Investment update with Daniel Selioutine, Q2 2024-25

Daniel Selioutine (Group Executive, Investments) provides economic and market commentary for the October to December 2024 period, plus some commentary on recent developments in our latest edition of Exploring Super. 

Transcript

Transcript

You're listening to exploring super the exclusive podcast for ESSSuper members.

00:00:11 Felicity

Welcome to Exploring Super, the exclusive podcast for ESSSuper members.

00:00:16 Felicity

I'm Felicity Brasher, the group executive of member engagement, and here with me I've got Christian,

00:00:22 Christian

Hi, I'm Christian Kueng, manager of member education.

00:00:25 Felicity

And today we've got our good friend Daniel Selioutine, the group executive investments of ESSSuper. Thanks for joining us again, Daniel.

00:00:34 Daniel

It's a pleasure.

00:00:35 Felicity

So Daniel, you're here to provide an investment market commentary starting with the second quarter of the 2025 financial year.

00:00:40 Christian

So what have been some of the key movements we've seen in the investment markets of the second quarter of the 25 year?

00:00:49 Daniel

So US equities started off reasonably strongly following President Trump's return to office.

But Technology stocks took a bit of a hit with China, launching a lower cost competitor to ChatGPT are called DeepSeek.  NVIDIA, which is one of the major manufacturers of the technology that companies use to kind of commercialize ChatGPT lost quite a bit of value on that day, and that dragged the overall S&P 500 index down, but as time went on kind of strong U.S. jobs, numbers, reasonably growing levels of GDP helped maintain a reasonable level of optimism. Overall, the equity markets been fairly flat since December. Bond markets as well have been kind of up and down, but overall relatively flat, so early on in the quarter, there was some fears around inflation linked to Trump's fiscal policies, as well as tariff and trade policies. As the data came in, we saw softer inflation and that eventually brought bond prices back to roughly where they were in October 2024

So overall, not a lot of movement in either equities or bonds. When we turn to Australia on the stock market was similarly kind of up and down, but there's been generally flat over the past several months. The expectations amongst investors was fairly adamant that there'd be a rate cut by the RBA, which indeed what happened in February of this year, and I'm just thinking back, you know, the first interest rate increase actually occurred in May 2022. It's been a bit of a period there.

The RBA has cautioned, however borrowers with mortgages and investors from getting a bit too far ahead of themselves and not betting too strongly on imminent cuts to come. I think their decision making will really depend on inflation data, which is showing a little bit, I wouldn't says stickiness it's within the range of what's targeted, but there needs to be some further downside. I think before confidence returns that we've got inflation kind of issue under control, so overall growth assets appeared to have taken, I'd say a bit of a pause in the last little while following I think 2 very strong years of outperformance.

00:03:35 Felicity

Dan, you mentioned inflation a few times in what you've just given us with the the commentary there. Can we talk a little bit more lcoally. What have we seen in inflation rates in Australia and I guess if we can compare that to around the world too?

00:03:51 Daniel

If for sure, so within Australia, the RBA targets a 2 to 3% per annum.  Annualized rate of increase in what I call a consumer price index which is a kind of a basket series of the common goods and and services that Australians buy. As at the January numbers, January 2025 the inflation rate is running at about 2.5% annualised, so it's bang on within that target range with that target, what you want to see is inflation oscillating both above and below the 2 and a half.

But where we've come from obviously been much higher inflation in the last little little while it hasn't had the the chance necessarily to oscillate below 2 and a half just yet, so I think that's where the caution is coming from. Globally, inflation rates also are also somewhat elevated, but much, much lower than they were 12 months ago.

US inflation's running at about 3% per year, their target 2%. Within the eurozone, inflation's at about 2 and a half and their targets also 2%. So overall, much better than one year ago, but still, you know still some caution. And some investors are obviously a little bit concerned around the prospects of you know, some of this tariff activity potentially locking in expectations that inflation may remain at these somewhat slightly above target levels for the next little while.

00:05:31 Christian

Thanks very much, Dan. There's a lot of talk out there at the moment with trade wars and tariffs being implemented by the new US administration.

Like, how do you think this is going to affect the US and also the global economy?

00:05:42 Daniel

I think that's the $1,000,000 question, Christian. The Trump administration.

Has released relatively little detail concerning their tariff policy.

And so it's very difficult for investors and businesses to determine what impact it will have on them. I suspect that's why we're seeing the equity market behaving in a fairly range bound fashion over the past few weeks.

For a country like the United States, which is, which is a very large and self-sufficient economy, tariffs can protect local producers from foreign competition, and it can actually lead to some domestic economic growth. It depends on how the tariffs are applied. If they're applied relatively early in the production cycle, for example. So on raw material inputs, then the price impact further down the supply chain can become reasonably significant, which is why there's a little bit of concern around what inflation impacts Trump's potential policy may have.  The example I gave obviously it benefits the industry where the tariffs are applied, but it comes at a cost to both US consumers who pay higher prices and global producers, or sort of priced out of that large U.S. market.

Having said that, trade isn't a large component of U.S. economic growth I think the bigger Is expected in places like Mexico and Canada whose GDP is more closely linked to their trade with the United States in particular. Overall, however, I'd probably summarize by saying that economists generally don't like tariffs, but investors are more frequently concerned about identifying the winners and losers and positioning their portfolios accordingly.

00:07:33 Felicity

Thanks.

You've made something pretty complex much more simple.

So you've spoken to us a lot about, you know, interest rates and inflation and the market movements. How have you seen all of this translate into uur funds investments.

00:07:49 Daniel

So looking back at 2024.

All of our accumulation plan options outperformed their inflation, linked targets over the year, which is which is good to see. Obviously, inflation's come down, which is, which is driven a lot of that out growth assets have also had a fairly constructive period.

That said, peer relative performance was fairly close to the median super ratings fund for most investment options for that year, and that's primarily been driven by the significant out performance seen in US equities, which was driven by a relatively small number of key technology; so the NVIDIA example that we discussed earlier, our active managers almost in tandem made a deliberate decision to avoid some of these stocks, because they felt that they were increasingly becoming overpriced relative to the future return prospects that they offered. However, over the past three years, I'm very pleased to to say that most of our investment options have ranked in the top quartile compared to super ratings industry peers, which is a strong indicator of consistent performance, and we really target the consistency over time.

Looking ahead, we remain focused on generating strong long term performance over shorter periods, particularly around turning points. Performance can be a bit choppier at times.

00:09:25 Felicity

The great result Dan, you’ve done terrific work there with you and the team. Well done.

00:09:31 Christian

Yeah. Excellent work, Dan.

00:09:32 Christian

Well, thank you very much for coming in today and sharing your insights as always. We look forward to having you on again soon.

00:09:38 Daneil

Thanks very much.

00:09:39 Christian

Well, that wraps up our episode today of Exploring Super the exclusive podcast for ESSSuper members.

00:09:45 Christian

We look forward to producing more content for you at ESSSuper, proudly serving our members. If you'd like more information about our investments and products, please go to essssuper.com.au.

00:09:58 Felicity

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