Market commentary

For the March Quarter, international equities performed strongly and gained 6.1%. More specifically, the US rose 9.9%, Europe rallied 7.6% and emerging markets increased by 4.0%.

The US share market was supported by the Federal Reserve’s forecast for near-zero interest rates through to at least 2023, and the final approval of President Joe Biden’s $1.9 trillion fiscal package. European shares continued to rally as fourth quarter earnings results were encouraging. Further support came from the European Central Bank which announced an acceleration of its stimulus program. In the UK, markets welcomed an agreement on Brexit regarding future trade between the UK and the European Union.

Australian Equities

The Australian share market gained 4.2%. This was led by the Financial sector (+12%), with ANZ and Westpac being the standouts among the Big Four banks. Other sectors to outperform included Communication Services (+9%) and Consumer Discretionary (+9%). The sectors that held back the market were Information Technology (-10%) and Healthcare (-2%).

China’s economy accelerated in the second half of 2020 and was the only country to end the year with positive GDP growth. This was driven by industrial production, due to the demand from global consumers. Lockdowns caused consumers around the world to pivot away from spending on services and instead increased their purchases of physical goods. As China is a global manufacturer of many of those goods, it helped grow their economy.

While office markets have been experiencing increased tenant inquiry, rental growth remains under pressure given increased vacancy. Valuations of retail centres have stabilised since the significant falls experienced in 2020; however, market rents and tenant demand will remain a watchpoint as Government support mechanisms cease and the ongoing structural shift towards e-Commerce continues.

Private markets (Infrastructure and Private Equity) have experienced improved valuations as economic conditions continue to recover and they reflect the significant increases in listed Equity markets.

Fixed interest (bond) returns were negative over the quarter as yields rose due to two key drivers: the success of the vaccine rollout in certain countries, and the announcement of additional, massive US fiscal stimulus that will spur economic growth. With some economies returning to normal, the increased stimulus has investors concerned that inflation will return. This caused a spike in the bond yields, as inflation may trigger central banks to increase cash rates earlier than expected. Bond prices fell because they move in the opposite direction to bond yields.

The yield for cash is close to zero, and it is expected that the Cash Option will continue to return close to zero over the medium-term, after fees and taxes.

Movements in share markets (up and down) impact the unit prices of all Super SA Investment options, with the exception of Cash. As unit prices change so does the overall value of your superannuation balance.

Although portfolios are not immune to the volatility stemming from share markets, Super SA’s asset mix, including high quality bonds, property, private equity and other unlisted assets, have helped to lessen the gyrations and deliver a smoother return profile for members.

Notwithstanding short-term fluctuations in share markets, the best long run guide to the investment outcomes of the Super SA options is their investment objectives.  For example, the Triple S Balanced Investment option is targeting a return averaging 3.5 per cent above the inflation rate when measured over long-term periods (of at least 10 years).

One of the most important concepts to consider when making an investment decision is that of risk and return. All investments, including super, have some level of risk.

Members should be aware capital losses are possible, depending on the investment option(s) chosen and their performance over time. Fluctuations in investment markets will have on-going impacts on performance. This volatility is a normal part of investing and can occur with money you may have in other super funds, the share market, and other types of investment.

Each option’s investment objective provides an indication of risk by stating the number of negative annual returns likely to be experienced over any 20-year period. For example, for the Triple S Balanced Investment option, it is expected the investment strategy will result in between four to six negative annual returns over any 20-year period.  This means the risk of a negative return in any single year is between 20% and 30%.

The Chart below illustrates the annual returns of the Triple S Balanced Investment option since its inception in 2000.

Chart 1: Triple S Balanced option annual returns to 31 December 2020*

Returns net of fees and gross of tax


*Triple S Balanced Investment Option annual returns to 31 December, 2020. 

Looking back over the history of the Triple S Balanced Investment Option, it has recorded a negative return for financial year periods four times, including the 2019-20 financial year. This is in line with expectations (4 to 6 years in 20).

The expected range of annual return outcomes also provides an indication of risk. This varies between the options. Generally, options with the highest potential long-term returns also come with the widest range of returns including the possibility of negative returns. Options with the lowest potential long-term returns come with the narrowest range of returns and the greatest likelihood of positive returns.
Each of Super SA’s investment options has a different level of risk and return, as shown in the graph below.

 

Chart 2 Expected range of returns over a 1-year period*

*Source - Super SA Investment Fact Sheet. Note there is approximately a 5 per cent chance the return could lie outside of this range.

Understanding your attitude to risk is important and this may change over time. You may wish to periodically review your investment strategy to make sure it still meets your needs.

It’s not easy to time entry to, or exits from, markets. Selling out of more risky options (i.e. those options with larger allocations to assets such as shares and property) and switching into less risky options (such as cash and options with higher allocations to fixed interest) can be costly over the longer term as it effectively locks in the losses which result from poor investment markets. As well, it is possible to miss out on future growth by being out of the market when it recovers.

We understand you may be concerned about the impact of market movement on your super. We encourage you to think about your super as a long-term investment generating a return over multiple years. We suggest you don’t focus narrowly on short-term results.

Many members seek professional financial advice, especially those members approaching or in retirement.

There are a number of investment options offered by Super SA to suit members with differing risk appetites and time horizons.

Have more questions? Have a look at these FAQs for answers.