Investment market review quarter ended 31 March 23

Title: Investment market review quarter ended 31 March 23

Investment market review quarter ended 31 March 23

Effective Date: 2023-05-01 14:33

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

Australian shares

The Australian market performed reasonably well during the quarter, returning 3.3%. The leading sector was Consumer Discretionary, which produced an impressive return of just under 10% over the three months. This was followed by the Information Technology and Telecommunications sectors, which both returned around 7.5% for the quarter.

Energy, Financials and Property Trusts were all in negative territory for the quarter, with Energy being the worst performing sector, down by 5.3%. Financials were down 3.6% for the quarter, which was no surprise given the issues around the global in the banking sector in March. Given Financials make up a significant part of the Australian index, this dragged on the returns for the overall Australian sharemarket.

From a market capitalisation perspective, small caps underperformed large caps by 1.6% for the quarter, although both produced positive returns for the quarter.

At a style level, Quality was the best performing style for the quarter, followed by Equal Weight. The worst performing style for the quarter was Small Caps, which from a style perspective returned -0.1% and was the only style to produce a negative return for the quarter. Momentum was the only other style that stood out as an underperformer.

Australian micro-cap equities, had a reasonable quarter, returning 2.4% and outperforming both small (1.9%) and mid-caps (0.0%).

	3-month return (%)	1 year (% p.a.)	10 year (% p.a.)
Australian shares	3.3	-0.6	8.1

Listed property trusts

The Australian Real Estate Investment Trust (A-REIT) sector had a relatively mediocre quarter, gaining just 0.3%. Note the sector is very concentrated with only 30 securities in the Index as of 31 March 2023 and the top 10 securities make up around 80% of this Index.

Rapidly rising interest rates throughout 2022 saw REITs take a battering, but the slower rate of interest rate increases by the RBA during the fourth quarter saw the market take a more favourable view of REITs, and therefore a solid and much needed rebound occurred. This continued into the first quarter of 2023, but lost momentum when the RBA continued to raise rates in February and March.

The sector was driven higher by Goodman Group, the largest security in the Index. Goodman Group had a good January, but like most of the property market, lost ground during February and the first half of March, to end the quarter up 8.24%.

As for other large securities in the sector, Scentre Group performed poorly and worse than the index, to be down by 4.5% for the quarter. Stockland was up 9.6%, and Dexus performed really well for the first half of the quarter, then fell away badly to close the quarter down by 3.1%.

	3-month return (%)	1 year (% p.a.)	10 year (% p.a.)
Listed property trusts	0.3	-14.0	8.0

International shares

International markets produced an excellent return for the quarter on an unhedged basis (+9.1%). This quarter, the AUD helped unhedged Australia investors, as the AUD depreciated by 1.3 U.S. cents.

From a style perspective, Momentum was by far the worst performer for the quarter, down by 1.4% and was the only style to produce a negative return for the quarter. The best performing style was Growth that was up 14.9% for the quarter.

The short-lived market turbulence that followed the collapse of the Silicon Valley Bank in March didn’t deter investor optimism leading US stocks higher over the quarter. The Federal Reserve raised rates twice, and data indicated that inflation is cooling, leading to expectations the rate rising cycle could shortly come to an end, which the market viewed favourably.

Eurozone shares notched up strong gains in Q1 despite volatility in the banking sector. Gains were led by the information technology, consumer discretionary and communication services sectors. The laggards were real estate and energy.

	3-month return (%)	1 year (% p.a.)	10 year (% p.a.)
International shares	9.1	4.3	13.8

Fixed interest

The Australian bond market, as measured by the Bloomberg AusBond Composite Index, rose by an exceptional 4.6% during the March quarter.

Australian Government bond yields tightened significantly over the quarter, which produced very favourable returns for most Australian fixed interest investors. The short end of the curve tightened by 59 basis points, while the long end of the curve, the 10-year yield tightened by 75 basis points. Interestingly, after seeing a large decline in bond prices last year due to rising bond yields, the 1-year return is now back in positive territory.

The yield to maturity at the quarter’s end was 4.05% for Australian Bonds, with the index having around 5.2 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	4.6	0.3	2.8

Cash

The Cash benchmark, the Bloomberg AusBond Bank Bill Index, was up 0.8% for the March quarter. During the quarter, the RBA raised interest rates on each of the two occasions the Board met by 0.25%, for a total increase of 0.50%, to end the quarter at an official target cash rate of 3.60%. This is the highest official cash rate since mid-2012.