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Investment strategy

By Brian Parker, January 2021

 

Sunsuper’s Balanced option for Super-savings accounts produced a return of 7.6 per cent for the December quarter and 3.1 per cent over the year to December 2020. Longer-term returns remain strong, with the Balanced option posting returns of 6.7 per cent p.a. over the last three years, and 8.2 per cent p.a. over the ten years to the end of December. The table below shows returns from the major publicly traded asset classes for periods to the end of December 2020.

 

Returns to 31 December 2020 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash (Bloomberg AusBond Bank Bill) 0.02 0.4 1.3 1.5 2.4
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond) -0.1 4.5 5.4 4.6 5.6
Global Diversified Fixed Interest, hedged to $A (FTSE WorldBIG) 0.8 5.1 4.6 4.6 5.9
Australian listed property (S&P/ASX 300 A-REIT Accumulation) 13.2 -4.0 5.8 7.4 11.3
Global listed property (FTSE EPRA/NAREIT Developed, hedged to $A) 10.8 -12.9 1.1 3.8 8.1
Australian shares (S&P/ASX 300 Accumulation) 13.8 1.7 6.9 8.8 7.7
Developed market shares, in $A unhedged (MSCI World) 6.0 6.1 11.6 11.5 13.7
Developed market shares, hedged to $A (MSCI World) 11.9 10.9 9.6 12.0 12.4
Emerging market shares, in $A unhedged (MSCI EM)  11.3 8.1 7.0 11.9 7.0

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

World share markets enjoyed very strong returns over the quarter. The successful development and impending distribution of COVID-19 vaccines as well as a positive response to the US election outweighed concerns over rising COVID infection rates in the US, UK and Europe and delays in achieving a Brexit trade deal. Brexit concerns weighed on UK shares over much of the quarter until the successful conclusion of a UK-EU trade deal with only days to spare. Sharply higher iron ore prices helped drive the Australian dollar higher over the quarter, detracting from the performance of unhedged international shares.

Australian shares also performed strongly, with cyclical sectors significantly outperforming more defensive sectors such as healthcare and utilities, which posted small losses over the quarter. Banks and mining shares accounted for over half of the Australian market’s 13.8 per cent return for the quarter.

Australian and global fixed income returns benefitted from a further recovery in non-government bonds as credit spreads continued to narrow over the quarter. Central banks around the world continue to adopt extraordinary monetary policy measures to support the post-COVID-19 recovery, with official interest rates remaining close to or even below zero and massive injections of liquidity into financial markets. In November, the Reserve Bank of Australia reduced its cash rate and three-year yield target to just 0.1% from 0.25% and introduced a $100 billion program of government bond purchases.

What is Sunsuper doing?

We have no way of knowing with any certainty how the COVID-19 outbreak will evolve from here, or how the economy and financial markets will evolve over the course of this year. We do not invest money based on our own, or anyone else’s short-term economic or market forecasts. While ongoing support from fiscal and monetary policy and the impending roll-out of COVID vaccines are clear positives for the Australian and global economic outlook, periodic outbreaks of the virus 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 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 – particularly in times such as these. And we can maintain these exposures as a result of our strong liquidity position, which has also enabled us to comfortably meet our members’ demands for liquidity under the government’s now completed Early Release of Superannuation (ERS) program.

Sunsuper’s alternative strategies team made a number of private credit related investments over the quarter, continuing to take advantage of COVID-19 related opportunities. Our private capital team made a number of investments in US IT services, a Chinese online K-12 tutoring company and a US online training provider for real estate professionals. In property, we acquired an equity stake in a UK self-storage platform, a US logistics centre and increased our exposure to Australian industrial property. Sunsuper’s infrastructure team increased our exposure to data centres in the Asia Pacific region and acquired a stake in a US communications network provider. In addition, we entered into an agreement to sell our stake in a Finnish electricity distribution business at a premium above its carrying value, delivering solid gains for Sunsuper members. We expect the transaction to complete early in 2021.

While our share and bond allocations are little changed over the quarter, we took advantage of market volatility around the US elections to adjust our allocations in response to significant changes in relative value. We remain of the view that shares offer very attractive value relative to bonds and cash where future returns are likely to be very low. Within our shares exposure, both Sunsuper and our international share managers continue to favour European over US shares on relative valuation grounds.

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.