After what was a banner financial year 2021 with MySuper returning 19.65%, current year Financial Year to Date performance sits at 1.0% given the challenging market environment investors have faced due to inflation, rising interest rates, and the Russia/Ukraine conflict. Fixed Income indices have returned -8%, International Shares have returned -3%, and Emerging Markets shares have returned -14% this financial year through 30 April 2022. These markets have offset gains from Australian Shares and Property.
The NESS MySuper Option is designed to outperform a CPI+3% target over a rolling 10-year period and is expected to have a negative return in every 3-4 years out of 20. The share and bond markets will provide variable returns on a year-by-year basis. NESS’s portfolio seeks to minimise risk to the greatest degree possible while exceeding the return objective over time. NESS has been able to achieve this on behalf of members. NESS has outperformed the average default super fund in financial year 2021 and to date in financial year 2022. As markets adjust and recover to the current inflationary and interest rate environment, NESS performance will increase as well.
In April, the MSCI World index returned -6.9%, in local currency terms, with most asset classes suffering losses. April’s market turbulence was largely influenced by surging bond yields as inflation reached new multi-decade highs and expectations of forthcoming monetary tightening escalated. China’s COVID-19 lockdown measures intensified during the month and dampened the economic outlook amid signs of renewed supply chain disruptions. Markets are pricing a 90% probability of an additional, even larger 75-bp hike in June. Rising yields have reduced the amount of debt trading at negative yields, which has fallen more than $13 trillion since year-end 2020 to its lowest level in almost seven years.
In the US, the S&P 500 returned -8.7% in posting their eleventh lowest monthly return since 1970. Over the month, communication services, consumer discretionary, and information technology, which make up nearly half of the S&P 500 Index by market cap, declined by double digits. Commodity-linked materials and energy declined the least among sectors, while consumer staples posted the only gain. Value outperformed growth by the widest margin in more than 20 years, and value now leads by 15 percentage points year-to-date.
Elsewhere, Emerging Markets declined, returning -3.5% in April, measured by the MSCI Emerging Markets Index. Brazil, Taiwan, and South Africa declined the most among major emerging countries, whilst China, Korea, and India bested the broader index but declined, and Saudi Arabia benefitted from higher oil prices and interest rates advanced.
April declines exacerbated what has been the largest decline for technology companies since the Dot-com bubble in March of 2000 with almost 50% of technology companies down -50% from recent peaks and 5% down -90% or more. This exemplifies what a challenging period the last six months have been for growth-oriented portfolios.