The themes that may dominate in the next year (a continuation from late 2021) are inflation, interest rates and growth. Growth enhancing policies may recede, spare capacity in the economy is minimal and the re-opening growth surge is probably over. There is a lot of uncertainty as to how supply issues and labour shortages (and how long each may last) will affect outcomes. A fear is that labour shortages could result in wage growth which then results in higher inflation. These and other factors may determine how high inflation goes and how long it persists.

The inflation outlook may influence how quickly Government Central Banks raise official cash rates. Many expect major Central Banks to increase their respective cash rates this year. The level of interest rates in turn could impact on share prices (and other asset prices). We believe how far and fast interest rates rise will have a significant bearing on returns. Concerns around COVID continue to linger. Any geo-political developments could also surprise and affect returns.

The broad theme to start 2022 appears to be one of more optimism in the global economic recovery. Some research suggests the Omicron variant is much less deadly than Delta, giving markets confidence that the hit to growth from recently imposed COVID restrictions in some places (and more restrained consumer behaviour more generally) will be fleeting and the recovery will resume after a few months of disruption. There is little doubt though that whatever eventuates the markets could fluctuate, wildly at times. Rest assured, as we have mentioned previously, we are doing our best in these times of heightened uncertainty. The portfolios remain diverse and we focus on investments that we believe are more at the quality end of the spectrum.

Investment returns (before tax and fees) for the quarter ending 30 September 2021 are:

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A mixed quarter as the economies continued to recover around the globe (albeit unevenly). Shares generally performed better than fixed interest investments (in an environment where there was some pressure on interest rates). COVID-19 and vaccine rollout progress continued to make headlines.

Markets reacted or were concerned about many things during the quarter including the outlook for inflation, the rate of China’s growth, volatility in energy and commodity prices.

The ongoing nature of US debt ceiling negotiations added to the uncertainty. In addition, government central banks shifted to a generally less supportive stance.

When news broke that the Chinese property developer Evergrande might be in trouble, tremors rippled through the markets. In this (more uncertain than usual) environment, we remain cautiously invested. We are invested, but diversified, across both share and fixed interest investments.

Investment returns (before tax and fees) for the quarter ending 30 June 2021 are:

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This was another quarter of good returns with shares again putting in solid performances. As economies reopened and combined with positive economic news globally (though it was uneven across regions) many share markets continued to climb higher.

In addition, most Government owned central banks indicated that interest rates would remain low into the foreseeable future (but some added the proviso that their targeted short term cash rates may need to be raised sooner than first thought by them).

The solid rebound or growth was generally better than expected but considered by some to have been the result of significant Government support during the pandemic.

This had some investors concerned that continued large spending plans may lead to an overheated economy and or inflation. Despite the continued rollout of vaccinations around the globe concerns remain.

We continue remain invested and diversified. At the same time, we remain cautious given how fragile markets seem to us (i.e. the elevated nature, relative to historical records, of both share and bond prices).

Investment returns (before tax and fees) for the quarter ending 31 March 2021 are:

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The returns for Funds with shares in them (Growth and Balanced) achieved solid results, particularly over the last 12 months. The run up in share prices over the quarter reflected increasing optimism with regards to the economic outlook, largely due to the progress of the vaccine rollout and the fact that some governments (and their central banks) announced ongoing support for the economy (this optimism was in spite of the varying COVID statuses around the world). The 12 month returns cover the period after the significant sell off that occurred in the March 2020 quarter. The OECD* and IMF** both increased their respective global growth forecasts in the quarter. However, as the growth outlook improved some investors became concerned about inflation and or interest rates in the future, and therefore longer term interest rates rose (i.e. bond prices fell). This held back overall returns but led to falls in the quarter for the Income Fund. With interest rates at lows and elevated share prices we remain cautiously invested (that said we should continue to benefit from any further improvement in the growth outlook).

*The Organisation for Economic Co-operation and Development (OECD) is an international organisation that works to build better policies for better lives. Their goal is to shape policies that foster prosperity, equality, opportunity and well-being for all.

** The International Monetary Fund (IMF) promotes international financial stability and monetary cooperation. It also facilitates international trade, promotes employment and sustainable economic growth, and helps to reduce global poverty.