During the September quarter, equity markets experienced significant volatility, but ultimately delivered positive returns. Inflation, whilst still a little too high, continues to moderate.
The Fund continues to provide strong long-term returns for members.
Hello and welcome. I'm Andrew Howard, Chief Investment Officer here at Catholic Super. And I'd like to welcome you to this investment update for the quarter ending 30 September, 2024.
While we saw increased equity market volatility during the September quarter, the ultimate outcome was another quarter of positive returns delivered to our members. This follows on from the strong financial year results that we shared with you in our previous update.
Share markets, both here and abroad, continued their positive upwards momentum, headlined by the Australian share market, which returned 7.8% for the September quarter. In the US, the S&P 500 index rose by 5.9% over the quarter. So it was equity markets that continue to be the main driver of returns for fund performance, which is the theme that played out over the course of the last financial year.
I'm pleased to report that our MySuper investment option delivered a return of 3.3% for the September quarter. And with the strong tailwinds of equity markets still the driving force behind performance, the one year return for the MySuper option was a very healthy 13.37%. As we reported on in our last update, equity markets benefited our higher growth options, and a very similar theme played out this quarter, with our Growth Plus option returning 17.18% for the one year to 30 September, 2024.
The positive investor sentiment seen in equity markets over the quarter was driven by several key macroeconomic developments, which included the US Federal Reserve's decision to begin easing interest rates with a large 0.5% cut in September. We also saw the Chinese government announce significant stimulus measures in September, in a bid to boost confidence in capital markets and the struggling local property sector.
Inflation also continued to trend down, with US inflation moderating, but still above, the Fed's 2% target, while Euro area inflation fell to within the European Central Bank's target range. This resulted in a very positive backdrop for global share markets. Fears of recession, which was viewed as a near certainty earlier this year, have abated. This was replaced by an acknowledgement that the macroeconomic environment, having withstood high interest rates for some time now, has proven resilient.
In a historical context, soft landings are rare, but it seems increasingly apparent that central banks have threaded the needle, at least for now. The US economy continues to power ahead. Inflation, while still a little too high, continues to moderate, which provided the US Federal Reserve with the confidence it needed to deliver its first interest rate cut of this cycle.
Markets expect the interest rate cuts to continue, with another five cuts forecast by the end of 2025. With the US economy continuing to demonstrate such resilience, a rate cutting cycle of that extent would be unusual. As history tells us, it's extremely rare for the Federal Reserve to cut rates so aggressively when the US economy is not in recession.
So there remains the potential for a repricing in market expectations, which could create volatility within equity and bond markets at some point in the future. As mentioned at the outset, we did see a period of heightened volatility during the September quarter. In early August, we saw some of the sharpest falls we've seen in equity markets since the onset of COVID back in early 2020. Volatility was due to stress appearing in Japanese currency and equity markets, along with concerns of a weakening US economic outlook. As we now know, this risk-off sentiment was extremely short-lived, and equity markets recouped the falls in a matter of weeks. It reinforces that we need to be extremely cautious about reacting to short-term market events.
As the chart shows, the falls in August are extremely difficult to detect when looking at the long-term performance of the US equity market. It's a reminder that it can prove extremely difficult to time markets in the short-term. In an environment where valuations are stretched and markets are driven by momentum, it can literally be one piece of economic data that can cause investors to rush to the sidelines.
This is why we believe it's important to retain a long-term investment lens when making decisions, and not react to short-term noise. So in an exuberant market environment like the one we're currently enjoying, with equity markets continuing to reach new record highs, the question we continue to ask ourselves is what will bring this extraordinary bull market to its inevitable conclusion?
Right now, it does not appear that there's anything swaying investor euphoria. But with a US election now only days away, and the policy platform of both candidates showing little appetite for fiscal constraint, and by the time you watch this, we may well have a new president in the White House, plus a lingering question over whether the stimulus measures introduced in China will be enough to kickstart growth, as well as the ongoing geopolitical tensions, we remain strategically cautious.
Our strategy is certainly benefiting from the continued strength of equity markets, but we retain our conviction in ensuring that the portfolio is well diversified to contend with both rising and falling markets, and as such, we're not tempted to chase short-term returns with markets remaining at record highs.
