2019 is shaping up to be another year of strong returns for the Fund, with Australian and international share markets contributing significantly to member returns. Our diversified strategy, which includes infrastructure, property, private equity and fixed interest, has helped smooth returns during bouts of heightened volatility throughout the year.
Members benefit from strong returns
AustralianSuper investment options have provided positive returns over 2019 despite on-going market volatility. Positive returns were supported by the Fund’s diversified investment approach, strong investment markets and monetary policies aimed at boosting growth in consumer and business spending.
Looking at the 12 months to November 2019, AustralianSuper’s Balanced option delivered a return of 15.45% and the Choice Income Balanced option a return of 16.95%. The Balanced option remains a top performer among comparative super funds.
|Balanced option||Choice Income Balanced option|
|1 year % pa||15.45||16.95|
|3 year % pa||11.13||12.11|
|5 years % pa||9.61||10.53|
|10 years % pa||9.43||10.49|
So far during 2019, Australian and international shares provided a significant contribution to the returns of the Balanced option. The increased allocation to fixed interest as well as improved returns from decreasing interest rates, also provided a positive contribution to performance. Returns from unlisted assets were also positive contributors, with Infrastructure, Property and Private Equity helping to lift performance.
What’s been driving the market volatility in 2019?
A number of factors have contributed to the volatility in investment markets, including:
- A slowing Australian economy.
- On-going uncertainties around the Brexit deal.
- Escalating and de-escalating trade tensions between the US and China.
- Geopolitical tensions including drone strikes on Saudi Aramco oil facilities and the on-going riots in Hong Kong.
- The announcement of an impeachment inquiry into President Trump’s interactions with the Ukraine.
- Slowing US and European economies.
- Central banks introducing monetary policies aimed at increasing economic activity and lifting both consumer and business confidence.
Moving forward, we expect that the Australian economy will stay under pressure supporting the case for infrastructure spending and long-term low interest rates.
On a global level, the unresolved geopolitical and trade events, along with weakening economic conditions, have the potential to negatively impact market returns.
AustralianSuper is taking measures to manage the impacts of volatility
AustralianSuper’s investments team will continue to monitor market movements as well as the actions of policy makers and central banks and adjust the Fund’s investment strategy and portfolio positions to maximise long-term returns for members.
Weakening Australian and global economic conditions as well as continued instability in global markets, stemming from geopolitical and trade tensions, lead the Fund to remain cautious and maintain a more defensive portfolio position.
Here are the main changes the investment team have made to the PreMixed options to reduce the impact of market volatility while continuing to seek long-term opportunities to provide value to members:
- We continue to hold a neutral position to shares and favour international over Australian shares. We also favour private equity assets given their potential to deliver stronger returns compared to shares over the long-term.
- We have a higher weighting in fixed interest given the weaker economic outlook, expected rate cuts and continuing low inflation. Longer term bonds are preferred over cash as these provide a higher return in the low interest rate environment.
- We continue to favour infrastructure assets in our unlisted assets portfolio. With interest rates likely to stay low for some time and listed markets facing pressure, we are looking for additional global opportunities. Infrastructure assets are expected to benefit member returns in the current environment.
What should members do about market volatility?
Market volatility is a normal part of investing, so it’s important to stay focused on your long-term investment strategy.
While it might seem like the best thing to do when markets are volatile is to sell out of shares and move to cash, AustralianSuper research1 shows that this strategy could be costly. Most people are usually better off sticking with their long-term investment strategy, providing its right for their personal objectives, situation or needs.
If you’re not sure you’re in the right investment option for your long-term retirement objectives, it could 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.
Taking control of your super can start with the simple step of understanding your contribution options or downloading the AustralianSuper app.
Investments Q&A with Mark Delaney
Mark Delaney is an investment specialist with over 30 years of experience. In the August investment Q & A Mark discusses what's been driving investment markets, the investment outlook, and how AustralianSuper members can prepare. Guided by one of the fund's Environmental, Social and Governance (ESG) experts, Mark touches on risks such as the US/China Trade war, other geopolitical risks, what the low interest rate situation means for investment returns and what the next 10 years looks like.
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Sandra Silea: Hey, Mark.
Mark Delaney: Hi, Sandra.
Sandra Silea: To start off, Australian Super has been a consistently top performing fund.
Mark Delaney: The last 10 years have been really good.
The Balanced plan is at a 9.8% per annum, over the 10 year period, and is number 1 ranked in most of the surveys, but the most important thing about that is, it's really built members' retirement savings.
If a person had $50,000 invested in the Balanced plan 10 years ago, they'll now have over $126,000. It's an enormous amount of money being created.
Now, how has that happened? It's happened because share markets, and infrastructure and property markets have been very strong, so over that period, it's been a very good time to be invested.
The irony being, there's a lot of worries during this period after the financial crisis, and people were cautious.
Being overly cautious actually cost people money, in terms of building their retirement savings, so we invested in those strong growth assets, and the portfolio made a lot of money.
Sandra Silea: There seems to be a lot of negative news lately. The US, China trade conflict, falling house prices in Australia, and stagnating global growth, yet share markets keep reaching all-time highs.
What do you see at the major risk going forward, and how are you managing them at AustralianSuper?
