Australia’s economy reported an increase in GDP from 2.1% to 3.1% year on year to 30 June 2016, although the latest CPI rate of 1.3% was below the target range of 2%-3% set by the Reserve Bank of Australia (RBA). Although the recent sharp rises in Australian property have eased somewhat this year, further stimulus is expected over the coming 12 months with close to two 0.25% interest rate cuts priced in.
Growth in the US continues to be one of the highest in the developed world and after a 0.25% interest rate rise in late 2015, further rate rises are expected.
Elsewhere in the developed economies, recent growth improvements in the Eurozone and Japan have flattened, while the UK recovery has tapered off. The European Central Bank expanded the quantitative easing programme in April from €60bn to €80bn in an attempt to reignite the economy, and the Bank of Japan also resorted to negative rates to provide stimulus and reduce the value of the yen.
Global markets continued to be heavily influenced by central bank policies over the course of the year and political factors also had notable impacts. The Brexit vote late in June saw the level of volatility in financial markets rise 49% on 24 June – its largest one-day percentage gain in nearly five years. It is likely that short-term volatility in markets driven by central bank actions and political factors will continue to be a factor going forward.
Despite the challenging year, Maritime Super’s investment options all posted positive returns for the 2015/16 financial year.
The S&P/ASX300 index returned 0.9% during the year, as it faced many of the challenges of the overseas markets. The yearly low for the market hit in February following concerns of a slowdown in China’s economy and a bottoming of oil prices.
However, the recovery since then has been strong although there were pronounced differences in industry sector performances over the year. There were big falls in the Energy sector (-22%) on the back of lower oil prices, and Financials (-9%) from lower interest rates and further regulatory requirements. In contrast, Healthcare (21%), Consumer Discretionary (20%) and Utilities (24%) all performed strongly, primarily driven by the search for income return in a falling interest rate environment.
The MSCI World ex-Australia index fell 0.8% on a hedged basis (in $AUD) with unhedged returns slightly higher at 1.0% due to a slight depreciation in the Australian dollar against the US dollar. Emerging markets continued to underperform developed benchmarks, with the MSCI Emerging Markets index falling 8.9% for the year. The Chinese and Japanese sharemarkets returned -23.3% and -23.7% respectively while, despite the turmoil of Brexit, the European and UK equities fared better, returning -9.6% and 3.4% respectively.
Australian unlisted property generated strong returns over the financial year at around 13%.
Global inflation linked bonds (9.3%) and global government bonds (9.3% hedged into AUD) provided the best returns within the Fixed Interest asset class, while Australian government bonds (7%) also performed well.
The RBA lowered the cash rate during the year, which is currently 1.5%.
Maritime Super’s investment strategy
As always, Maritime Super’s investment strategy remains focused on long-term fundamentals and diversifying across all asset classes, sectors, regions and markets. If you have any questions about your investments, call 1800 757 607 to speak with a financial planner.