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Investment strategy

By Brian Parker, July 2020

 

Sunsuper’s Balanced option for Super-savings accounts produced a return of 6.6 per cent for the June quarter. However, for the financial year ended June 2020 the Balanced option lost 1.7 per cent, the first negative financial year return since 2012. Longer-term returns remain solid, with the Balanced option posting returns of 6.5 per cent p.a. over the last five years, and 8.0 per cent p.a. over the ten years to the end of June. The table below shows returns from the major publicly traded asset classes for periods to the end of June 2020.

 

Returns to 30 June 2020 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash (Bloomberg AusBond Bank Bill) 0.1 0.8 1.5 1.7 2.7
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond) 0.5 4.2 5.6 4.8 5.6
Global Diversified Fixed Interest, hedged to $A (FTSE WorldBIG) 2.3 5.7 4.9 4.8 6.0
Australian listed property (S&P/ASX 300 A-REIT Accumulation) 20.2 -20.7 2.3 4.7 9.4
Global listed property (FTSE EPRA/NAREIT Developed, hedged to $A) 8.8 -16.8 -1.0 2.6 9.0
Australian shares (S&P/ASX 300 Accumulation) 16.8 -7.6 5.2 6.0 7.7
Developed market shares, in $A unhedged (MSCI World) 6.3 5.4 11.2 9.9 12.9
Developed market shares, hedged to $A (MSCI World) 17.9 1.6 6.8 7.9 12.5
Emerging market shares, in $A unhedged (MSCI EM)  5.1 -1.2 6.0 5.5 5.8

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

Aggressive efforts to contain the spread of the COVID-19 virus and to mitigate the economic impact of the outbreak have raised hopes for an early end to the crisis and a recovery in the global economy.

After falling dramatically during March, world share markets staged a similarly dramatic recovery during the June quarter, although major share market indices generally remain below their pre-COVID-19 levels. US and German shares produced the strongest gains over the quarter, while Japanese and UK shares underperformed. After falling against a range of currencies in the March quarter, the Australian dollar rose in value in the June quarter, detracting from the returns of unhedged international shares. Emerging share markets, while also enjoying positive returns for the quarter, generally underperformed returns in the major developed markets. The Australian share market also regained a good deal of lost ground. All major industry sectors delivered solid returns with IT, consumer discretionary, energy and materials shares delivering the strongest gains.

After their very strong performance in the March quarter, fixed income returns moderated over recent months. Non-government bonds performed well after a sharp sell-off during the worst of the COVID-19 crisis and the “safe haven” demand for sovereign bonds eased considerably as share markets rebounded. Central banks around the world continue to adopt extraordinary monetary policy measures to support the post-COVID-19 recovery, with official interest rates at, close to or even below zero and massive injections of liquidity into financial markets. Here in Australia, the Reserve Bank has clearly signalled its intention to keep its official cash rate at the historic low of 0.25 per cent for several years and to continue targeting the 3-year government bond yield at a level of 0.25 per cent in an effort to put downward pressure on lending rates for businesses and households.

The speed and depth of the downturn in economic activity in most economies over recent months is without modern historical precedent. Measures to contain the virus’ spread have forced the shutdown of businesses, restricted movement and reduced the ability of firms to supply goods and services. At the same time, these same measures have also cut demand: both by reducing household and business incomes and restricting the access to goods and services. Beyond these direct impacts, the impacts on consumer and business confidence have been severe, with potentially longer lasting implications for spending behaviour.

While the response of health authorities has varied across countries, so too has the size and nature of the economic policy responses. The economic policy response has aimed to provide enough financial support to households and businesses to allow sufficient time for the virus to be contained and create a platform for a robust economic recovery post-containment. Containment efforts in a range of economies have proven successful and allowed a degree of “re-opening” to occur, and recent economic data, including some key global business surveys, are consistent with an emerging global recovery. Here in Australia, while labour market conditions remain very severe, policy efforts – most notably, the government’s JobKeeper program – have meant that the falls in employment and the rise in unemployment have been smaller than initially feared.

However, renewed COVID-19 outbreaks in a number of US states, in parts of Europe and here in Australia are a timely reminder that durability of the economic recovery remains highly dependent on COVID-19 containment efforts.   

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. 

However, crises do tend to provide investment opportunities. During March and April we took steps to increase our exposure to Australian and international shares as falling share prices and sharply lower interest rates greatly improved the relative of value of shares relative to bonds and cash. As share markets recovered we reduced that exposure somewhat, realising meaningful profits for members. 

We were able to provide liquidity to our investment managers to enable them to participate on Sunsuper’s behalf in a series of capital raisings by Australian listed companies. These have resulted in significant gains for Sunsuper members.

And the severe dislocation in private credit and corporate bond markets in the US and elsewhere has allowed us to selectively acquire assets in our alternative strategies and fixed income portfolios.

Sunsuper continues to hold a significant 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. 

In the current environment some assets are likely to be more affected (e.g. airports and shopping centres) than others (e.g. gas and electricity networks and logistics warehouses) by what has been a sharp downturn in the business cycle. After moving to reduce the value of our unlisted assets during the March quarter, no significant valuation adjustments have been required during the June quarter. And we have been able to maintain our allocations despite an increase in members’ demands for liquidity: initially from members switching activity and more recently from the government’s decision to allow the early release of superannuation for members adversely impacted by the COVID-19 outbreak.

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 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.

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.