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Investment strategy

By Brian Parker - January 2020

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 2.5 per cent for the quarter, and 15.5 per cent for the year to 31 December 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 8.3 per cent p.a. over the ten years to the end of December. Returns from the major publicly traded asset classes are shown in the table below.

Returns to 31 December 2019 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash (Bloomberg AusBond Bank Bill) 0.2 1.5 1.7 1.9 2.9
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond) -1.3 7.3 5.1 4.2 5.7
Global Diversified Fixed Interest, hedged to $A (FTSE WorldBIG) -0.9 7.4 4.1 4.2 6.2
Australian listed property (S&P/ASX 300 A-REIT Accumulation) -0.7 19.6 9.5 11.2 11.6
Global listed property (FTSE EPRA/NAREIT Developed, hedged to $A) 0.8 22.3 9.0 7.8 11.6
Australian shares (S&P/ASX 300 Accumulation) 0.7 23.8 10.3 9.1 7.8
Developed market shares, in $A unhedged (MSCI World) 4.3 28.6 14.3 12.7 12.8
Developed market shares, hedged to $A (MSCI World) 7.4 27.4 12.6 10.6 12.7
Emerging market shares, in $A unhedged (MSCI EM)  7.4 19.1 13.1 9.3 6.6

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

Share markets in the developed world produced very good returns in the final quarter of 2019 and over the year, with shares in the US outperforming those in Japan and the Eurozone. Australian shares also performed solidly: over the quarter strong gains in healthcare and mining shares more than offset significant declines in bank share prices. Emerging share markets outperformed those of the developed world, with Hong Kong listed Chinese shares as well as shares in Russia, Brazil and Korea among the best performers. The Australian dollar recovered some lost ground over the quarter, detracting from the performance of unhedged global shares.

After falling to extraordinarily low levels in the September quarter, bond yields in most major markets rose significantly in the final months of 2019, resulting in negative returns for Australian and global fixed income investors. This was despite a further reduction on official interest rates from the US Federal Reserve, and inflation rates in most economies that remain below policy objectives. Non-government bonds significantly outperformed sovereign bonds. Fixed income returns for the calendar year were nevertheless very solid, and well in excess of cash returns.

The strong performance of world share markets and the rise in global bond yields reflects a significant easing in several concerns that have weighed heavily on market sentiment. US and Chinese trade negotiators reported progress towards a preliminary trade deal. In the UK, a decisive election victory by Prime Minister Boris Johnson’s Conservative party ensured the passage through Parliament of a Brexit agreement with the European Union. And after slowing significantly over the past year or more, early signs have emerged that the world economy may be starting to stabilise. In particular, the worst of the downturn in global manufacturing may well be behind us.

Here in Australia, economic growth remains below the economy’s growth potential, and inflation remains below the Reserve Bank’s target range. The Bank’s preferred underlying measure of inflation has now been below 2 per cent for 15 consecutive quarters. 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 grew only marginally in the September quarter, despite income tax cuts boosting disposable income. And while house prices have begun to recover, housing activity continues to decline, and leading indicators such as building and home loan approvals point to further weakness in activity. 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. In October, the Reserve Bank moved to reduce the cash rate by a further 0.25 per cent to an historic low of 0.75 per cent, noting that an extended period of low interest rates would likely be required to achieve its policy objectives. 

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. While prospective returns in unlisted and alternative assets have come down, 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 secured an investment in a large North American port container terminal, while our Hedge Funds and Alternative Strategy team continues to find good asset backed private credit opportunities in real estate, energy and transportation sectors.

In developed share markets, our managers consider shares in Asia (excluding Japan) more attractive than in the US and Japan, where finding value remains more challenging. Our fixed income portfolios continue to favour higher quality corporate bonds over sovereign bonds. Notwithstanding the rise in yields over recent months, yields remain historically low suggesting that future returns are likely to be poor.

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, speak with your financial adviser or get some advice through Sunsuper. Our financial advisers at Sunsuper are here to help, and you can give us 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.