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Quarterly investment update: May 2024

Investments | | 2 min read

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Catholic Super accumulation and Transition to Retirement Income

Quarter ended 31 March 2024

The first quarter for the calendar year saw global equity markets achieve strong gains. Driven by a resilient US economy and market enthusiasm for companies expected to benefit from Artificial Intelligence (AI) technologies. Expectations of interest rate cuts by major Central Banks also contributed positively to equity market sentiment. Though the anticipated timing and magnitude of these cuts has moderated since the start of the year.

Fund performance

The Catholic Super Balanced Growth investment option had another quarter of positive performance for members, returning 4.98% for the three months to 31 March 2024. The MySuper investment option also returned 4.98%. All Catholic Super investment options have posted positive returns for the financial year to date.

Over the long term, the Catholic Super Balanced Growth investment option returned an average of 7.65% over 10 years to 31 March 2024. The MySuper investment option returned 7.39% over the same period.

Market review

Global share markets, as measured by the MSCI World ex- Australia Index (Net Dividends Re-invested) unhedged, had a very strong return of 14.1% over the March 2024 quarter. Rolling 12-month returns have also been particularly strong, returning 28.7%. Most of the countries that make up the Developed Markets Index had a positive return for the quarter. In the US, the stock market delivered large gains, with the S&P 500 Index rising by 10.4% over the quarter. Index performance benefited from an improved outlook for corporate earnings, especially from the leading ‘tech giants’. Economic data released during the quarter affirmed the resilience of the US economy, with an upward revision in the annualised GDP growth rate for the December 2023 quarter.

We also saw positive returns in Australia, though they weren’t quite as strong as the US. Measured by the S&P/ASX 300 Index, the Australian share market increased by 5.4% over the March 2024 quarter. The Information Technology sector was the standout performer, surging by 23.6%. Only the Materials sector experienced a decline, dropping by 6.3%.

The rate of inflation in Australia moderated to 4.1% over the year to December 2023. This is a significant drop from the high of 7.8% we saw a year earlier, but it’s still much higher than the Reserve Bank of Australia’s (RBA) target inflation rate of 2-3%. Australia’s economic growth was a modest 0.2% for the quarter to December 2023. Given these results, the Reserve Bank of Australia (RBA) maintained a cautious approach to future interest rate reductions at its March meeting.

Looking ahead

The surprisingly strong performance of the US economy was on show again during the quarter. As evidenced by a continuation of strong results for economic activity, employment, and inflation related data. It seems that the fear of recession in the US has now evaporated and share prices continue to rise. It appears that interest rates have well and truly peaked. Investors seem to have a high level of optimism for the future of AI, which has added fuel to the share market rally. It’s looking likely that the US Federal Reserve (the Fed) will start to lower interest rates at some point this year. Bond markets have adjusted to the current market environment and are priced with the expectation of around three rate cuts in the US this year. It seems nothing can stop the bull market.

The positive turn in share market sentiment over the last six months has been stark and as a result, financial markets have been whiplashed. Many investors missed the share market rally and are now scratching their heads, trying to work out why the economy remains so strong given all the interest rate rises we’ve seen over the last couple of years. Is it that the full impact of these interest rate rises is yet to be seen? Or is it a result of all the support measures put in place during the pandemic? It seems the old rules of economics have not applied this time around. At least not yet anyway.

The flipside here is that interest rates may need to stay high for much longer. While the Fed, and other central banks, may cut rates soon, they will be restricted in how much they can do. Inflation remains too high for significant interest rate cuts any time soon. Those holding out for lower interest rates may be disappointed, consumers and businesses will need to adjust. It might mean that we have entered a new market regime where interest rates need to remain structurally higher than what we experienced recently. The era of low interest rates that we all enjoyed was never going to last forever. And with markets showing so much optimism now accounted for in market pricing there’s a high risk of disappointment for individuals and businesses who are looking forward to lower rates.

Issued by Togethr Trustees Pty Ltd ABN 64 006 964 049, AFSL 246383 ("Togethr"), the trustee of the Equipsuper ABN 33 813 823 017 ("the Fund"). Catholic Super is a division of the Fund. The information contained is general information only and does not take into account your personal financial situation or needs. You should consider whether this information is appropriate to your personal circumstances before acting on it and, if necessary, you should also seek professional financial advice. Before making a decision to invest in the Fund, you should read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product which are available at csf.com.au.  Financial advice may be provided to members by Togethr Financial Planning Pty Ltd (ABN 84 124 491 078 AFSL 455010) – a related entity of Togethr.
Past performance is not an indication of future performance.