Shadforth news

Investment market review - Quarter-ended 31 March 2020

22 September, 2020

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

Australian shares

The S&P/ASX 300 Accumulation Index underperformed global markets in the March quarter, falling 23.4%.

Most sectors performed poorly with Energy the worst (down 48.9%). Defensive sectors outperformed the market with Utilities (down 10.3%), Consumer staples (down 4.3%) and Healthcare (up 1.5%) performing relatively strongly. Consumer staples were supported by consumer hoarding behaviour who were fearful of shortages due to the Coronavirus situation. This saw Metcash (ASX: MTS), which operates IGA stores, become one of the top performers during the quarter. In addition, healthcare stocks were supported by both their defensive characteristics and increased usage of their products which counter the Coronavirus. Fisher and Paykel Healthcare (ASX: FPH) was a key beneficiary of this trend with its ventilator products in strong demand globally given how the Coronavirus attacks the respiratory system.

Separately, we saw the Reserve Bank of Australia (RBA) cut interest rates by 0.5% during the quarter. This decision impacts bank profits negatively by reducing the spread between the rate they lend at and the rate they pay savers. This is called their ’net interest margin’ and a lower rate environment implies weaker bank profits (and dividends) in the future. This contributed to the weakness in the Financials sector (down 28.7%).

Listed property trusts

The Australian real estate investment trust (A-REIT) fell by -34.3% during the March quarter.

The Coronavirus lockdowns were a key factor for the decline with consumers staying at home rather than shopping or seeking entertainment such as going to the movies following the Government’s instructions. Retail A-REITs were amongst the worst affected with Westfield operator Scentre Group (ASX: SCG) having only 39% of its retail store tenants open according to their most recent update. In addition, commercial landlords are facing restrictions on tenant evictions and rental increases per a new Code of Conduct issued by the Government.

International shares

International shares also declined but by considerably less than Australian shares. The MSCI World Index in Australian dollar terms fell -9.3%.

Global share markets fell during the quarter (in local currency terms) led by weakness in Europe and the United States (US). European and US weakness reflected the struggles both are facing in handling the Coronavirus outbreak. Europe has, in general, been one of the most adversely affected regions with over 138,000 deaths and 1.27 million confirmed cases (as of early May). This saw substantial business shutdowns and job losses across Europe. The economic damage caused is expected to harm business profits substantially in the short-term. This caused concern among investors who sold global shares, driving prices lower.

The Australian dollar fell 9.3% against major trading partners during the quarter. This added to the performance of unhedged international shares. Hedged international shares by contrast declined by 21.1% as these did not benefit from the fall in the Australian dollar (hedging protects against both good and bad currency movements). The main factor for the Australian dollar was concern over the economic slowdown from the Coronavirus reducing demand for Australian exports, particularly commodities and education services.

Fixed interest

Australian fixed interest performed positively with the Bloomberg AusBond Composite Index, rising 3% during the March quarter.

In Australia and globally, the Coronavirus outbreak sparked a major shutdown of non-essential businesses such as tourism and hospitality. This has caused economists to declare that the Australian economy and the global economy was entering a recession.

In response to this, the RBA cut interest rates twice taking its cash rate to 0.25%. It also committed to targeting the 3-year Government bond yield to be 0.25% to keep short-term interest rates low across the economy. This helps corporate borrowers by lowering their financing costs but also lowers the future returns for lenders and investors.

Bond prices were pushed higher (and bond yields lower) by investors seeking safe assets.

This ‘flight to safety’ response is something we typically see when share markets decline sharply and contributed to the positive bond returns.


The Bloomberg AusBond Bank Bill Index rose 0.3% during the March quarter.

The RBA cut interest rates twice during the quarter by 0.5% overall, taking the cash rate to 0.25%.

The lower interest rate means borrowers will be able to repay larger amounts and therefore increase their spending while investors and savers will generally receive lower returns. It’s unlikely the RBA will cut rates again by 0.25% to 0%. This is because of how its policy works. A 0.25% rate cut would effectively ‘tax’ banks with negative interest rates which would discourage lending and impact economic growth.

The RBA has indicated any normalisation of rates will be gradual as the economy recovers and is expected to take a number of years.

Asset class returns

Different asset classes have, over time, produced different returns on investment. Many investors consider changing asset classes to chase the next return. But, as you can see from the table below, it’s very difficult to predict which asset class will perform strongest in the following year.

This year’s winner may not necessarily be next year's.