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27 May 2024   7 min read

Market Commentary March 2024

27 May 2024 • 7 min read

31 March 2024 – Market update from John Laver, Head of Investment at
Generation Life

The March quarter was a very strong period for stock markets, with resilient economic data and relatively strong reported earnings both contributing to year-to-date gains and a strong 5.43% gain for the March quarter for the S&P/ASX300 Index. Equity markets in the U.S. and Australia sailed through record highs heading into the end of March.

The U.S. economy has been performing better than expected and the December 2023 quarter was no exception, as real GDP in the U.S. posted a 3.3% annualised gain. Inflation pressures also tempered and the labour market continued to show signs of normalisation rather than capitulation, adding to the improved outlook for companies.

Overall, ASX listed companies posted better-than-expected December half-year earnings, and the trend to guidance upgrades which started in the annual general meeting season in the December quarter, continued throughout most March quarter results announcements.

Global share markets continued their strong rebound in performance with the MSCI World Index gaining a very robust 14.1% over the March quarter, outpacing emerging markets return of 7.1% that was held back by China’s current middling economic conditions. The equity market rally began to also move away from solely mega-cap companies in the U.S. and Europe, into more cyclical and non-tech sectors which gave a broader set of funds and markets a strong quarterly result.

Fixed interest yields were up marginally during the quarter with the Bloomberg AusBond Composite Index producing a stable cash-like 1.0% return for the quarter. Interest rate expectations in global markets were more restrictive with the Bloomberg Global Aggregate index diverging from the Australian experience seeing performance decline by -0.3% over the quarter (total returns in local currency).

In Australia, economic conditions also continued to stabilise during the March quarter. The Reserve Bank of Australia (RBA) kept rates steady at 4.35% with rates now having only risen once in the last 8 months and the soft December quarter GDP of 0.2% came in at market expectation. Annual CPI inflation now stands at 3.4% in February (non-seasonally adjusted) with the only concern being the services component of the data remaining stubbornly high. The unemployment rate also fell quite a bit from 3.9% to 3.7% at last reading at the end of March.

The average pre-fees and pre-tax return on the reported Tax Optimised investment options for the 12 months to 31 March 2024 was 13.39%. On a pre-fees and after-tax return basis it was 10.59%.

The average post-fees and post-tax return on the reported Tax Optimised investment options for the 12 months to 31 March 2024 was 10.11%. The comparable average post-fees and post-tax return for an investor (assuming a 47% marginal tax rate including Medicare levy), was 6.90%. For the high marginal tax rate investor, this equates to an uplift in average post-fees and post-tax returns of 3.21%, highlighting the significant impact of tax on returns.

In the case of company investors (which can also be used as an indication for a non-tax optimised investment bond), the average annual uplift in performance on the reported Tax Optimised investment options over the last 12 months, (assuming a 30% company tax rate) was 1.68%. Notably, over this period the Magellan Global Fund generated the highest level of uplift in return with a 7.56% increase in returns on an after-tax basis (again compared to an investor on the highest marginal tax rate).

Pleasingly, the Generation Life Tax Effective Growth Fund has been the strongest performing diversified growth fund on our investment menu since inception of the portfolio in September 2023. A combination of tax-effective building blocks and tax efficient management of the portfolio has contributed significant value during the last six months to 31 March 2024, with additional tax alpha of 0.94% generated from strategic rebalancing and utilising tax credits to lower the fund’s tax assessable income. The after-tax and after-fees return of the fund’s strategy has been 11.34% over the last six months, 2.25% higher than the average after-tax return of all diversified growth fund options on our investment menu over the same period.