returns of 8.7% per annum over the last 10 years.

Returns for our pension members were slightly higher, mainly because pension members don’t pay tax on investment earnings.

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

What’s been happening in markets

Share markets in Australia and across the developed world delivered very good returns for the December quarter making 2019 one of the strongest years for investments since the Global Financial Crisis.

Coming off a very weak quarter at the end of 2018, we saw global share markets rally through most of 2019, ending the year on a high note. Australian share markets rose by 24% over the year and global share markets were up almost 28%.

So, what was the catalyst for this strong performance?

Falling interest rates were the key positive force driving share markets throughout 2019, offsetting a range of market concerns including trade tensions, and slowing company earnings. Central banks around the world continued to support financial markets with ultra-low interest rates and injections of new money into the system.

Better-than-expected US economic data during the December quarter, also helped to support financial markets, restoring faith amongst investors that a recession was not on the cards.

The formal announcement of a phase-one trade agreement between the US and China in December – which put an end to the escalating tensions also helped shift market sentiment towards a more positive mood.

The key drivers behind our returns

While we saw some ups and downs over the 2019-year, strong share market performance both in Australia and overseas was the main driver of returns.

Our Australian shares asset class returned 22.84% for the 12 months to 31 December 2019 and our overseas shares returned 26.79%. As a result, options with a higher allocation to shares were the best performers.

While shares were the standout, solid returns from our unlisted assets also added to the gains. In particular, we saw steady returns from our direct property, private equity and infrastructure investments.

Our fixed interest investments also had a strong year with a solid return of 8.68% – well above both inflation and the returns from cash.

Our cash returns were considerably lower with a return of 1.77% – driven largely by the low and declining interest rates in Australia. Members invested in options with a high allocation to cash, received more modest returns for 2019.

Looking ahead

The New Year started positively in investment markets, with strong share market returns – especially in the first half of January. And with low inflation, low unemployment and improved levels of corporate profitability, there are early signs that the world economy is starting to stabilise.

In spite of this positive backdrop, there are reasons to remain cautious. The recent spread of the coronavirus and its impact on productivity and consumer spending has dampened returns – particularly in emerging markets.

And while US share markets have largely proven resilient, buoyed by improving economic data and corporate earnings, the bulk of last year’s returns came from higher valuations, and not growth in earnings.

Furthermore, uncertainty continues to remain over the future of US-China trade negotiations and the pace of global economic growth in 2020.

All this has a number of implications. Active management will be critical as a source of return and to help reduce risk for members. Similarly, portfolio diversification will play a greater role, as we rely on other asset classes to support investment outcomes. More importantly, we need to be realistic about the returns that can be expected going forward.

Through 2020, we’ll continue to monitor all local and global market movements, identifying risks and opportunities as they emerge and manage the fund accordingly. Our focus remains on delivering competitive long-term risk-adjusted returns for our members.

CareSuper’s asset class performance figures shown are before tax but net of investment fees, and have been rounded to two decimal places.

Past performance is not a reliable indicator of future performance and you should consider other factors before choosing a fund or changing your investments.