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Investment strategy

By Brian Parker, October 2020

 

Sunsuper’s Balanced option for Super-savings accounts produced a return of 3.8 per cent for the March quarter and 21.3 per cent over the year to March 2021, largely reflecting the dramatic recovery in world share markets since March 2020. Longer-term returns remain strong, with the Balanced option posting returns of 8.0 per cent p.a. over the last three years, and 8.3 per cent p.a. over the ten years to the end of March. The table below shows returns from the major publicly traded asset classes for periods to the end of March 2021.

 

Returns to 31 March 2021 3 months % 1 year % 3 year % p.a. 5 year % p.a. 10 year % p.a.
Cash (Bloomberg AusBond Bank Bill) 0.00 0.1 1.1 1.4 2.3
Australian Diversified Fixed Interest (Bloomberg AusBond Composite Bond) -3.2 -1.8 4.0 3.5 5.0
Global diversified fixed income (Bloomberg Barclays Global-Aggregate hedged to $A) -2.5 1.1 3.8 3.3 5.5
Australian listed property (S&P/ASX 300 A-REIT Accumulation) -0.6 45.4 7.9 6.0 10.8
Global listed property (FTSE EPRA/NAREIT Developed, hedged to $A) 7.6 30.9 5.4 4.6 8.6
Australian shares (S&P/ASX 300 Accumulation) 4.2 38.3 9.7 10.3 7.9
Developed market shares, in $A unhedged (MSCI World) 6.4 24.4 13.7 14.2 13.9
Developed market shares, hedged to $A (MSCI World) 6.2 49.2 12.6 13.7 12.6
Emerging market shares, in $A unhedged (MSCI EM)  3.7 27.7 7.1 12.7 7.3

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

World share markets enjoyed another very strong quarter, with shares in the Eurozone and Japan outperforming those in the UK and US. While a resurgence in COVID infections in Europe and elsewhere prompted the reimposition of restrictions in some countries, the ongoing vaccine rollout has essentially allowed markets to “look through” the likely short-term disruption to economic activity. The successful passage of President Biden’s $1.9 trillion American Rescue Plan provided a meaningful boost to confidence in both US and global growth prospects.

Emerging markets shares produced positive returns but generally underperformed the developed markets, largely due to negative returns from Chinese shares. A slightly weaker Australian dollar over the quarter resulted in a marginal outperformance by unhedged relative to hedged international shares.

Australian shares performed strongly although underperforming other developed markets. Banks again accounted for the lion’s share of the quarter’s return, while telecommunications and consumer discretionary shares also produced strong gains. The Australian economy’s recovery is well underway. Australia’s GDP rose by a very solid 3.1 per cent in the December quarter to be just 1.1 per cent below its level of a year ago. The impending end of JobKeeper is likely to produce a spike in unemployment, which should prove temporary, given the strength of leading indicators such as ANZ job ads and key business surveys. However, those industries and regions most affected by the absence of international tourism are likely to face ongoing challenges.

Both Australian and global fixed income returns were sharply negative over the quarter. Expectations of higher inflation and growing optimism over prospects for the global economy drove sovereign bond yields higher, despite indications from the world’s major central banks that official interest rates would remain at their current lows for an extended period of time.

What is Sunsuper doing?

We have no way of knowing with any certainty how the post-COVID economic recovery will evolve from here or just how quickly the global vaccine rollout is likely to occur. So far the speed of the vaccine rollout varies greatly across the globe. We do not invest money based on our own, or anyone else’s, short-term economic or market forecasts. While ongoing support from fiscal and monetary policy and the rollout of COVID vaccines are clear positives for the Australian and global economic outlook, periodic setbacks are likely to continue to impact economic conditions given that a successful and broad-based vaccination program is likely to take considerable time.

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 – particularly in times such as these. And we can maintain these exposures as a result of our strong liquidity position.

Sunsuper’s alternative strategies team made a number of credit investments over the quarter, including the provision of debt funding to a Spanish renewable energy company and an Indian cement maker. Our private capital team invested in an Australian provider of software solutions to aged care, disability support and primary healthcare, while disposing of our small stake in Members’ Equity (ME) Bank. In property, we added to our US property debt portfolio, invested in an industrial facility in Houston, Texas, and added to our existing logistics investments in China. In Australia we sold a commercial property in Sydney after receiving an offer that was well above the asset’s carrying value, realising a significant gain for members.

The rise in bond yields and further share market gains over the quarter saw us reduce our overweight exposure to shares and increase our fixed income exposure within our Dynamic Asset Allocation (DAA) strategy. However, we remain of the view that shares offer attractive value relative to bonds and cash where future returns are likely to be very low. Within our shares exposure, both Sunsuper and our international share managers continue to favour European over US shares on relative valuation grounds.

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.