How your super performed: Q2 2024 update

smartMonday finished the 2023-2024 financial year with strong returns, despite a dip in the most recent quarter. Here’s everything you need to know about how the economy and share markets impacted your super.

Globally, share markets trended upwards. In the US, the S&P 500 and Nasdaq reached new all-time highs this quarter. This growth has been driven predominantly by rapid expansion in the technology and communication sectors. The excitement surrounding artificial intelligence (AI) is a major factor fueling this surge. Investors are clearly optimistic about the future potential of AI, leading to a significant rise in the value of AI-focused companies.

Nvidia, an investment of ours, exemplifies this trend with an extraordinary 191% return over the year. Nvidia's expertise in AI spans developing programming languages, software, and hardware. Similarly, Arista Networks, a data centre company, has reaped the benefits of the AI boom, delivering impressive 115% returns over the same period. In addition, Disco Corp, a Japanese firm known for manufacturing ultra-thin microchips, has posted remarkable returns of 143%, further cementing the success stories within the tech sector.

Locally, Australian shares lagged, weighed down by performance across energy and materials sectors during the quarter. Australian property has also pulled back, with investors possibly spooked by the prospect of future interest rate hikes as we saw some indicators inflation was not easing.

Our investment team anticipated these market movements and wisely held back on investing in certain alternative assets, including those in the healthcare sector, predicting a potential drop in valuations. This insight turned out to be spot on. The timing of capital deployment is crucial to securing the best deals for our members.

Australian consumers carry some of the highest levels of debt globally. Consequently, we feel the impact of interest rate changes more acutely than consumers in other countries. This exposes Australia to significant economic risks if interest rates continue to climb.

Currently, the trajectory of interest rates in Australia suggests that rate cuts may not arrive as quickly as some had hoped. The Reserve Bank faces a complex challenge in balancing the need to address inflation concerns while managing the potential repercussions on consumer spending and economic growth.

Australia is far from the only economy in murky waters when it comes to interest rates. Global bond markets are grappling with uncertainty regarding the direction of interest rates too this year. Despite a relatively subdued quarter, bond markets experienced significant volatility across the yield curve during the quarter.

This volatility reflects the market's attempt to anticipate central bank policy moves and the impact on interest rates. The ongoing market volatility is largely driven by speculation surrounding the US Federal Reserve Bank’s future actions on rates. While there is consensus that the Fed will make rate cuts, the market's expectations have fluctuated between one to two cuts.

Our recent performance has been heavily influenced by the success of the US technology sector, leading to impressive returns. But a substantial portion of this growth is coming from just seven giant companies (sometimes called the Magnificent 7) - Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.

The fact that market gains are so concentrated highlights a certain fragility. We're keeping a close eye on these indicators to gauge the market's trajectory and assess the balance between potential returns and the risk of a pullback, especially with share markets at all-time highs. While tech stocks have been significant drivers of recent success, our focus remains on diversification across asset classes to reduce volatility for our members.

There are also potential geopolitical risks on the horizon, including the upcoming US election and international conflicts. We continue to monitor these factors closely to better understand the market's path and evaluate the risk of a pullback in this high-stakes environment.

smartMonday recently invested $20 million in renewable energy provider ZEN Energy through a debt facility, which will enable work to commence on the second largest battery by energy stored in South Australia.

ZEN Energy is an energy retailer with a commitment to have no direct energy offtake agreements with any fossil-fueled generators. The company also has a near-term science-based emissions reduction target in line with limiting global warming by 1.5°C.

The 111MW/291MWh Templers battery energy storage system, located 60 km north of Adelaide, will be the second largest in the state which is leading Australia’s energy transition to a renewable energy superpower.

ZEN’s ability to construct the battery is also supported by the South Australian Government’s commitment to a long-term renewable energy contract with the renewable energy supplier.

Our investment team favoured this investment over other lending opportunities they reviewed for its attractive yield and credible business plan. Seeking out secure high-return investments is critical for building superannuation member retirement outcomes.

smartMonday’s MySuper investment options are designed to suit you at different ages, adjusting the risk level you are exposed to as you get older. That means the lower age groups have a higher exposure to growth assets, including international shares.