Investment market update
31 August 2018
The financial year to June 2018 produced good returns for our blended investment strategies, with the growth options generating the best performance thanks to their high weighting in share markets.
Five-year returns remain solid, especially considering inflation has been subdued during the period. Returns were led by buoyant share markets, with other growth asset classes, like property and private equity, also producing good returns. In contrast, fixed income markets and cash delivered modest returns for the year.
The hopeful outcome of the June meeting between US President Donald Trump and North Korea’s leader, Kim Jong-Un, eased some nuclear tension. However, trade problems continue to escalate as China and the European Union have retaliated in response to the new US tariffs.
Despite volatility, the Australian share market ended the financial year strongly, with the March quarter down 5% and the June quarter up 3.5%. The best performing sector for the year was energy, up 36%, helped by the rise in oil price over the financial year from $US45 to $US74. For the second year running, the worst sector was telecommunications, due largely to the fall in the price of Telstra from $4.30 per share to $2.72. Australian small cap stocks outperformed the larger stocks over the year.
Fixed income returns were weak and the return from cash stayed low at about 1.8%. Australian official interest rates have been stable for nearly 2 years.
Australian economic growth accelerated to 3.1% for the year to March, with exports leading the way in the March quarter. The Governor of the Reserve Bank of Australia noted that business conditions are positive and non-mining business investment continues to increase. Higher levels of public infrastructure investment are also supporting the economy, and employment is rising but wage growth remains low. One ongoing source of uncertainty is the outlook for household consumption.
March CPI data indicated that inflation has stayed low at 1.9%, which is below the targeted range of 2% to 3%. The Australian dollar depreciated over the year, falling from $US0.77 to $US0.74.
We’re seeing improvements in global economic growth. The US Federal Reserve increased cash rates three times over the financial year, following a similar rate of increase last year. The central banks in Canada and the UK also began lifting official cash rates.
To keep up to date with the performance of your super or retirement funds, you can view your monthly and annual performance history here.