Quarterly Investment Commentary

There have however been some bumps along the way. In May, we saw a -6.4% fall in S&P500 as trade tensions between the US and China heated up.

Domestically, Australian growth has slowed and international trade remains subdued as US-China trade negotiations continue to weigh on global sentiment and growth. Low inflation in Australia has allowed the RBA to cut its cash rate target from 1.5 to 1.25%, which is expected to help reduce the pace of declines in residential house prices.

Asset Class Returns

Share markets strengthened in four out of five months in the new-year. Growth assets have benefited by central banks maintaining their accommodative monetary policy positions, as well as positive signs of a breakthrough in US and China trade negotiations.

Fixed income assets also generated high positive returns as markets rewarded companies reporting positive expected growth.

Equity Markets

The Australian share market gained 11.1% over the year to May 2019, driven by strong returns from the Information Technology and Consumer Staples sectors, as well as higher iron ore prices. The higher iron ore prices reflects lower global supply of iron ore. The lower supply follows a major mining accident in Brazil in January this year.

US companies reported strong earnings growth which bolstered the S&P 500, with the index returning 3.8% over the year to May.

The European Union granted the UK a Brexit extension until 31 October, averting a potentially damaging ‘no-deal’ exit. While geopolitical uncertainty has dampened consumer and business confidence in the UK, labour market conditions remain historically strong. The UK unemployment rate remains at its lowest level since 1974 and wages are growing by 3.4% per annum, which is a far cry from much of the rest of the developed world.

Despite falling manufacturing output and fears of the US imposing auto tariffs on car markets, the Eurozone posted modest growth in the first quarter of 2019. Eurozone low positive growth is driven by domestic fiscal easing and China’s domestic stimulus increasing appetite for European exports.

Outlook

Looking forward over the year ahead, the threat of Federal Reserve tightening monetary policy appears to have declined since our last video update. Developments in US – China trade relations will be a key focus point for investors over the months ahead.

Looking further out, RBA’s policy response to low inflation and low wage growth will also impact markets – with lower interest rates being a positive catalyst for growth assets.

ESSSuper Accumulation Plan Investment Options Performance (Net of tax and fees)

Over the year to May 2019, all of our Accumulation Plan Investment Options have outperformed their investment objectives.

Longer term five year performance has also exceeded the investment objectives for each Option.

ESSSuper will continue to manage the Accumulation Plan’s investments to deliver optimal retirement outcomes for or members.