The dominant global theme driving the market over the September quarter was the prospect of a more resilient global economy in the form of a slower fall in inflation and official cash rates remaining higher for longer. This was due to the reaction of strong employment data, increasing wage costs and rising energy prices.
The Australian share market fell -0.77% in the September quarter (as measured by the S&P/ASX 200 Accumulation Index) and the global share market also fell -0.43% over the same period (as measured by the MSCI World ex-Australia index). Commodity prices were weak during the quarter, except for iron ore which benefited from speculation of a China stimulus, while the Bloomberg Aggregate Bond index fell -2.48% (total returns in local currency).
The average after fees and tax performance on the reported Tax Optimised options for the 12 months to 30 September 2023 was 7.58%, whereas the comparable average after fees and tax return of an investor on the 47% marginal tax rate, was 5.19%. This equates to an uplift in average after fees and after-tax returns of 2.39% for high marginal tax rate investors.
Our average Tax Optimised investment series performance for the last 12 months was 10.52% on a pre-tax basis and 8.05% on an after-tax return basis. At Generation Life, our investment performance considers the tax paid on income annually and considers what the impact of tax would be if withdrawing and selling down the assets in our funds at the end of the investment. Investors get to keep this return and there is no further tax to be paid by investors in their personal tax return, if held for more than ten years. Our core focus at Generation Life is to review tax and costs on portfolio returns for our investors and generate better after-tax outcomes.
The average uplift in performance for 30% company tax investors was 0.61%, with a high-water mark of 2.04% of improvement for the Magellan Global Fund.
We have expanded after-tax performance coverage to now include both the Investors Mutual Australian Share Fund and the Magellan Infrastructure Fund with its Tax Optimised process now operating for over a year.
The proposed changes and recently released draft legislation dealing with tax concessions on superannuation balances above $3 million* is a timely reminder of how tax leakage can impact investment returns and asset values.
The power of compounding tax alpha over time without increasing investment risk enables more of the headline investment strategy return to be delivered back to our investors.
*Treasury Laws Amendment (Better Targeted Superannuation Concessions) Bill 2023 and Superannuation (Better Targeted Superannuation Concessions) Imposition Bill 2023.