Rest’s default option delivers strong returns in 2023

Rest has recorded a strong return for its flagship Core Strategy investment option of 9.5 per cent for calendar year 2023, although it notes considerable risks to markets in the year ahead.

Strong performances were also observed in its High Growth and Sustainable Growth options that delivered returns of 11.5 per cent and 10.3 per cent, respectively, during that time period. 

According to the $75 billion fund, the strong return of its Core Strategy super default investment option was helped in part by the buoyant performance of global shares at the tail end of last year. 

“I’m pleased with the strong performance we’ve delivered to our nearly 2 million Rest members during the past 12 months,” said Andrew Lill, Rest’s chief investment officer.

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“It’s important to remember that super is a long-term investment, so we continue to focus on a much farther horizon than any single year.”

He termed the result an ‘optimistic conclusion’ to the calendar year although there remain significant inflationary pressures in the global economy.

Because of this, Lill warned super funds will have to be more selective to continue generating strong returns for their members.

He said: “A number of markets appear to be pricing in cash rate cuts over the next 12 months and the outlook for 2024 is certainly pointing to softer growth. But we believe there’s considerable risk that markets are anticipating a speedy return to the low-inflation, low-cash rate environment we experienced for a decade in the 2010s.

“That decade was highly unusual compared to the preceding 100 years. We’ve also seen past instances of inflation rebounding after signs of moderation.”

According to the super fund CIO, markets are headed into a period of higher structural inflation and greater macro-economic volatility than it has experienced in recent times. 

He added that, in trying to be selective in this environment, the fund has identified five megatrends and is focusing on assets that are well placed to benefit from them. These are decarbonisation, demographics, deglobalisation, digitisation, and debt and central bank policy. 

These megatrends were an important factor informing Rest’s investment decisions as they offer the prospect of long-term growth that transcends inflationary, interest rate, and volatility cycles, Lill explained. 

“The majority of our members will retire in a world that has been decisively shaped by these megatrends. We believe they are generating attractive long-term investment opportunities in all asset classes across our whole portfolio,” he said.

On the theme of decarbonisation, he highlighted that Rest has made significant commitments to assets that will support the energy transition and additional opportunities lie in other assets like energy-efficient commercial properties and green bonds. 

“Other examples, include our exposure to next generation infrastructure with data centres and telecommunications networks that are expected to benefit from ongoing digitisation and Australian industrial properties, which are experiencing strong demand in part due to the onshoring of supply chains you see with deglobalisation,” Lill affirmed. 

“We will continue to actively look for investment opportunities that are poised for long-term growth amid these megatrends, so we can help our members achieve their personal best retirement outcomes.”