Is an Altitude Adjustment Required?
Returns on your Super fund monies in volatile markets
We are currently in an historically low interest rate environment and—in combination with a downturn in share markets, commodity prices and currencies across the globe—this has contributed to a current negative growth environment. For the last few years AvSuper members have enjoyed positive returns. Unfortunately every investment carries an element of risk, even cash. At the moment, we are experiencing a period of negative returns, which is always 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.
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.
Since 2015, there has been a transition in markets as the US Federal Reserve Bank has steadily increased interest rates (slightly) as we have watched watched investors shy away from the riskier assets. We note the heightening concern felt about corporate (and sovereign) earnings, deepening downgrades in commodities, the China slowdown effect and a strong US Dollar. All these indicators have pushed returns to a low point.
Current economic conditions are showing a trend of lower returns and high volatility, which can be hard to adjust to, after a period 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 this difficult environment, including being prepared for whatever comes next.
As we progress into 2019, we may see an investment environment where fundamental value comes back into play and start to outweigh the shorter term cyclical pressures in our analysis.
For now, managing our asset allocations (an element of the active management strategy favoured by the Trustee) has come to the fore. Adjustments increasing cash exposure and tilting investments away from the volatile stock market have been in place for the past few years.
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.
If you have an AvSuper accumulation or income stream account, you can choose how your super savings are invested. Thus, you can influence your investment risk to suit your needs and situation. There are several investment options to choose from, and you can choose more than one investment option for your money if you prefer. The best option for you will depend on your investment objectives, your investment timeframe, your age, your attitude to investment risk and your personal circumstances.
We recommend you read our Member Investment Choice (MIC) Guide or Product Disclosure Statement (PDS) (available from our website) and consider the options carefully. AvSuper also provides members with access to personalised financial advice, at no charge, to help you choice investment options and contribution levels. If you don’t make an investment choice, your money will be invested in the AvSuper Growth option by default.
Email: firstname.lastname@example.org | Local call: 1300 128 751 | www.avsuper.com.au