Quarterly Investment Commentary

Global interest rates remain low as monetary policy authorities continue to pursue quantitative easing, driven by subdued inflation and downside risks to economic growth. The Reserve Bank of Australia reduced its cash rate target to a record low of 0.75% p.a., citing stubbornly low inflation and a desire increase employment. The US Fed kept rates unchanged in its December meeting and signaled that rates would remain low in the year ahead.

Amid global uncertainty, business sentiment in the US has shown modest signs of improvement. The US purchasing managers’ index (PMI) displayed a notable pick up in the manufacturing and services sector. Estimates for third quarter US GDP rose and earnings reported by 80% of the S&P 500 companies in the recent earnings season have exceeded investors’ expectations. Business activity and consumer confidence have also seen a gentle pick up in the Eurozone.

Outlook

Policy settings remains accommodative for the year ahead, with monetary policy authorities reaffirming that expansionary monetary policy and fiscal spending by governments remains an option to stimulate economic growth. However, the year ahead will see a US presidential election and continued uncertainty and volatility in financial markets.

Asset Class Returns

Optimism around a US-China trade deal and improvements in economic activity have filtered through to positive US equity returns, with the S&P 500 rising 27.6% (USD) over the calendar year to November. On the back of a potential trade-war breakthrough, the FTSE 100 ended the month at its highest level since August. Strong returns from Health Care (+47.1 %) and Information Technology (+37.1 %) sectors held the ASX 300 in positive territory, with the index returning 24.6% (AUD) over the calendar year to November.

Bond yields moved marginally higher resulting in the Barclays Global Aggregate Index (Hedged into AUD) falling 0.24% over the month and generating 7.6% year-to-date for investors. Australian cash returned 1.3% over the calendar year, with cash returns decreasing in the current low yield environment.

ESSSuper Accumulation Plan Investment Options Performance (Net of tax and fees)

All of the Accumulation Plan Investment Options generated positive performance over the year to October 2019, exceeding their investment objectives over the year.