Quarterly investment insights

March 2018

Top 8 highlights

  1. ‘Four seasons in one day’ – that’s one way to describe how investment markets performed in the first quarter of 2018. They started abnormally strongly in January, dropped significantly in February before rallying at the end of the month. March saw continued restlessness in markets, which is likely to continue.
  2. Global economic growth has been solid and may have hit its peak.
  3. China appears to be slowing. Despite robust growth over the last year, there are structural issues with excess debt. If the credit supply reduces, the growth rate will continue to slow, and that may have an impact on global growth as China is a material part of the global economy.
  4. The United States Federal Reserve raised interest rates by 0.25% to a range of 1.50% to 1.75% in March 2018. The US 10-year Treasury is trading at a higher yield than the equivalent Australian 10-year bond. This has not occurred since the early 2000s. Unlike back then, the Australian dollar has remained strong relative to the US dollar.
  5. Overall, national governments are stepping back from using quantitative easing. Quantitative easing is where the government suppresses short and long-term interest rates to stimulate economic growth. Once you reduce that stimulation – which is what’s happening now – interest rates would be expected to go up. The Federal Reserve has grown its balance sheet substantially to about $4.5 trillion today. That stimulation is being withdrawn slowly and will likely result in interest rates generally rising.
  6. Quantitative easing has been a tailwind for equity markets. But as we have seen since February equity markets are getting more volatile. There is potential that the volatility seen in equity markets may spread across other investment markets, such as commodities, bonds and currencies.
  7. Geopolitical risks are building. Following the US imposition of tariffs on China, there is a risk of a trade stoush between China and US.
  8. As interest rates trend up, so does volatility. That is a good environment for investment managers with skill

What this means for your super

In a more volatile market, our approach should perform well. Our portfolios are well diversified across asset classes, countries, industries, and companies. Market movements are increasingly suiting our style of investing. Despite the ups-and-downs across markets over the first quarter of 2018, all of Qantas Super’s investment options provided positive returns over the first quarter and longer term returns remain solid.

One year super performance

  • One year performance to 31 March 2018
View the full performance figures for super.
The chart below shows the annualised performance of our super options over a five year period to March 2018. Glidepath options are not displayed as they were established on 1 October 2015 and do not have long enough performance history.

Five year annualised super performance

  • Five year annualised perfomance to 31 March 2018
View the full performance figures for super.
The chart below shows the annualised performance of our super options compared with their performance objectives. Options with greater growth potential and higher risk have longer investment timeframes, such as Aggressive, Growth and Balanced. Lower risk options, such as Conservative and Cash, have shorter investment timeframes. Glidepath options are not displayed as they were established on 1 October 2015 and do not have long enough performance history.

Super performance vs investment objectives

  • Annualised super performance
  • Annualised objective
View the full performance figures for super.

Chief Investment Officer, Andrew Spence explains

“We believe in, and are sticking with, the long term investment structure we have in place.

“Following strong returns across many investments, now is not the time to over-complicate an investment strategy. As we’ve said before, it is time in the market, not timing the market that makes the difference for long term investors. Your superannuation is a long term investment.

“For all our members and especially those approaching retirement, calling the Qantas Super Helpline and speaking to an adviser can help you focus your personal financial strategy, and give you confidence in your financial future.”

Tips to help guide you when selecting an investment strategy

1. Know how long you expect your super to be invested

2. Work out how much risk you’re prepared to take over that period

The Aggressive option story – feeling the GFC fallout but reaching turnaround

The Aggressive option has been really a strong performer over the past 12 months, and indeed returns over the past five years have been great.

But our investment objective for the Aggressive option is to exceed CPI by at least 5% p.a. over 10 years. It has delivered 4.8% p.a. over the last 10 years, which is under our objective. This result reflects the severe negative impact of the global financial crisis (GFC) on financial markets. The GFC’s lowest point was March 2009, so the Aggressive option’s 10-year returns will be impacted until March 2019.

The other options which have 1, 3, 5 or 7 year time horizons have come out the other side of the GFC.

The Cash option story

Cash rates continue to be flat because the Reserve Bank of Australia’s focus has been on balancing easier monetary policy (ie lower interest rates) to stimulate economic growth, while conscious of the level of household debt in the Australian economy.

We haven’t had an interest rate hike in Australia for a few years. But in the US, cash rates rose by three quarters of a percent to 1.5%, and are expected to continue to rise this year.