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Investment strategy

By Brian Parker - October 2019

Sunsuper Chief Economist Brian Parker explains what’s happening around the world and at home, where markets are heading and what it all means for your super investment.

Sunsuper’s Balanced option for Super-savings accounts returned 2.0 per cent for the quarter, and 8.2 per cent for the year to 30 September 2019. Longer-term returns remain strong, with the Balanced option posting returns of 9.0 per cent p.a. over the last five years and 8.4 per cent p.a. over the ten years to the end of September. Returns from the major publicly traded asset classes are shown in the table below. 

Returns to 30 September 2019 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash (Bloomberg AusBond Bank Bill) 0.3 1.7 1.8 2.0 2.9
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond) 2.0 11.1 4.6 5.3 6.0
Global Diversified Fixed Interest; hedged to $A (FTSE WorldBIG) 2.5 10.2 3.6 4.9 6.4
Australian listed property (S&P/ASX 300 A-REIT Accumulation) 1.1 18.4 9.5 13.8 11.1
Global listed property (FTSE EPRA/NAREIT Developed; hedged to $A) 5.9 14.6 7.9 10.0 12.1
Australian shares (S&P/ASX 300 Accumulation) 2.6 12.6 11.9  9.5 8.0
Developed market shares, in $A unhedged (MSCI World) 4.7 9.9 15.6 13.6 12.6
Developed market shares, hedged in $A (MSCI World) 1.5 2.8 11.9 9.9 12.4
Emerging market shares, in $A unhedged (MSCI EM)  -0.2 5.5 10.9 8.2 6.6

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

Share and fixed Income market returns

Share prices in the developed world rose over the September quarter, with shares in Japan and the Eurozone outperforming gains in US shares. Australian shares also performed solidly: strong performances from banks, consumer staples and healthcare shares more than offset losses in the mining sector. In contrast, emerging markets shares mostly lost ground during the quarter, as ongoing trade tensions and weaker commodity prices weighed on market sentiment. Hong Kong-listed Chinese shares and shares in India, South Africa and Korea were the largest detractors from performance, partly offset by strong returns in Taiwan and Brazil. The Australian dollar weakened significantly over the quarter and over the year to September, providing a significant boost to the performance of unhedged relative to hedged global shares, and partly offsetting losses in emerging markets shares over the quarter.

Despite losing some ground in the month of September, both Australian and global fixed income markets performed very strongly over the quarter and generated double-digit returns over the year to September. Bond yields have declined to extraordinarily low levels, with bonds in Japan and several major European markets trading at negative yields. 

Macroeconomic environment

While reported economic growth has held up better than expected over recent months, the global economy has continued to slow, and key business surveys point to a further slowdown over the coming months. Economic conditions in the US continue to fare better than in either the Eurozone or Japan. Manufacturing conditions remain weak, particularly in Germany and other economies whose manufacturing industries depend heavily on exports and business investment. Trade tensions remain a drag on global growth, both directly through weaker exports and indirectly through weaker business confidence and spending. Brexit uncertainty continues to weigh heavily on the outlook for the UK and Eurozone economies. It remains decidedly unclear as to whether any Brexit agreement can be reached before the end October deadline. More positively: indicators of services activity remain relatively healthy; consumer spending continues to be supported by reasonably healthy labour markets and rising household income; financial conditions remain broadly supportive of continued economic growth; and the US Federal Reserve and the European Central Bank have taken advantage of very benign inflation to ease monetary policy further.

Australian economy 

Here in Australia, economic growth remains below the economy’s growth potential, and inflation remains below the Reserve Bank’s target range. While overall growth continues to be supported by significant growth in public consumption and investment, and by very strong export growth, domestic spending growth has been very anaemic. Household spending remains constrained by modest income growth. And while house prices have begun to recover, housing activity continues to decline. Business and consumer confidence surveys have weakened considerably in recent months. Despite solid gains in employment, indicators of both unemployment and under employment have risen, casting doubt over the economy’s ability to generate faster wages growth, prompting the Reserve Bank to further reduce official interest rates. 

What is Sunsuper doing?

We view the diversification benefits provided by unlisted assets as well as carefully selected hedge funds and alternative strategies as very attractive. Prospective returns in unlisted and alternative assets have come down. However, we continue to find opportunities in these asset classes that offer very attractive medium to long-term returns. Over recent months, our Private Markets team acquired a significant stake in Land Services WA, the exclusive provider of certain property title and registration services in Western Australia, and made a number of smaller investments in our unlisted assets portfolios. Our Hedge Fund and Alternative Strategies team sold a portion of our investment in the Tel Aviv Stock Exchange which floated during the quarter; allowing us to realise substantial gains for Sunsuper members while remaining a significant shareholder in the company. 

Our asset allocation has favoured unhedged international shares since early 2018, a position which has benefitted considerably from the decline in the Australian dollar. In developed share markets, our managers consider shares in Asia more attractive than in the US, where finding value remains more challenging. Our fixed income portfolios continue to favour higher quality corporate bonds over sovereign bonds. Declining yields over recent months suggest that future bond returns are likely to be very low. 

Help to choose your investments

There are a number of Sunsuper 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 20 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.
You can view more details about our Socially Conscious Balanced investment option on our website. 

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.