If you'd like to find out more information, please head to our website.
The Catholic Super Balanced Growth (retirement income) investment option returned 3.70% for the three months to 30 September 2024.
Catholic Super continues to deliver strong returns for members over the long term. The Balanced Growth (retirement income) investment option returned an average of 8.04% a year for members for the 10 years to 30 September 2024.
During the September quarter, equity markets experienced significant volatility, but ultimately delivered positive returns. The MSCI World ex-Australia Index (hedged into Australian dollars) rose by 4.5%. The US Federal Reserve began easing interest rates (with a large 0.50% cut in September), following ongoing slowing in US inflation. The Chinese government announced significant stimulus measures in September, which supported equity market returns there.
Inflation continued to trend down, with US inflation moderating, but still above, the US Federal Reserve's 2% target and Euro area inflation falling to well within the European Central Bank's target range.
In the US, the S&P 500 Index rose by 5.9% over the quarter. The US Federal Reserve's interest rate cut and resilient economic data were likely key drivers of market performance. Corporate earnings reports earlier in the quarter supported the view that US economic activity remained resilient, and the labour market remains robust also.
The Australian equity market outperformed developed markets returning 7.8% for the quarter. The Reserve Bank of Australia left the cash rate unchanged at 4.35%, citing persistence in inflationary pressures.
In Asia, Japanese equities experienced significant volatility, due primarily to a rapid unwind of the popular Japanese Yen “carry trade”. Chinese equities were up strongly in September, driven by government stimulus measures intended to boost confidence in capital markets and the struggling property sector. The MSCI Europe Index returned 2% for the quarter. The European Central Bank eased interest rates by 25bps in September, in light of falling inflation and weakening economic data.
Both Australian and global bonds delivered positive returns for the quarter, returning 3% and 4% respectively. Yields on major developed market bonds were generally lower, reflecting expectations that major central banks were likely to lower interest rates. Along with moderating inflation, this is supporting the narrative of additional rate cuts over the next year.
The positive backdrop for global share markets continues. Fears of recession, viewed as a near certainty earlier this year, have abated. Replaced by an acknowledgement that the macroeconomic environment, having withstood high interest rates for some time now, has proven resilient. In a historical context soft landings are rare, but it seems increasingly apparent that central banks have threaded the needle. At least for now.
The US economy continues to power ahead. Inflation, whilst still a little too high, continues to moderate, which has given the US Federal Reserve the confidence it needs to deliver its first interest rate cut of this cycle. Markets expect the interest rate cuts to continue, with another five forecasted by the end of 2025. With the economy performing as strongly as it currently is, a rate-cutting cycle of that extent would be unusual. There is still the potential for a repricing in market expectations, which could create volatility within equity and bond markets.
News of stimulus measures in China have also been welcomed by markets. Having avoided calls for large scale measures for some time, authorities there have finally acknowledged that firm action was required. However, the measures announced so far, including interest rate cuts, support for the property sector, and other measures aimed at local governments and banks, may not be enough to ensure growth objectives are achieved this year. More fiscal support is required, and longer-term structural issues remain unresolved.
Finally, the US election comes closer into view and is garnering more attention in the share market’s daily vibrations. At the time of writing, it seems that markets are expecting a Trump victory, however in reality it is too close to call. Whoever the victor, the policy platform shows little appetite for fiscal restraint. This has implications for deficits and inflation over the longer term and in turn interest rates and bond yields. With US shares continuing to achieve all-time highs, there seems little allowance for these risks, nor any acknowledgment of the uncertainty that could eventuate from a very close outcome or contested result.
Issued by Togethr Trustees Pty Ltd ABN 64 006 964 049, AFSL 246383 ("Togethr"), the Trustee of Equipsuper ABN 33 813 823 017 ("the Fund"). Catholic Super is a division of the Fund. The information contained is general advice and 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 seek professional financial advice. Where tax information is included, you should consider obtaining taxation advice. Before making a decision to invest in the Fund, you should read the 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 a reliable indicator of future performance.
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