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Investment strategy

By Brian Parker - July 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 4.2 per cent for the quarter, and 8.6 per cent for the year to 30 June 2019. Longer-term returns remain solid, with the Balanced option posting returns of 8.9 per cent p.a. over the last five years and 9.1 per cent p.a. over the ten years to the end of June. Returns from the major publicly traded asset classes are shown in the table below.

Returns to 30 June 2019 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash (Bloomberg AusBond Bank Bill) 0.4 2.0 1.9 2.1 3.0
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond) 3.1 9.6 4.2 5.1 6.0
Global Diversified Fixed Interest; hedged to $A (FTSE WorldBIG) 2.8 7.4 3.1 4.8 6.5
Australian listed property (S&P/ASX 300 A-REIT Accumulation) 4.1 19.4 8.4 13.8 14.0
Global listed property (FTSE EPRA/NAREIT Developed; hedged to $A) -0.2 8.7 6.4 8.5 13.8
Australian shares (S&P/ASX 300 Accumulation) 8.0 11.4 12.8 8.9 9.9
Developed market shares, in $A unhedged (MSCI World) 5.5 12.6 14.6 13.8 12.9
Developed market shares, hedged in $A (MSCI World) 3.7 7.0 13.2 9.9 13.9
Emerging market shares, in $A unhedged (MSCI EM)  2.0 7.0 13.3 9.1 7.7

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

Macroeconomic environment

After a decade-long recovery from the GFC-induced recession, the world economy clearly slowed in 2018, and this slowdown has continued into the first half of 2019. We place a low probability on a near-term global recession, largely because the usual triggers are not present: monetary policy settings, financial market and bank lending conditions remain consistent with continued growth. Furthermore, in response to weaker growth and very benign inflation, signals from both the US Federal Reserve and the European Central Bank have turned decidedly more “growth friendly” in recent months.

While we place a low probability on a near-term global recession, there are signs that global growth is likely to weaken further over the second half of the year: China’s economy continues to slow, notwithstanding recent fiscal and monetary steps aimed at boosting the economy; global trade growth has stalled, typified by a sharp slowdown in exports partly due to the US-China trade dispute; and sustained uncertainty over Brexit and its potential impact on growth in both the UK and the Eurozone.

Australian economy 

Here in Australia, the flow of economic news has turned quite negative in 2019, save for some signs of renewed optimism following the election. House prices have continued to decline, and leading indicators of housing activity (most notably a sharp fall in residential building approvals) suggest that while there remains a good deal of residential building activity in the pipeline, activity levels are likely to decline over the next two years or so. Retail sales have mostly been very subdued. And job ads have fallen substantially since the end of 2018. Despite these factors, there remain reasons for optimism: export volumes, public spending and business investment should still contribute solidly to growth over the coming year or so.

A challenged global environment and the string of weaker domestic economic news prompted the Reserve Bank of Australia (RBA) to revise its growth, wages and CPI inflation forecasts lower, and reduce official interest rates in June and July.

Share market returns

World share markets rebounded from December lows, more than recouping their losses from the final quarter of 2018 in a half year of superlatives for many developed markets. Over the half year, share markets in the US, UK and Eurozone enjoyed solid double-digit returns, with some markets posting record setting quarters. On the other hand, emerging markets lagged developed markets. While most emerging share markets enjoyed positive returns over the quarter, share prices declined sharply in China and Korea as trade tensions weighed on sentiment.

The Australian share market was one of the best performing developed markets. Australia was a beneficiary of rising iron ore prices and the RBA’s moves to ease monetary policy, and was somewhat insulated from US-China trade dispute.
The Australian dollar moved slightly lower over the quarter, causing unhedged overseas equity market returns to outperform hedged overseas shares.  

Fixed income markets

Both Australian and global bonds significantly outperformed cash during the June quarter with Australian bonds performing particularly strongly. Longer-term bond yields continued to fall across the world’s major bond markets, as the world’s major central banks signalled a willingness to ease monetary policy. Credit spreads generally continued to narrow during the June quarter, leading to sovereign bonds underperforming corporate and other non-government securities.

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, we made a number of small investments in our unlisted assets portfolios, but did not make any major asset purchases. In addition, we sold our exposure to US self-storage assets, realising substantial gains for Sunsuper members.

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 modest.

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.