CFS Market Insights: July 2025

Welcome to CFS Market Insights. Today we're going to talk about investment performance over the last financial year and look forward to what markets may provide us in the year ahead. It's been another remarkable year for investment returns. We're delighted at CFS to have delivered a third consecutive year of strong performance, with double-digit returns for most of our members. Those robust returns over the last three years have positioned us as one of the top performers in the super fund universe, and very much underscores our commitment to delivering consistent value to our members.

What we're going to do is dive into some of the drivers to investment returns. Al, a turbulent year but what's been the driver of the returns we've delivered for our members?

It has felt turbulent but returns, as you just said, have been really strong. Where the previous two years were delivered specifically by US equities and US tech in particular, we've now had a broadening out of returns. So it's not just the US.

Now don't get me wrong, US equities still had a pretty good year. But global equities overall delivered around 18%. That was matched by emerging market equities and smaller companies and global listed infrastructure. So we had a real broadening out of returns. We're not just relying on one return driver in equity markets. It's been a real broadening out which has been great.

That wasn't just at the asset level. It was also at the sector level. So instead of tech being the boom that it had been the previous two years, we've seen financials do really well. The financial sector delivered around 30%. That was most evident here in Australia where CBA delivered almost 50% for the year. So, you can see, a really strong financial performance globally.

And it wasn't just equities. The bond portion or the income-producing parts of our portfolios also did quite well. Investment grade credit or the lower risk credit delivered 7%, high yield credit delivered 10%, emerging market bonds delivered about 8 to 10%. So it was multiple sources of drivers of return, which is really encouraging.

We've talked about this previously, around a broadening-out of investment returns and diversification in our portfolios. Do you want to talk a little bit about some of the things that we've done over the last 12 months, which have helped with that diversification?

Yeah, sure. I think in anticipation of that broadening-out, we broadened-out our other equity exposures. So instead of really relying on global equities, we thought, okay, let's add some emerging markets. Let's add some smaller companies. Let's add some more income-paying equities like value equities. And then in the private markets as well. So broadening-out the exposure and those return drivers.

So we've dealt with the drivers for the last 12 months or so. We should probably spend a bit of time looking forward and it would be good to get your thoughts.

We've talked about this building resilience in portfolios, but what are the things that we think may play a role in terms of investment performance in the next 12 months or so?

Yeah, I feel like a bit of a broken record here, but we expect continued volatility.

The main reason for that is just the nature of the Trump administration's policy setting. So you can debate between yourselves whether you agree or don't agree. But for investors, that's not really the point. We just - investors like certainty. We like to understand the landscape we're investing in. Unfortunately, the modus operandi of the Trump administration has been shock and awe.

So they do like haphazard and chaotic policy-setting procedures. And that might be great for the art of the deal, but it's not really great when you're trying to set asset allocation and investment decisions. So for us, it's almost like we need to build in some sort of chaos premium. If we're going to see haphazard policy settings, do we then need to expect, you know, lower returns or build in a premium to those asset classes to be able to deal with this?

For example, in the last 48 hours, we've been told there will be 200% tariffs on pharmaceuticals, 50% tariffs on copper, and 50% tariffs on Brazil. So those markets are moving around significantly. Now, we don't know with any level of conviction whether that's actually going to happen or not. And that's the problem we're facing into. So until there's greater certainty around the outcomes that the Trump administration is trying to deliver, then I think we'll continue to see this extreme volatility.

I think one of the challenges we're facing is, to paraphrase a line from Macbeth, we're seeing a lot of “sound and fury” from the administration, but it's “signifying nothing”.

Which is a challenge for us as investors. And I think this very much speaks to what we've been trying to do with our investment portfolios, which is continuing to diversify the building blocks that we use within our portfolios.

So I think it's important to remind people that we've had three years of double-digit returns.

And that has been quite unusual over the last 20 years or so, average returns for markets have been somewhere between 6 and 7%. And that's probably the type of return path that our members should expect going forward.

I think there's also another important lesson which has come out of the last six months or so, is that it's important not to react to some of this short-term volatility that you've seen in markets.

And I think April was, a very important lesson around that, that with the announcement of tariffs, you saw markets drop very sharply in a couple of days. But then as investors got their head around some of the implications of it, you actually saw markets recover. And that actually over the month of April, markets were effectively flat, notwithstanding that very sharp decline.

And I think it is just helping people to understand, we are going to see probably more periods of volatility, but it's important to stay the course.

Yeah. Absolutely. In this sort of environment where we are approaching quite haphazard and chaotic policy setting, this resilience that we have built into the portfolios, I think will be paramount. 

Yes. So I think it's right that this idea of building greater portfolio resilience, some of that is going to come through private market investments.

This is all part and parcel of positioning our portfolios to deal with perhaps this slightly more challenging investment environment.

Thanks for watching CFS Market Insights. See you next time.