Investment market review - Quarter-ended 30 December 2023

Title: Investment market review - Quarter-ended 30 December 2023

Investment market review - Quarter-ended 30 December 2023

Effective Date: 2024-02-12 11:54

The Research Team provides a performance summary and commentary on each of the five main asset classes.

Australian shares

The Australian market had an excellent quarter, with the broad market index, the S&P/ASX 300 Accumulation Index gaining 8.4%. The best performing sectors on a price basis were Property Trusts, Materials and Health Care, which were up around 15%,13% and 13% respectively. The worst performing sector for the quarter by a significant margin was Energy, losing just over 9%.

From a market capitalisation perspective, both the top 300 stocks and the small caps both produced returns of around 8.5%. Mid-caps were the worst performers returning a positive 4.8% for the quarter, which was still a reasonable return. Micro caps produced a solid return of 5.3% for the quarter.

At a style level, all styles produced excellent returns this quarter, with Momentum and Quality being the best performing styles.

	3-month return (%)	1 year (% p.a.)	10 year (% p.a.)
Australian shares	8.4	12.1	7.9

S&P/ASX 300 Accumulation Index

Listed property trusts

The S&P/ASX 300 A-REIT Accumulation Index had a stellar quarter, gaining 16.5%. This stellar performance was no surprise given the 10-Year Australian Government Bond yield decreased significantly over the quarter, finishing the quarter at 3.96%. Note the sector is very concentrated with only 33 securities in the Index as of 30 November 2023 and the top 10 securities make up around 81% of this Index.

Property fund managers’ earnings are strongly and inversely linked to movements in bond yields. Given this, it is not surprising that they were the main outperformers during the quarter. Charter Hall Group (CHC) had previously materially underperformed as bond yields rose, however, recovered strongly, gaining around 30% over the quarter. Centuria Capital Group (CNI) followed a similar scenario, rising 32.7% for the quarter.

	3-month return (%)	1 year (% p.a.)	10 year (% p.a.)
Listed property trusts	16.5	16.9	9.4

S&P/ASX 300 A-REIT Index

International shares

International markets had a good quarter. On a currency unhedged basis international shares gained 5.4%. This quarter, the AUD weighed on unhedged Australia investors, as the AUD strongly appreciated against the U.S. dollar.

From a style perspective, all styles were positive for the quarter. Growth and Quality were the best performing styles for the quarter. The worst performing style was Low Volatility, which still produced a solid 5.0%.

In the U.S., shares rallied strongly on expectations of imminent rate cuts. The top performing sectors were those most sensitive to interest rates, including Information Technology, Real Estate and Consumer Discretionary. The Energy sector posted a
negative return with crude oil prices weaker over the quarter.

In Europe, most sectors rose amid optimism over future rate cuts. The Real Estate sector advanced strongly amid the prospect of a cheaper cost of debt. Information Technology stocks, the value of which is based on future cash flows and earnings, also performed well.

	3-month return (%)	1 year (% p.a.)	10 year (% p.a.)
International shares	5.4	23.0	11.6

MSCI World Index – Net Total Return (AUD)

Fixed interest

The December quarter produced solid returns for Fixed Interest. The main Australian Fixed Interest index, the Bloomberg AusBond Composite 0+ Years Index rose by 3.8% for the quarter.

Australian yields declined significantly over the quarter, with the short end (3-year) of the curve falling by 0.48%. At the long end of the curve, the 10-year yield fell by 0.53%.

The yield to maturity at the quarter’s end was 4.25% for Australian Bonds, with the index having around 5 years duration. This makes most mainstream Australian Fixed Interest funds significantly more attractive than they were at the start of 2022, when the yield to maturity of the Index was around 1.7% with approximately 5.7 years duration.

	3-month return (%)	1 year (% p.a.)	10 year (% p.a.)
Fixed interest	3.8	5.1	2.6

Bloomberg AusBond Composite Index

Cash

The Cash benchmark, the Bloomberg AusBond Bank Bill Index, was up 1.1% for the December quarter. During the quarter, the RBA increased the official cash rate to 4.35%. This is the highest official cash rate since Q4 2011.