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Investment strategy

By Brian Parker, October 2021

 

Sunsuper’s Balanced option for Super-savings accounts produced a return of 2.4 per cent for September quarter and 21.3 per cent over the year to September 2021. Longer-term returns remain strong, with the Balanced option posting returns of 8.8 per cent p.a. over the last three years, and 9.9 per cent p.a. over the ten years to the end of September 2021. The table below shows returns from the major publicly traded asset classes for periods to the end of September 2021.

 

Returns to 30 September 2021 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash (Bloomberg AusBond Bank Bill) 0.00 0.0 0.8 1.2 2.1
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond) 0.3 -1.5 4.1 3.1 4.5
Global diversified fixed income (Bloomberg Barclays Global-Aggregate hedged to $A) 0.1 -0.8 4.1 2.7 4.8
Australian listed property (S&P/ASX 300 A-REIT Accumulation) 4.8 30.7 9.2 7.7 13.5
Global listed property (FTSE EPRA/NAREIT Developed, hedged to $A) 0.0 30.3 5.8 5.3 11.1
Australian shares (S&P/ASX 300 Accumulation) 1.8 30.9 9.9 10.5 10.8
Developed market shares, in $A unhedged (MSCI World) 4.0 28.4 13.8 15.7 16.7
Developed market shares, hedged to $A (MSCI World) 0.7 28.8 12.2 14.0 15.2
Emerging market shares, in $A unhedged (MSCI EM)  -4.4 17.7 9.0 10.9 9.7

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

Share markets in the developed world mostly produced positive returns over the quarter, with Japanese shares outperforming those in the US and Europe. However, share prices in Europe and the US declined in September. This reflected a range of factors: a loss of global growth momentum; rising bond yields; ongoing US budget negotiations and the risk of government shutdown; tensions between China and Taiwan; and concerns over the health of the Chinese property market as Evergrande, one of China’s largest real estate companies, teetered on the verge of collapse. Chinese property market concerns also weighed on sentiment in the emerging share markets which produced negative returns over the quarter. Strong share price gains in India, selected eastern European markets and key oil producing countries were more than offset by steep declines in Chinese share prices, as well as losses in Brazil, Peru and Korea.

A weaker Australian dollar added to the returns from both developed and emerging markets shares over the September quarter. Over the course of the year to September; however, the Australian dollar rose in value against developed market currencies, modestly detracting from the unhedged performance of developed market shares. In contrast, the performance of unhedged emerging markets shares was boosted slightly by a weaker Australian dollar against key emerging markets currencies.

The Australian share market enjoyed a solid quarter despite Chinese growth concerns and sharply lower iron ore prices weighing heavily on the materials sector. All other industry sectors posted positive returns with energy, industrials and communications services enjoying the strongest gains.

Australian fixed income outperformed global bond markets over the quarter as long-term Australian yields fell modestly while yields rose across the major world bond markets. Monetary policy remains extraordinarily easy across the world. However, a number of the world’s central banks, including the US Federal Reserve and the Bank of England, seem set to begin unwinding their COVID-era policy settings while signalling their intention to raise official interest rates within the next year or two. While the Reserve Bank of Australia has reduced the size of its bond purchase program, the Bank continues to signal that interest rates here will remain on hold until 2024.

The global economy is enjoying a solid recovery, despite some loss of momentum in recent months and the ongoing pressures on global supply chains. The rollout of vaccines continues, although the pace continues to vary across countries, with large swathes of the emerging and developed world continuing to lag. In the developed economies the vaccine rollout has enabled COVID restrictions on economic activity to be largely eliminated even if the virus has not.

Here in Australia, lockdowns in NSW and Victoria resulted in sharp falls in output and employment during the September quarter bringing to an abrupt end a period of much stronger than anticipated growth. The imminent relaxation of restrictions should allow economic activity in both states to recover in the December quarter.

The Outlook – what is Sunsuper doing?

Both the global and Australian economies are likely to grow strongly in 2022. Even as economic policy settings become less expansionary, private sector activity is likely to remain resilient: high rates of household saving are likely to decline and spending rates increase as vaccines continue to be rolled out across the world.

Sunsuper’s Dynamic Asset Allocation (DAA) strategy continues to favour shares over both fixed income and cash, although our overweight exposure to shares has reduced over the past year as share prices rose sharply and bond yields increased. Within our shares exposure both Sunsuper and our international share managers continue to favour European over US shares on relative valuation grounds.

In fixed income, Sunsuper has made significant changes to our portfolio designed to provide somewhat higher level of income, stronger defensive characteristics as well as high levels of liquidity and diversification. In particular, our government bond holdings will largely focus on investments in US and Australian government securities rather than markets where yields may be either close to zero or negative.

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.

Sunsuper’s alternative strategies team committed to several direct lending opportunities over the quarter, as well as some potential distressed debt opportunities in Australia. Our property team acquired a stake in a logistics facility in the US state of Georgia and made an additional investment in the Discovery Parks network, to enable the business to fund development and acquisition opportunities over the coming year. And our private capital managers have taken advantage of very strong market conditions to agree to transactions realising significant profits for members. These include: AutoStore, a Norwegian designer and manufacturer of automated storage and retrieval systems; and Perimeter Solutions, the US based global leader in the development and manufacture of fire retardants and other firefighting products.

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.