About Uniting Financial Services

Investment review and outlook     By Edwin Lo Chief Investment Officer  

      Following a difficult operating environment in FY23, the new financial year is expected to bring peak inflation and improved global growth.   Financial year 2023 - review The economic landscape in Australia proved to be more resilient than expected in 2022/23, sustained by a strong labour market and wage growth. Nevertheless, there was tangible deterioration in the global economy, driven by central bank actions and tight interest rate policies. The year was also marked by an acceleration in inflation, which remained high and was persistent. Recent rate movements drove an inversion to yield curves, implying lower interest rates at some point in the future. While corporate earnings were affected by these adverse economic conditions, profitability growth continued. During the year we saw investors become more selective, with a flight to quality in a more vulnerable financial market. The demise of some regional banks in the US and Credit Suisse in Europe in the second half did not cause significant disruption to the global financial system. However, popularism and US-China tensions remained extremely high on the agenda. Despite these challenges, over the year growth assets outperformed their defensive peers, reflecting optimism among investors with regards to the market outlook. Asset class returns (as of 15 June 2023)   Asset class 1 year 3 years (p.a.) 10 years (p.a.) Income       Australian bonds and credits 1.14% -3.59% 2.43% Global bonds and credits -1.21% -3.71% 2.54% Growth       Australian equities 15.01% 11.34% 8.60% Global equities 18.86% 12.49% 12.86% Interest rates       Australia cash rate 4.10%* 0.25% 3.00% USA Fed Funds rate 5.07%# 0.14% 0.16% * The Reserve Bank of Australia, June 2023 # The Federal Reserve, USA. June 2023     Financial year 2024 - outlook The objective of raising interest rates is not to cause distress but to ensure a balanced growth and inflation outcome over the long term. Despite high interest rates, growth should be more robust than expected in 2023/24, underpinned by tight labour markets, post-pandemic recovery and a decline in commodity prices, crude oil in particular. We believe global growth is likely to get off to a better start and expect central banks to have come to the end of their hiking cycles. However, a significant shift in the monetary policy stance is not expected in the financial new year. Geo-political tensions are ongoing. The war between Russia and Ukraine has focused on resource security, an unquestionable catalyst for energy transition and faster decarbonisation. The burgeoning conflict between the countries in the Western bloc and China in the race for semiconductor leadership and the campaign for the 2024 United States presidential election are also likely to push market volatility higher. A hard-landing recessionary scenario is not our base case. Still, elevated resource scarcity and economic risk warrant a robust investment strategy that can navigate this transition and beyond. Against this backdrop, our portfolios are oriented towards high-quality equity portfolios with low volatility. Overall, our funds are tilted towards Australian companies, with a preference for investments with proven business models, strong balance sheets, and those with the ability to grow earnings, and hence cashflows, year-on-year. With inflation expected to peak, this substantiates the investment case for adding duration to the bond portfolios. Fixed income should deliver returns in line with income yields, which has helped stabilise returns. In credit, we will maintain exposure to global investment-grade papers which should provide a supportive backdrop. We continue to focus on investments that align well with the climate transition, such as clean energy, renewable fuel sources, and electrification, and emphasise opportunities in infrastructure investments as an area that could perform well through seasoned economic cycles. The team is also adding exposure to private debt as they offer low-interest rate sensitivity with superior investment yields. Embedding the vision of UCA Synod NSW and ACT with UFS investment belief, we have a strong focus on ethical and the UN Sustainable Development Goals when constructing our portfolios across all asset classes. A key priority in FY24 is to increase our engagement efforts, assessing and validating the sustainability solutions of companies seeking to transition to a carbon-neutral investment outcome by 2050. Also on the agenda are bank lending practices and the buy-now-pay-later sector. Applying these considerations, our asset allocation for FY24 is as follows: Asset Allocation Asset Class Overweight Neutral Underweight Equities       Australian       International       Fixed income       Rates       Investment grades       High yields       Commercial lending       Loans and mortgages       Real assets       Infrastructure       Real estates       Private equities       Private debts       Cash         Summary UFS advocates building diversified portfolios on a long-term view, with multiple sources of return to enhance consistency and reduce risk. That said, in FY24 we see opportunities for outperformance in high-quality equity investments, with an overweight position in Australian equities. We will also have an overweight tilt to investment-grade fixed income, as well as in real assets such as infrastructure and private debt.     Important information: While the information contained in this announcement has been prepared with all reasonable care, Uniting Financial Services accepts no responsibility or liability for any errors, omissions or misstatements however caused. This information is not personal advice. This advice is general in nature and has been prepared without taking account of your objectives, financial situation or needs. The fact that shares in a particular company or that an asset class may have been mentioned should not be interpreted as a recommendation to buy, sell or hold that stock or the assets in that class. You can review the UFS Privacy Policy here.    

  CallInvestments and Lending: 1300 133 673Other enquiries: 02 8267 4300

  Emailcontactus@unitingfinancial.com.auWe are here to help.

  Post P.O. Box A2178, Sydney South NSW 1235  

  AddressLevel 10, 222 Pitt Street, Sydney NSW 2000

  Important for you to know Financial services are provided by The Uniting Church (NSW) Trust Association Limited ACN 000 022 480, ABN 89 725 654 978, AFSL 292186 (“UCTAL”) and by The Uniting Church in Australia Property Trust (NSW) ABN 77 005 284 605 (“UCAPT”) (together and separately “Uniting Financial Services”), for The Uniting Church in Australia, Synod of NSW and the ACT (“Synod”), under a s.911A Corporations Act 2001 (Cth.) authorisation and pursuant to APRA Banking Exemption No. 1 of 2021 and ASIC Regulatory Guide 87 and ASIC Corporations (Charitable Investment Fundraising) Instrument 2016/813 exemptions. Uniting Financial Services® is a registered trademark of UCTAL used with permission of UCAPT. None of The Uniting Church in Australia, UCAPT and UCTAL is prudentially supervised by APRA. Therefore, investments with or contributions to these Uniting Church organisations will not receive the benefit of the Financial Claims Scheme or the depositor protection provisions in the Banking Act 1959 (Cth.). All financial services and products are designed for investors who wish to promote the religious and charitable purposes of Uniting Financial Services and The Uniting Church in Australia and for whom profit considerations are not of primary importance in their decision to invest. The information on this page has been prepared without considering your objectives, financial situation or needs. You should, before acting on it, consider its appropriateness to your circumstances or refer to the relevant disclosure document. Loan applications are subject to credit approval. Interest rates are subject to change. Fees and charges may apply.