Quarterly investment update - December 2021

Daniel Selioutine - 14 Jan 2022

Daniel Selioutine, Head of Investments, provides economic and market commentary for the October to December 2021 period.

The final quarter of 2021 saw equity markets deliver strong positive returns as companies reported higher than expected earnings growth.

Overview

Although the emergence of the highly infectious Omicron COVID-19 variant led to heightened market volatility, investor concerns were partly allayed as health authorities indicated the variant posed a lower risk of severe illness than the prevailing Delta variant.

Global mass vaccination efforts continue to be underway as countries race to inoculate their populations. As at 10 January 2022, more than 9.4 billion doses have been administered across 184 countries (equivalent to approximately 50% global population being fully vaccinated).

While the threat of Omicron has slightly dampened the global economic recovery, overall economic sentiment remains resilient and positive. Most advanced economies are on track to return to their pre-pandemic levels of output. The Purchasing Managers' Index in the United States (US), United Kingdom (UK) and Eurozone remains above 50 points, indicating a healthy expansion in manufacturing activity. Global unemployment rates have also largely declined with the US unemployment rate at its lowest since the beginning of the pandemic in early 2020.

Equity markets remain vigilant as global central banks announce gradual tapering of monetary support as ongoing supply chain constraints, elevated household savings and tightening labour market conditions fuel further inflationary pressures. In the UK, the Bank of England responded to persistently high inflation figures by raising interest rates from 0.10% p.a. to 0.25% p.a. in December 2021. The Reserve Bank of Australia (RBA) also acknowledged strong domestic economic recovery, albeit decided to maintain the cash rate at 0.10%, citing relatively lower levels of inflation than other countries.

Market performance

2021 proved to be stellar year for global equity markets, which remained resilient in the December quarter despite concerns over the new Omicron variant. The ASX 300 returned 17.5% (AUD) for the year ending December, with most of the final quarter's gains coming from cyclical sectors such as Materials, Utilities and Real Estate. The FTSE 100 and S&P 500 also delivered strong positive returns of 18.4% (GBP) and 28.7% (USD) respectively over the same period.

Although bonds generated very low positive returns for the quarter, the global bond index finished the year weaker, detracting -1.5% over 2021. Australian cash delivered only 0.03% for the year and cash returns are expected to remain low while the RBA maintains its accommodative monetary policy.

Accumulation Plan performance

The Accumulation Plan performed strongly in the three years to 31 December 2021, with all investment options outperforming their investment objectives.

ESSSuper Accumulation Plan investment option performance:
Three years to 31 December 2021 (net of tax, net-of-fees)

^* Cash performance is gross of tax. The RBA Cash Rate objective for the Cash MIC Option is against its pre-tax performance.

^** Objectives are based on September 2021 CPI figures.

Emergency Services Superannuation Board (ABN 28 161 296 741) (ESSB), the Trustee of the Emergency Services Superannuation Scheme (ABN 85 894 637 037) (ESSSuper).

This investment commentary does not constitute advice. Investment returns cannot be guaranteed as investment markets can be volatile. As a consequence, returns can be positive or negative. Past investment performance is not a reliable indicator of future performance.

Benefits in ESSSuper's Accumulation Plan, Income Streams and Beneficiary Account products are not guaranteed or underwritten by the Victorian Government or ESSSuper, and ESSSuper does not come under the jurisdiction of the Australian Financial Complaints Authority (AFCA).

The information contained in this update is of a general nature only. It should not be considered as a substitute for reading the relevant ESSSuper Product Disclosure Statement (PDS) that contains detailed information about ESSSuper products, services and features. Before making a decision about an ESSSuper product, you should consider the appropriateness of the product to your personal objectives, financial situation and needs. It may also be beneficial to seek professional advice from a licensed financial planner or adviser. An ESSSuper PDS is available at esssuper.com.au/pds or by calling 1300 650 161.