Investment returns in 2018 were more subdued than previous years, with share market falls in the December quarter dragging on overall returns for the PreMixed options and DIY Australian and International Share options for the year. While short-term performance was lower than previous years, long-term historical returns have remained strong.
The Balanced option has delivered strong returns over the past 10 years to 31 December 2018, returning an average of 8.4% p.a. after tax and fees. Historically it has been one of Australia’s top ten funds for long-term performance, and is ranked third in the SuperRatings survey of 50 major super funds for the 10 years to 31 December 2018.*
Despite recent falls in Australian and international share markets, AustralianSuper’s Balanced option delivered a positive return for the calendar year.
The Balanced option returned 1.21% for the year and 7.56% for the three years to 31 December 2018, outperforming the median option in the SuperRatings survey*. The Balanced option ranks in the top five performing options over 3, 5, 10 and 20 years to 31 December 2018.
The Balanced option for Choice Income accounts returned 1.14% for the year and 8.22% for the three years to 31 December 2018, also outperforming the median option and being a top 5 five performing option over 3, 5, and 10 years#.
Investing in a diversified portfolio with a relatively high exposure to unlisted assets benefited member returns, with infrastructure and private equity the best performing asset classes for the year.
|Balanced option - Returns to 31 December 2018|
|1 year (%)||3 years (% pa)||5 years (% pa)||10 years (% pa)|
#SuperRatings Pension Fund Crediting Rate Survey December 2018 – SRP50 Balanced (60-76) Index.
Why all the volatility?
The falls in share markets towards the end of 2018 were due to a combination of factors, which together had a dampening impact on investor confidence.
- Rising US interest rates: The US Federal Reserve (Fed) has been steadily increasing interest rates since March 2015, and investors are worried that this might lead to an economic downturn. The Fed has since signalled it will be patient with the pace of rate rises and may not raise them as much or as quickly as previously thought.
- US/China trade wars: Both the US and China have imposed tariffs on each other’s imports and there are concerns about the impact this will have on the global economy and company profits, particularly in the technology sector – the likes of Facebook, Apple, Amazon, Netflix and Alphabet's Google (FAANGs) have been the market darlings and drivers of growth for the past several years.
- Slowing Chinese economy: Although still higher than developed economies, Chinese economic growth has fallen to its lowest level in three decades.
- Falling Australian house prices. Since their peak in 2017, house prices in Sydney have fallen around 11% and Melbourne prices have fallen around 7%, respectively, mainly due to tighter credit conditions.
- Company earnings: Certain parts of the share market are doing worse than others. In the US, technology stocks like Facebook, Amazon, Netflix and Google have fallen sharply after being up almost 60% for the year to 30 September 2018. Things have also been difficult in Australia, with the fallout from the 2018 Royal Commission impacting the big banks and lower commodity prices hurting mining companies.
What is AustralianSuper doing to protect my returns?
As an active investor, we adjust our portfolios to align with our outlook changes. This approach gives us the flexibility to maintain a diversified portfolio throughout market cycles and increase or lower risk by adjusting the allocation to different assets. Our approach gives us the flexibility to maintain a diversified portfolio throughout market cycles and increase or lower risk by adjusting the allocation to different assets.
While the recent volatility doesn’t appear to be a symptom of a deeper downturn, we’re starting to see signs that we’re nearing the end of the current economic growth cycle. With this in mind and to ensure that we can achieve the best possible long-term outcome for members, we have started to shift to a more defensive strategy in our PreMixed options, as conditions become less supportive of asset classes such as shares.
We’ve been monitoring the situation closely and preparing the portfolio for a more subdued market outlook. By adjusting the allocation to different asset classes, we can help control the level of risk in the portfolio and reduce the impact of volatility on returns.
While we don’t expect shorter-term returns to be as high as they have been in recent years, we’re continuously looking for opportunities to capture growth and maximise long-term returns for members. This is why we continue to stay invested in a broad range of different assets (including shares, infrastructure, property, private equity, credit fixed interest and cash).
What should I do if I’m worried?
The important thing is not to panic.
Market volatility is a normal part of investing. In fact, the Balanced option has a risk of delivering a negative return about five years in every twenty. And yet, this growth cycle has delivered nine financial years in a row of positive returns. A member with $100,000 invested in the Balanced option on 1 January 2009 would have grown their balance to more than $223,000 over the 10 years to 31 December 2018.
Some members think the best thing to do when markets are volatile is to completely sell out of shares and move to cash. Our research shows this strategy can be costly. We find that most members are usually better off sticking with their long-term strategy, providing its right for their goals and circumstances. Read our case study on the hidden costs of switching.
If you’re not sure you’re in the right investment option for your objectives, it can be worthwhile speaking to a financial adviser. An adviser can help you choose the right investment option for your needs. They can also help provide guidance during times of uncertainty so you can stay focused on your long-term plan.
We can put you in touch with a phone-based adviser, or one you can meet in person if you have more complex needs.
Like to know more?
Watch our CIO investment update