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Investment strategy

By Brian Parker, July 2021

 

Sunsuper’s Balanced option for Super-savings accounts produced a return of 6.1 per cent for the June quarter and 20.7 per cent over the financial year to June 2021 – the strongest financial-year return for more than 25 years. Longer-term returns remain strong, with the Balanced option posting returns of 8.8 per cent p.a. over the last three years, and 9.1 per cent p.a. over the ten years to the end of June 2021. The table below shows returns from the major publicly traded asset classes for periods to the end of June 2021.

 

Returns to 30 June 2021 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash (Bloomberg AusBond Bank Bill) 0.00 0.1 1.0 1.3 2.2
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond) 1.2 -0.5 4.8 5.2 6.2
Global diversified fixed income (Bloomberg Barclays Global-Aggregate hedged to $A) 0.9 -0.2 4.0 2.9 5.3
Australian listed property (S&P/ASX 300 A-REIT Accumulation) 10.7 33.9 8.2 6.2 12.0
Global listed property (FTSE EPRA/NAREIT Developed, hedged to $A) 9.3 31.4 5.9 5.7 9.2
Australian shares (S&P/ASX 300 Accumulation) 8.5 28.5 9.8 11.3 9.2
Developed market shares, in $A unhedged (MSCI World) 9.5 28.1 15.0 15.3 15.3
Developed market shares, hedged to $A (MSCI World) 7.7 36.1 14.0 15.0 13.3
Emerging market shares, in $A unhedged (MSCI EM)  6.6 29.6 11.1 13.2 8.4

Sources: Refinitiv, Bloomberg. Past performance is not a reliable indication of future performance.

World share markets enjoyed another very strong quarter, with shares in the US outperforming those in the Eurozone and Japan. Emerging markets shares produced solid returns, with shares in the Middle East and Eastern Europe among the best performers, while generally underperforming the developed markets. Australian shares also performed strongly: shares in the IT and consumer discretionary sectors posted the strongest returns; however, a strong gain in financials accounted for around 30 per cent of the overall return for the quarter.

A weaker Australian dollar added to the returns from unhedged global shares over the quarter. Over the course of the financial year, however, the Australian dollar rose in value against a range of currencies, detracting from the unhedged performance of both developed and emerging markets shares.

After a poor March quarter, both Australian and global fixed income returns were positive over the quarter. Long-term bond yields declined in the US, UK and Australia while European bond yields rose. Non-government securities outperformed sovereign bonds as credit spreads narrowed.

While the global economy continues to enjoy a solid recovery, the speed and strength of recovery continues to vary across economies depending on the pace of vaccine rollout, the degree to which the virus is under control, the extent of ongoing fiscal and monetary policy support, and exposure to the global trade in manufactured goods, which has experienced a remarkable rebound since May 2020. The Australian economy’s recovery remains stronger than most had anticipated, notwithstanding the impact of periodic lockdowns in different parts of the country in response to renewed outbreaks of COVID-19. The evidence so far is that the 31 March end of the JobKeeper program has had a much smaller impact on employment and unemployment than earlier feared. Leading indicators of employment indicate that the demand for labour remains very strong.

The outlook - what is Sunsuper doing?

Both the Australian and global economies should continue to recover over the course of 2021 and into 2022. While ongoing support from fiscal and monetary policy and the rollout of COVID vaccines are clear positives for the Australian and global economic outlook, periodic setbacks are likely to continue to impact on economic conditions given that a successful and broad-based vaccination program is likely to take considerable time.

Sunsuper’s Dynamic Asset Allocation (DAA) strategy, which is designed to exploit market mispricing across a range of share and bond markets and currencies, made several adjustments to exposures during the quarter in response to significant changes in relative value. Our DAA positioning continues to favour shares over both fixed income and cash. Within our shares exposure both Sunsuper and our international share managers continue to favour European over US shares on relative valuation grounds.

Sunsuper continues to hold a substantial allocation to alternative asset classes, particularly the key unlisted asset classes – property, infrastructure, private equity and private credit. As a large superannuation fund, we have well-diversified portfolios of these assets that deliver strong, long-term returns, while reducing our members’ exposure to share market volatility.

Sunsuper’s alternative strategies team made a number of credit investments over the quarter, including loans to various private companies in the technology and healthcare sectors via a new strategic partnership. In private capital, we provided equity funding to one of our portfolio companies, Barambah Organics, to enable them to acquire Five:am, Australia’s largest organic yoghurt business. Our property team increased our investments in UK self-storage facilities as well as debt and equity investments in European real estate. And in infrastructure, Sunsuper has been announced as a significant investor in Telstra InfraCo Towers, which owns and operates the largest mobile tower network in Australia.

We maintain a significant exposure to foreign currencies. Given the long-standing tendency of the Australian dollar to fall sharply during times of market stress, a higher allocation to foreign currency is a means of providing additional protection to our diversified portfolios in the event of a further major share market correction.

Help to choose your investments

There are a number of Sunsuper investment options that give exposure to a diversified range of asset classes, including both public market and unlisted investments. In fact, Sunsuper offers members a range of 19 investment options to allow you to tailor your investments to your needs.

If you want more information or advice to decide which investment option or group of options best meets your needs, our financial advisers are here to help. Please give Sunsuper a call on 13 11 84.

Past performance is not a reliable indication of future performance. Sunsuper employees provide advice as representatives of Sunsuper Financial Services Pty Ltd (ABN 50 087 154 818 AFSL No. 227867) (SFS), wholly owned by the Sunsuper Superannuation Fund.