Over the financial year ending 30 June 2024, global equity markets performed favourably. Global inflation continued to fall from peak levels in 2022, although it remained above the levels typically targeted by central banks. This has kept interest rates at relatively elevated levels compared with the last decade.
Our Balanced growth (taxed) investment option returned -0.17% over the June 2024 quarter and 8.42% for the financial year. Compared with other MySuper investment options, our Balanced growth option achieved an outcome below median (ranked 33 out of 45) for FY2024. As your superannuation is a long-term investment, it is important to assess performance over longer time periods. Our MySuper Balanced growth option remains in the top 10 over 5 and 10 years – see table below.
Table 1: MySuper Balanced growth (taxed) performance (periods ending 30 June 2024)
1 year | 5 years | 10 years | |
|---|---|---|---|
Return (annualised) | 8.42% | 7.03% | 7.63% |
Rank* | 33 out of 45 funds | 4 out of 43 funds | 6 out of 37 funds |
* SuperRatings Fund Crediting Rate survey, SR50 MySuper Index, June 2024
The Pension Balanced growth investment option also achieved an outcome below median (ranked 35 out of 45) for FY2024. Note that investment earnings on retirement pension options are untaxed. Our Pension Balanced growth option is also represented in the top 10 over 5 and 10 years – see table below.
Table 2: Pension Balanced growth (untaxed) performance (periods ending 30 June 2024)
1 year | 5 years | 10 years | |
|---|---|---|---|
Return (annualised) | 9.25% | 7.79% | 8.44% |
Rank* | 35 out of 45 funds | 8 out of 44 funds | 8 out of 40 funds |
* SuperRatings Pension Fund Crediting Rate survey, SRP50 Balanced (60-76) Index, June 2024
While equity returns were generally favourable over the financial year, the US S&P 500 index was particularly strong, increasing by 24.6%. This was more than double the return for the ASX 200 index (see Chart 1). The main driver of US outperformance has been mega-cap technology stocks, often referred to as the ‘Magnificent-7’ (consisting of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla), which have significantly benefitted from the development of artificial intelligence. Stripping out the contribution of these stocks (see Chart 2), the performance of the S&P 500 index would be broadly in line with the other major equity markets.
Source: Bloomberg, UBS
In recent months, US growth data has deteriorated, and the labour market is weakening, with the unemployment rate rising 0.7% from its trough in April 2023. This would typically result in the equity market falling and volatility rising, however, that has not been the case to date. It appears that investors are focusing more on the possibility of the US Federal Reserve lowering interest rates, rather than the weakening in the earnings outlook implied by the macroeconomic data.
A factor that has been positive for the US economy over the past three years has been the accumulation in household savings from Covid, which peaked at an estimated US$2.1 trillion. Our analysis suggests that the excess savings have been fully depleted. In turn, households will likely increase their savings and spend less which may add to the slowing of the economy.
Inflation in Australia has been higher than expected recently, largely driven by inflation in the service sectors such as rents (see Chart 3). The monthly inflation indicator rose 4% in the 12 months to May, meaningfully above the RBA’s target of 2 to 3%. This has resulted in the market pricing a moderate probability of another rate hike from virtually zero probability at the start of the June quarter.
Australian GDP growth has been weak over the last four quarters and has been contracting on a per capita basis. The number of corporate insolvencies has also risen meaningfully this financial year. Coupled with job advertisements falling sharply, this suggests that the unemployment rate is likely to rise further over the next 12 months.
Source: ABS
Turning to other key global powers, China’s economy has been growing at a moderate pace despite ongoing issues in the property sector. The Chinese government announced a large property stimulus package in May to reduce its excess housing inventory, however structural headwinds are likely to mean the Chinese housing market remains weak. In the March quarter, the European economy grew slightly, exiting recession (defined as two consecutive quarters of negative GDP growth). The European Central Bank has cut its cash interest rate for the first time this cycle, after gaining sufficient confidence that inflation is under control.
Outlook
The lagged impact of the cumulative interest rate increases by central banks across the world has contributed to global economic growth slowing in 2024. Despite some recent signs of weakness in the US economy, the US equity market has been resilient. We anticipate a mild US recession to commence by the end of this year. If this occurs, there is likely to be some downward pressure on equity markets as markets are currently pricing moderate economic growth. The main upside risk to our view is that the lagged impact of interest rate increases in 2022 and 2023 is not sufficient to result in a significant slowdown in the US economy. Another upside risk is that central banks move quickly in the event of a sharp slowdown, enabling the US to achieve reasonable growth during the remainder of 2024 and in 2025. Additionally, the US election in late 2024 could potentially influence investment markets.
Closure of the Property and Infrastructure options
From time to time, investment options on our investment menu may be closed. The Trustee has decided to close the Property and Infrastructure investment options on 4 October 2024. The main reason for the impending closure of the options was that only a small group of members have been invested in these options. Members with money invested in the Property and Infrastructure investment options prior to the closure can switch to a different option of their choosing during the August trade window. Any members with money still invested in the Property and Infrastructure investment options at the closure date of 4 October 2024 will automatically be transferred to the Balanced growth option. If you are invested in either of these options, we will send you a letter outlining details about the closure of the options.
Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.
Issued by Vision Super Pty Ltd ABN 50 082 924 561 AFSL 225054. This information is general advice which does not take into account your personal financial objectives, situation or needs. Before making a decision about Vision Super, you should think about your financial requirements and consider the relevant Product Disclosure Statement and Target Market Determination at www.visionsuper.com.au
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