30 September 2024 - Market update from John Laver, Head of Investment at Generation Life
Global markets rose across the major asset classes in the September quarter due to optimism generated by the effectiveness of monetary policy in providing a controlled reduction in inflation globally. Many developed countries have commenced their interest rate normalisation cycles which signals a new phase of the economic cycle. This easing is timely for heavily indebted governments and households whilst also providing a more supportive environment for companies to start deploying capital into new initiatives.
Sharemarket returns were accelerated in the local market setting due to the general cyclical nature of Australian companies and an increased expectation of lower interest rate levels in Australia either later this calendar year or early next year. The S&P/ASX300 Index returned an impressive 7.81% during the quarter. The experctation for lower interest rate were also observed by a drop in the Australian 10-year bond yields from 4.35% to 3.85% at the end of the quarter, as measured by the Australian 10-year government bond yield.
Interest rate expectations also eased globally as inflation numbers weakened and unemployment rose. Australian commodity prices remained volatile with headline iron ore prices declining by 13%over the quarter, driven by weaker demand from China.
The global economic and policy outlook has swung into a supportive backdrop for risk or growth assets, as discount rates begin to fall which is a positive for the valuation of companies and other financial assets. Overall, global sharemarket returns were healthy with the MSCI World Ex Australia Index (hedged) producing a return of 4.43% for the September quarter. The strengthening of the Australian Dollar meant that unhedged exposures to global companies were weaker with the MSCI World Ex Australia Index (unhedged) delivering 2.30% for the quarter.
Global fixed interest was also a beneficiary of the current easing of monetary policy globally, generating a return of 3.99% for the quarter as measured by the Bloomberg Barclays Global Aggregate Index hedged into AUD. Domestically, Australian fixed interest securities produced a 3.02% return for the quarter as measured by the AusBond Composite 0+ Yr Index.
The average after tax returns on the reported Tax Optimised investment options for the 12 months to 30 September 2024 was an impressive 14.6%, compared to the average pre fees and after-tax return for an investor on a 47% marginal tax rate (including Medicare levy) of 9.14%. This average additional return benefit of 5.46% (after tax) highlights the significant benefit that tax and tax management can have on returns.
The average returns across all Tax Optimised investment options for the last 12 months was 18.29% on a pre-tax basis and 14.60% on an after-tax return basis.
At Generation Life we are focused on maximising the after-tax returns for our investors in a tax effective environment. The average tax savings benefit generated by all of our 68 investment options for the 12-momnths to 30 September was 1.41% (when compared against a standard investment bond tax management process).
Pleasingly, out of all 63 Australian share funds available through investment bond providers, the Generation Life Tax Effective Australian Share Fund has been ranked as the best performing fund in this category (on an after fees and tax basis) for the last five years.¹
This quarter sees a new addition to the performance reporting with the Generation Life Tax Effective Growth Fund obtaining a 12-month performance track record. The Fund, which is managed by Fidelity International has also now been rated by Zenith Investment Partners, obtaining a Recommended rating Zenith, highlighted “Fidelity’s track record in managing similar tax-efficient mandates in other jurisdictions with the investment bond tax structure enabling the fund to be managed to optimise outcomes on an after-tax basis.”
1. Source: Morningstar Direct
The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (assigned August 2024) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at http://www.zenithpartners. com. au/Regulatory Guideline.
