AvSuper is committed to maintaining or enhancing the purchasing power of members’ retirement savings. Managing the impact of short term volatility plays an important role in this. However, for us, the most significant risks to your savings are generally related to longer term investment returns. This is why our focus steadfastly remains on whether our investment options will deliver longer term returns that are sufficient to exceed inflation, across the various time frames and levels of risk of your chosen investment options.
The world is currently witnessing rising inflation and rapidly rising interest rates, together with the global pandemic and a war in Ukraine, the world is in a constant state of uncertainty and volatile markets. Higher inflation and higher interest rates means we may see negative growth environments. For the last year AvSuper members have enjoyed positive returns and this is always dependent upon market conditions. Unfortunately every investment carries an element of risk, even cash. Periods of negative returns are expected in long term investments. The standard risk measure for our default Growth (MySuper) option states the expected frequency of negative annual returns is between three and four occasions in any 20 years. However, over the longer term these returns remain positive. Your superannuation should be viewed as a long term investment at all times.
At the moment, as always, investment strategies established by the Trustee to achieve those longer term returns are responding to current circumstances, which are unpredictable but not unexpected.
Monitoring and management
Our commitment to maintaining or enhancing the value of our members’ retirement savings means we are constantly monitoring and managing the investments we make on your behalf.
While we can not guarantee that any investment will not decrease in value over time, the aim is to ensure that over the long term members funds will exceed inflation. We use investment strategies (including strategies to guard against excessive risk) and a range of professional investment managers that can deliver long term investment returns that are better than relevant benchmarks.
Our fund managers are employed to return our capital investment and achieve specified objectives. They are measured against a benchmark that we expect them to meet or exceed by a certain percentage. Each manager is employed separately to ensure that your fund is fully diversified. Your AvSuper Trustees are also advised by a professional asset consultant.
The Trustee reviews the investments constantly to ensure that the objectives and strategies are being followed and meets once a quarter to determine any changes required.
Primarily, AvSuper favours an active management approach, which uses information and expertise to pursue a better outcome for members over the longer term compared to a more conservative passive approach.
Diversification (maintaining a broad range of investments within each option) is another broad strategy applied by the Trustee to minimise risk while aiming for the best returns. For example, AvSuper uses dozens of investment managers and this diversification (through the different strategies employed by each manager) helps to reduce periods of underperformance. While one manager may be underperforming, another has different investments which may increase and offset the losses. This is also true for diversification across asset sectors.
The global pandemic and the war in Ukraine has made the world cautious and uncertain. This has translated into market conditions which are constantly fluctuating depending on the latest news out of China or the US or indeed the latest variant of the virus located somewhere in the world. We have witnessed many downturns now in recent history, including the Global Financial Crisis and the COVID 19 initial reactions in March 2020. Since this time markets rebounded substantially. However the war in Ukraine and the resulting rise in inflation has spooked markets and pushed us into more periods of uncertainty and volatility.
Really high volatility and a threat of lower returns can be hard to adjust to, especially after periods of good returns. After the wild trading and scandals witnessed during the Global Financial Crisis in 2008-09, AvSuper has become increasingly cautious in investing funds and is mindful of the risks being taken. However, there are always opportunities to produce good returns and our prevailing strategies are geared to seek out those opportunities in difficult environments, including being prepared for whatever comes next, be it higher inflation and higher interest rates.
For now, managing our asset allocations (an element of the active management strategy favoured by the Trustee) is more important. AvSuper also relies on the expert skill and judgement of our underlying active managers, ensuring they can weather whatever conditions are thrown at them.
Given all the above we believe that members may need to altitude adjust both short term return expectations lower whilst adjusting volatility expectations higher.
Negative growth environment
We realise that negative growth is not desirable. However, there will be exceptions to the rule and we cannot predict economic cycles and downturns or eliminate risk and volatility. As always, long term investing is our main concern.
We work to ensure that in the future your money will be there and will have grown. We are not alone in the belief that Australia is better placed than most countries to benefit from a range of global trends, such as population ageing, fiscal adjustments, and a continued drift of economic clout from Europe to Asia. Australia can also attract more capital and has comparative advantages in areas such as mining, energy, education, services and biotechnology.
Markets can’t go down forever, although sometimes it is hard to believe in a recovery. While no one can accurately predict when the bottom of this trough will be reached – or indeed if it has already – everyone knows that it will (sooner or later) arrive. And when it does, it will pay to be invested in equities. In the past, investment periods where there are heavy losses on the markets are generally always followed by significant rallies.
Should I change investment options?
Remember that it is often best to wait to participate in a market recovery than to focus on minimising short term losses. In extreme market conditions, it is easy to let emotion override discipline when making investment decisions. To sit back and watch negative returns is simply unbearable for many. But the truth is – there may be more value for ‘inaction’ for many. It’s important to understand the role that investor sentiment and emotion plays in the cyclical nature of markets – experience tells us that decisions made about money under highly emotional circumstances rarely turn out to be good ones.
Everyone is at different stages in life and has a different investment timeframe. By switching you can actually crystallise losses in your portfolio, so timing is important. And it is important to consider any taxation consequences on your portfolio.
Before you make any decisions about changing options, be sure to speak with one of our Member Advice Consultants.