Investments

Hi everyone. Welcome to our end of financial year performance update. I’m Mark Delaney – head of the investment team at AustralianSuper.

After more than a decade of growth, in which the Balanced option has delivered an average annual return of 9.3%, the past twelve months have seen considerable volatility in investment markets. This has impacted member balances.

So what’s driving this volatility?

There are a number of reasons – including:

1. Geopolitical tensions
2. Increases in inflation and
3. Rising interest rates

For example - pent-up demand from consumers, supply chain blockages and the war in Ukraine have all contributed to higher prices, especially food and fuel prices.

To curb this rising inflation, central banks have responded by raising interest rates to slow demand.

This has resulted in falls in investment markets.

While you may have seen news headlines about large falls in share markets, it is important to remember that the balanced option is a diversified portfolio, that also invests in fixed interest, cash, infrastructure, property, private equity and credit assets.

Investing in these other asset classes, which are typically less volatile than listed shares, means that portfolio returns are cushioned from the significant volatility we are seeing in share markets.

So while international markets were down 8.1%, for the 12 months to 30 June 2022, the Balanced option has returned -2.7%.

After a long period of positive returns, we understand that it’s hard to see negative returns in your super, especially for members in or near retirement. Given that super is set up as a long-term investment, it’s important to look at returns in a long-term context.

The following chart shows us that over the last 36 years, the Balanced option has had only 4 years of negative returns.

While there can be periods of lower returns, by staying invested you have the opportunity to participate in the growth when there is a market recovery.

The next chart, shows us what this looks like in dollar terms. Over 20 years, $100,000 invested in the Balanced option grew to $453,258 – without additional contributions.

History shows that market downturns and recoveries are to be expected over the lifetime of superannuation investing.

Despite different market events including the Global Financial Crisis and the COVID-19 Pandemic, over the long-term, markets and member balances have recovered and moved higher.

After more than a decade of economic growth, we’re expecting a shift from economic expansion to slowdown in the coming years.

In response, we‘ve shifted the portfolio to a more defensive strategy. This means we’re increasing our investments in fixed interest and reducing our investment in growth assets like listed shares.

As we move through the economic cycle and investment markets respond, we‘ll continue to adjust our asset allocation to manage risk in the portfolio.

As long-term investors, we know that periods of market volatility can create good investment opportunities. We’re actively looking for investment opportunities that may have been mispriced by the market in the short term and to make investments where we see long-term value.

If you’d like to learn more about our outlook for investment markets and what this might mean for your super - join our panel of experts on August the 2^nd.

Registrations for this webinar are now open on our website.