Mark Delaney: It's rare that the newspapers, well, the financial press, reports positive news is the first point, so there's always negative news, and there's always events, which are occurring over time.
Sometimes, this negative news results in the share markets falling, and returns coming off, and sometimes it doesn't.
If you look at the current environment, I think that there's more reasons to be a bit more concerned than what we've been historically.
This trade conflict is an issue, which they're working their way through, but hard to see an easy resolution from it and central banks are having to cut interest rates very early in the downturn in the cycle, and that doesn't necessarily bode well for things in the longer-term.
Sandra Silea: So, you've been investing for more than 3 decades now.
Mark Delaney: I started really young.
Sandra Silea: That's right, and during that time, I'm certain you've seen your share of market ups and downs.
What would you say to members who might be concerned about their investment outlooks, particularly those who are currently in, or about to enter retirement?
Mark Delaney: 30 years is a long time to be invested, and I've seen things like the Japanese share market crash, the great share market crash of 1987, the property market bust, financial crisis, and they're terrifying at the time, but all these things now, are just headlines to people who look back 20 years ago.
They're just headlines, and life moves on.
If you're investing for the long-term, you're going to have events like this, because that's what life is, but the long-term smooths all those things out, and you build long-term savings.
If you're close to retirement, you still require a long investment horizon you can use. You might be 20, or 30 years on investment horizon.
That's a very long time, and a lot of those things will accrue, and wash out over that period.
Sandra Silea: It's a good thing to keep in mind, obviously.
The pace of change in the world, over the last 10 years has been staggering as well. You've remarked to some of those events as well. What do you see as the major themes driving investment markets, going forward, and what does that mean for investment outcomes?
Mark Delaney: The major things that always drives investment outcomes is, where you are on the economic cycle.
At the bottom of the economic cycle, or things where the news if very grim, is always the best time to invest, because those things pick up for a long time.
When things are looking really good economically, and unemployment's down very low, and things have improved a lot, is often a time to be more cautious, because markets look forward and anticipate how things are going to evolve.
At the current time, we're toward the end of an economic cycle, so we need to keep that in mind.
There's also these structural things, which are taking place.
There's probably three structural elements.
The first one is, the interest rates are now, really low.
No one would believe interest rates in Australia are 1%. No one would think that's normal, or realistic. In Europe, they're negative.
How can that be?
You have to pay the bank to take your money.
Think about that, pay the bank, to take your money, and so low interest rates are one of the first big themes.
The second big theme is, we've had this world of multilateral trading, whereby the supply chain between the US and China, and China and Europe were heavily interdependent.
Now, with the trade dispute, they're all being unwound, and we're moving to what I call a super-regional world, whereby China will have its own block, the US will have its own block, and Europe will have its own block, so no longer an overarching view of how the world is.
Companies who benefited from the previous regime of greater global integration will maybe be penalized in the new world.
The third theme, which is different I think, is the fact that governments are taking a much more active role in the world.
You can see the way they've taken place around financial services, around trade, even now, around communication and technology companies.
Governments are far more active in terms of setting policy, and creating things.
That's a really, a step back from where they were with the deregulations unit, which operated for much of the previous 30 years.
Sandra Silea: Going back to your first theme, and this low interest rate environment, what does this mean for returns going forward, especially for members who like to put their money in income-producing assets?
Mark Delaney: Oh, that's challenging, that's challenging. It's challenging for anybody in that case.
We'd like to say you'd need to earn about inflation plus 4% in the long run, to build a retirement savings.
Now that these fixed income returns are earning less than inflation, that's going to be very hard to build a large retirement balance, so you're going to have, to have money invested in investments other than fixed income, to build retirement balances, so you'll have to have unlisted assets, like property, or infrastructure, or even shares.
Sandra Silea: Well, it's good to diversify, and I guess that's the mantra of AustralianSuper, isn't it?
Mark Delaney: Yeah. Diversification matters.
The purpose of diversification is really to smooth out the volatility, the ups and downs of the markets.
The idea being that, when something goes up, another thing may go down, and offset each other partially.
That idea of having a portfolio where we've got property, and infrastructure, and bonds, and corporate debt, and shares, and overseas shares, and technology stocks and whatever, gives a person a fairly big exposure, without betting all on the one thing.
Sandra Silea: What does the next 10 years look like for AustralianSuper?
Mark Delaney: It's something we always wonder about, because investments is always about looking out into the future, and wondering what it's going to be.
We're currently managing about $160, to $170 billion in members' assets.
In 10 years' time, that could be a much larger sum, and so we have to build investment capability, to be able to do that.
Two things we're really doing, the first one is, we're moving to having a big ... a global footprint, as we have more money invested overseas.
The second thing we're doing is, to invest more in private markets, and more in direct transaction, because we think they're going to provide the opportunity to get extra returns, which are going to be hard to find in this low interest rate environment.
Sandra Silea: That's fabulous. Thank you so much for your time, Mark.
Mark Delaney: Thank you, Sandra.
Sandra Silea: Thank you.
1. Empirics measured the impact of switching
between June 2015 and September 2016 for AustralianSuper members. Consider your personal circumstances, needs and
objectives before making financial decisions. Consider your personal circumstances, needs and objectives before making financial decisions.