Investment insights - May to June 2024
ESSSuper - 08 Oct 2024
Daniel Selioutine (Group Executive, Investments) provides economic and market commentary for the May to June period and the 23-24 financial year in our latest edition of Exploring Super.
Second quarter of 2024
In the second quarter of 2024, global stock markets kept up their strong performance from the previous year. Asian stocks were the big winners, with China benefiting from its low valuations and Taiwan seeing a boost from investor excitement about the prospects for artificial intelligence.
In developed markets, larger companies did really well, while smaller companies and those in interest-sensitive sectors like real estate didn’t perform as well.
In the U.S., even though there’s been some slowing in economic data, people still expect inflation to ease and the economy to avoid recession. The hope is that the Federal Reserve will lower interest rates at the right time to avoid a recession, and bond markets are anticipating the first rate cut in September. The key challenge to that view is that U.S. inflation remains sticky. It’s been around 3% since mid-2023 and even higher at 4% in Australia. In Australia’s case, 4% inflation makes it less likely for interest rates to be cut as soon as some people may hope.
The impact of geopolitics on investment markets
The influence of the upcoming U.S. election and other geopolitical events on investment markets has been relatively muted so far. However, there's ongoing speculation among investors about the potential impacts of a Trump or Harris presidency, especially concerning U.S. trade policies and commodity prices.
Politics — as an incredibly complex human process — is very difficult to predict. It isn’t any easier for financial markets to see through this complexity, which will likely mean that it will take some time for presidential elections to filter through to asset prices.
Fund performance and strategic adjustments
ESSSuper’s investment options generally performed well against their Consumer Price Index (CPI) objectives in the last financial year. However, peer relative performance slipped against the SuperRatings median fund. This was largely due to our strategic shift towards a more defensive portfolio posture.
During the financial year 2023-2024, a significant rally occurred in a select few U.S. technology stocks. ESSSuper consciously chose not to chase this rally, and most external asset managers also opted to sit on the sidelines. As a result, indexed or passive investment options outperformed many diversified, actively managed products, including those offered by large fund peers.
Despite these challenges, our three- and five-year performance metrics remain robust.
Coming off a top-performing year for the Balanced Growth option, the priority was to secure some of those gains while avoiding the volatility of being at the top one year and at the bottom the next. The Fund is now well-positioned to capitalize on market volatility while being appropriately rewarded for taking on market risks.
Introduction of the New Balanced Growth Managed Investment Option
The Fund has introduced a new investment option, Balanced Growth Managed, to complement the existing Balanced Growth option.
Both options share a high degree of overlap, with one key difference: the Balanced Growth Managed option has zero exposure to active equity managers. This change significantly reduces fees but may result in higher short-term volatility.
Over the long term, both options are expected to perform similarly, but the new Balanced Growth Managed option aims to offer a smoother journey toward those returns.
It’s important to note that while the Balanced Growth option is not a passive product, it remains actively managed in other asset classes such as cash, infrastructure, property, and credit, but within equities, it is entirely passive.
This new offering provides members with an additional choice that may align with their investment goals and risk tolerance.