Global share markets have continued their strong run. But rising stock prices may be starting to look like too much of a good thing.

Back in April, we pointed out that technology companies were leading share markets higher. The so-called Magnificent 7: Meta, NVIDIA, Amazon, Apple, Alphabet, Microsoft and Tesla, all had an exceptional run of good returns. 

The returns investors enjoyed towards the end of 2023 and at the start of 2024 have continued. As a result, share markets in the United States in certain areas like technology are more expensive than they have ever been.  

At the end of June, the S&P 500, the index that measures the movements of the largest 500 companies in the US, including the world’s biggest companies mentioned above, finished at its highest level. Ever.   

This is not just in the United States – share markets in Australia have had a strong 12 months and have reached all-time highs as well. While our local share markets don’t have the big technology names they do in the US, the share prices of some of our largest companies, including our local banks and software companies, have been on the rise too.  

We believe shares in some of these listed companies are over-valued, so we have started to be cautious about the investments we hold and the ones we avoid. 

In recent months, our caution has resulted in us selling our positions in some of the companies that have done well and putting that money in defensive assets and allocations that will be safer if there is a turnaround and share markets go in the other direction. 

While this approach might mean we don’t end up at the top of the short-term performance rankings, we think it’s the right way to manage our members’ precious retirement savings.  

It’s the technology companies leading the way – the so-called Magnificent 7: Meta, NVIDIA, Amazon, Apple, Alphabet, Microsoft and Tesla have had a good run of returns. 

Our objective is to provide our superannuation investors with investment returns more than inflation over the long term, which we continue to achieve. Over the 10 years to June 2024 the Australian Ethical Balanced investment option has exceeded its performance objective, returning 6.8% per annum. The higher-risk high growth option returned 7.5% pa over the same period. 

Australian Ethical super option performance vs. target returns

*Option returns are net of fees and tax. CPI benchmarks are gross. Returns are for the periods outlined to the end of June 2024

Our super options are designed to deliver returns that consistently outpace inflation, so your money is worth more when you need it, not less.  

We focus on risk as well as returns

Back in April, we concluded our market update by highlighting that a consequence of strong performance can be heightened risk.  

At the time we said we were selling some of our more expensive listed company positions and buying defensive investments. This approach was to position us to lose less than the broader market and our peers if share markets do drop.    

An investment with high returns that comes with high risk might not be as attractive as an investment that gives slightly lower returns with significantly less risk – particularly in superannuation where preservation of capital is so important. 

While some of our investments might have returned slightly less than they would have if we stuck with our more expensive listed company positions, we are pleased we can avoid heightened risks while still exceeding our long-term targets.