Quarterly investment update - March 2022

Daniel Selioutine - 06 May 2022

Daniel Selioutine, Head of Investments, provides economic and market commentary for the January to March 2022 period.

Market performance

Global economic growth remained strong over the first quarter of 2022. Strength in the labour market saw the US unemployment rate falling to 3.6% in March 2022, a record low since February 2020. The United States (US) Federal Reserve commenced tightening interest rates to suppress inflationary pressures, which have risen to 8.5% p.a. in March 2022. Inflation has not been this high in the US since December 1981.

Investors will be closely monitoring the Federal Reserve’s tightening of monetary policy in the year ahead, as higher interest rates may suppress economic growth beyond the levels necessary to reduce excess inflation. In Australia, the Reserve Bank of Australia (RBA) has similarly increased its cash rate target from 0.1% to 0.35% in early May.

Global developments since Russia’s invasion of Ukraine in February 2022 added further uncertainty to the economic outlook. Disruption to energy flows following Western sanctions on Russia led to oil prices trading at a high of US $123 per barrel compared to the ten year average price of US $66. Higher energy prices have the potential to slow economic growth and reduce the need for central bank intervention to curb inflationary pressures.

Following a strong period of equity market returns during 2021, global equity markets were more volatile in the first quarter of 2022 due to the accelerated pace of interest rate hikes and geopolitical uncertainty. The S&P 500 Index declined by -4.6% (USD) over the March 2022 quarter.

The energy sector benefitted from higher energy prices, with US energy stocks returning 39.0% while other sectors lagged over the quarter. Australian equities were also beneficiaries of higher commodity prices, returning 2.1% (AUD) over the quarter.

Bonds (represented by the Barclays Global Aggregate Index hedged into AUD) returned -5.0% over the quarter, with bond prices declining in response to rising inflation and interest rates. Australian cash delivered 0.04% over the year to 31 March. Cash returns are expected to remain low while the RBA maintains its accommodative monetary policy.

Accumulation Plan performance

All of the Accumulation Plan's Investment Options generated positive returns over three years to 31 March 2022. The Defensive and Conservative Options experienced weaker benchmark relative performance when the Consumer Price Index (CPI) increased by 5.1% over twelve months to March.

ESSSuper Accumulation Plan investment option performance:
Three years to 31 March 2022 (net of tax, net-of-fees)

^* Cash performance is gross of tax. The RBA Cash Rate objective for the Cash MIC Option is against its pre-tax performance.

^** Objectives are based on March 2022 CPI figures.

Emergency Services Superannuation Board (ABN 28 161 296 741) (ESSB), the Trustee of the Emergency Services Superannuation Scheme (ABN 85 894 637 037) (ESSSuper).

This investment commentary does not constitute advice. Investment returns cannot be guaranteed as investment markets can be volatile. As a consequence, returns can be positive or negative. Past investment performance is not a reliable indicator of future performance.

Benefits in ESSSuper's Accumulation Plan, Income Streams and Beneficiary Account products are not guaranteed or underwritten by the Victorian Government or ESSSuper, and ESSSuper does not come under the jurisdiction of the Australian Financial Complaints Authority (AFCA).

The information contained in this update is of a general nature only. It should not be considered as a substitute for reading the relevant ESSSuper Product Disclosure Statement (PDS) that contains detailed information about ESSSuper products, services and features. Before making a decision about an ESSSuper product, you should consider the appropriateness of the product to your personal objectives, financial situation and needs. It may also be beneficial to seek professional advice from a licensed financial planner or adviser. An ESSSuper PDS is available at esssuper.com.au/pds or by calling 1300 650 161.