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Investment strategy

By Brian Parker - October 2018

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.

The Sunsuper Balanced option for Super-savings accounts produced a 2.3 per cent return for the September quarter, and 11.0 per cent for the year ended September 2018. Longer term returns remain solid, with the Balanced option posting returns of 10.2 per cent per annum over the last three years and 9.3 per cent per annum over the five years to the end of September. Returns from the major publicly traded asset classes are shown in the table below.

Returns to 30 September 2018 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash – Bloomberg AusBond bank bill index 0.5 1.9 1.9 2.2 3.2
Australian diversified fixed income – Bloomberg AusBond Composite 0 + Yr 0.5 3.7 2.9 4.3 5.6
Global diversified fixed income – Citigroup World BIG hedged into $A -0.2 0.7 3.0 4.6 6.6
Australian listed property – S&P/ASX300 A-REIT Accumulation Index 2.0 13.2 10.3 12.6 6.5
Global listed property – FTSE EPRA/NAREIT Index hedged into A$ 0.4 6.6 8.1 9.5 8.4
Australian shares – S&P/ASX300 Accumulation Index 1.5 14.0 12.2 8.2 7.7
Developed market shares – MSCI World, unhedged in $A 7.3 21.3 13.1 15.7 10.1
Developed market shares - MSCI World, hedged in $A 5.6 13.5 15.3 13.1 11.4
Emerging market shares – MSCI EM, unhedged in A$ 1.1 8.0 11.7 9.5 6.7

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

Share market returns

Share markets in the developed world produced solid returns in the September quarter, underpinned by very strong gains in US and Japanese share prices.
In contrast, emerging market share prices produced only modest returns: good share price gains in Brazil, Russia and Indonesia were offset by losses in China and South Africa.
Unhedged share returns in both the developed and emerging markets were aided by further declines in the Australian dollar during the quarter.
Australian shares underperformed other developed markets over the quarter, but still managed to produce a respectable 1.5 per cent return. About half of that gain can be attributed to the Telecommunications sector, largely due to a sharp rebound in Telstra’s share price. Healthcare and Industrial share prices also made significant positive contributions to performance.
 

Fixed income markets

Australian bonds performed in line with cash over the September quarter, while global bonds produced a slight negative return. Longer-term bond yields rose across the world’s major bond markets. Sovereign bonds tended to underperform corporate and other non-government securities over the quarter, as credit spreads narrowed somewhat after widening earlier in the year. Australian 10-year bond yields continue to trade below US 10-year yields.  

The global economic environment

Despite ongoing trade tensions and challenges in a number of emerging economies, the world economy has continued to grow solidly thus far in 2018, notwithstanding a softer start to the year in a number of key economies. Admittedly, global manufacturing growth and world trade have slowed, but this has been offset by strong services growth.
Labour markets generally continue to improve and wage inflation is (finally) showing signs of acceleration. Despite this, core consumer price inflation it is still below central bank targets in most of the larger developed economies. The US is a key exception, with core inflation (on the Federal Reserve’s preferred measure) reaching 2 per cent during the first half of 2018 for the first time since 2012.
 

The Australian economy

Australia’s economy grew by 0.9 per cent in the June quarter and by 3.4 per cent over the year to June: a marked improvement on 2017. Business surveys show high levels of business activity and reasonable levels of confidence. The pace of jobs growth has eased somewhat in 2018, but remains strong enough to further reduce the amount of spare capacity in the labour market. Wage and price inflation remain subdued: headline CPI inflation moved up to 2.1 per cent in the year to June, but has been below the Reserve Bank’s target range for 13 of the last 15 quarters, and key measures of wages growth have only barely accelerated. We expect the overall economy to remain strong enough to deliver further reductions in unemployment and higher inflation, but neither is likely to be soon enough or fast enough to force the RBA to raise interest rates any time soon. 

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 but still offer relative value compared with traditional listed markets. As such, we continue to find opportunities in unlisted asset classes that offer very attractive medium to long-term returns. During the September quarter we made a number of small investments in our unlisted assets portfolios, but did not make any major asset purchases.
In developed share markets, our managers consider shares in Europe and 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; although over the past two years we have increased our exposure to sovereign bonds as yields became more attractive. 

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.

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.