Members: How has your super been impacted?
So far this financial year, the Balanced option (where most members invest) has delivered a negative return of minus 1.1% (from 1 July to 31 May 2020). While history tells us we can expect a negative return about once every 4 to 5 years, this financial year is likely to be the first negative return for the Balanced option in the last 11 years – since the GFC period.
It’s important to remember that returns reflect the performance of each asset class and their underlying investments. The defensive characteristics of cash, fixed income, and unlisted assets have provided some protection to members’ returns when sharemarkets performed poorly throughout March. On the flipside, investments in shares have largely been responsible for the improved returns experienced in April and May (and the strong growth over the previous 10 years).
What’s happening in sharemarkets?
The recent swings in sharemarkets have been large in both directions:
- March quarter: The Australian sharemarket fell 23.4% during the quarter. At its worst, it was down 36.2% between the peak on 20 February to the trough on 23 March1.
- Month of April: The Australian sharemarket gained 9.0%1, the highest single-month return since 1987. This was even more pronounced in the US, where markets recorded a 12.8%2 return
- Month of May: Markets remained volatile, but performed particularly strongly in the second half of the month. The Australian sharemarket gained 4.6%1 and the US market added 4.8%2.
We expect this market volatility to remain for some time, as markets continue to respond to updates on both the virus and the economy. This won’t start to subside until economic data starts to paint a clearer picture of the depth and duration of the impact of the virus on the economy, and more importantly, the path to recovery.
It’s important that members remain focused on their long-term goals.
Members who switched to more conservative
investment options in the last 3 months would have locked in share market falls
from March, and then missed out on the market rebounds that we saw in April and
May (as demonstrated below). This highlights the risks of switching investment
options in response to short-term news flow. Switching investment
options should always be carefully considered. Over a long period of time,
returns can be significantly affected. If you’re thinking about your investment
options, consider speaking to an adviser.
Example: The negative impact of switching
On 18 March 2020, the government announced steps to restrict movements because of COVID-19. If an AustralianSuper member had switched from the Balanced option to the Cash option at this time, the member’s return for the financial year to date at 31 May would have been minus 7.11%3.
However, if the member had stayed invested in the Balanced option throughout this period, the fall would have been a more modest minus 1.1%3. This is because the Balanced option invests in a broad range of asset classes, including shares, which rebounded strongly in April and May, while low interest rates provide a much lower return for the Cash option.
What’s the outlook for the economy?
Infrequent, unusual events like the COVID-19 pandemic are called external shocks. This means they are not part of the normal economic cycle, with its usual ups and downs. External shocks are much more difficult to plan for, as you don’t know when to expect them, or the depth and length of their impact, until they occur.
In Australia, the Reserve Bank of Australia is currently forecasting that GDP growth will fall by 6% in 2020 and recover by a similar amount in 20215. It expects higher levels of unemployment will persist for some time, and growth will be more subdued until this extra capacity can be absorbed.
What is less clear, and what is of interest to long-term investors like superannuation funds, is what it means for the economy’s longer-term growth path.
How is AustralianSuper monitoring the economy for Members?
As a superannuation fund, we invest over long periods of time to maximise the retirement savings of our members. This means we are not just looking at the short-term impact of COVID-19, but also at how it will affect the economy over the long-term.
We are closely monitoring economic conditions to understand how different sectors and industries are likely to be impacted and recover from this downturn. The insights and information we gather help guide how we construct the members’ investment portfolios and select the companies and assets we invest in.
To do this, we leverage the experience of our 170-strong investment team. This team is closely monitoring the current situation and adjusting the portfolio as required. We’re also watching for new investment opportunities that can benefit members’ returns.
We’re here for Members
We understand that many members have been through challenging and stressful times in recent months, and we want to assure you that we are working to improve outcomes, so your super supports you in retirement.
Super is a long-term investment. We encourage members to stay focused on their long-term retirement savings goals, especially in periods of market volatility. And to remember the potential benefits of staying invested in a diversified portfolio with exposure to both growth and defensive assets over the long-term. AustralianSuper offers fully diversified PreMixed investment options to limit the impact of market downturns and maximise the potential for long-term growth.
Over the last 10 years, AustralianSuper’s Balanced options has provided members with an average return of 8.52% per year (as at 31 May 20203). And AustralianSuper’s Balanced option remains the #1 performing fund over 5, 10 and 15 years in the SuperRatings survey4.
Before making investment decisions, Members should consider their financial requirements and their personal objectives, situation or needs. For those who have seen their balances fluctuate and are concerned about changes to their retirement plans, our team is here to support you. Please contact us if you have any questions or are looking for further information about your super.
1. S&P/ASX300 Accumulation Index.
2. S&P 500 Index.
3. AustralianSuper performance data May 2020. Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.
4. SuperRatings Fund Crediting Rate Survey - SR50 Balanced (60-76) Index, 30 April 2020.
5. Reserve Bank of Australia’s Statement on Monetary Policy: Economic Outlook, May 2020.
6. Google Community Mobility Report, May 2020.
*Investment returns are not guaranteed. Past performance is not a reliable indicator of future returns.
This may be general financial advice which doesn’t consider your personal objectives, situation or needs. Before deciding on AustralianSuper read the Product Disclosure Statement available at australiansuper.com/pds. AustralianSuper Pty Ltd ABN 94 006 457 987, AFSL 233788.
Trustee of AustralianSuper ABN 65 714 394 898.