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Quarterly investment update

Key points

  • MySuper investment option continues to achieve its 10-year objective and to deliver robust absolute returns.
  • Investment markets were mixed in the September 2020 quarter.
  • Leading economic indicators point to an established, but patchy, recovery.
  • Club Plus Super has paid around $150 million to members through the Early Release of Super scheme.
  • The investments and asset allocation of the options are managed actively to maximise returns for members.

MySuper – 10 years achieving growth

Despite recent market turmoil, the MySuper investment option continues to achieve its 10-year return objective at the end of the September quarter. That objective is to beat inflation, measured by the consumer price index (CPI), by 3% per annum (p.a.). The latest 10-year result is 7.0%p.a versus the objective of 4.8%p.a.

The table below shows all member investment options against their long-term return objectives for the 10-year period ending 30 September 2020. All options, except one, are achieving their stated objectives.

One year results for our diversified member investment options snuck back into positive territory in August, after being negative to end the 2019/20 financial year. However, the market hiccup in September unwound this move and the MySuper option ended September 2020 with a one year return of -0.8%.

But super is a marathon not a sprint. What is important are long term results. As shown in the tables above, the member investment options continue to deliver strong positive absolute returns over 10-years and most are achieving their long term objectives.


Active management

Investments
In order to achieve these strong absolute returns, we actively manage the types of investments we invest into on behalf of our members. We are constantly searching for investments, managed by global experts, that will provide diversification and increase the probability of achieving the return objectives of our options. Among the best performing investments we have added over the last five years are:

Industrial property is among the best performing investments we have added
over the last five years

Asset allocation
We also actively manage the actual asset allocation (mix of investments) of the diversified member investment options to ensure they remain appropriate given the prevailing market conditions. The aim is to achieve the long-term return objectives. The market crash in March 2020, and the introduction of the early release from super scheme (ERS), certainly posed some unique challenges for the asset allocation and liquidity of these investment options. Market corrections are always uncomfortable, particularly while you are in the midst of one. However, it’s important to recognise that crises are relatively common in the context of long-term investing. Importantly, we were well prepared because on at least an annual basis we stress test the asset allocations of the investment options to simulate the potential impact on returns and liquidity of various stressed scenarios, both hypothetical and based on historical events (like the GFC).

The main action we undertook during this time was to increase the allocation to cash to ensure that we could meet ERS payments to members in a timely manner. This slightly increased transactions costs for the options and resulted in some rebalancing activities to ensure the options remained true to their risk profile (growth/defensive split). We are proud to have promptly paid out ~$150 million under the ERS to our members since April this year. We are well positioned to continue to meet the requests of members up to the finish of the scheme on 31 December 2020.


Looking back – market update

Investment markets were mixed in the September 2020 quarter. 

The August reporting season was better than expected.  This was due to unprecedented levels of government stimulus which cushioned the impact of the decline in earnings and dividends in the June quarter.

By the end of August markets had posted their fifth consecutive month of gains amid signs of economic recovery.  Historically, September is a poor month for markets, and this proved to be the case once again with most sharemarkets around the world falling 3-4% for the month, including here in Australia*.

These declines were driven by:

  • concern that the global recovery could stall without more stimulus
  • uncertainties associated with the US Presidential election
  • the impact of new lockdown measures, such as in Europe and Victoria.

The September quarter in Australia saw lockdown conditions in Victoria brought the state to standstill, the amount paid out in the Early Release of Super scheme passed $33 billion, and the Reserve Bank of Australia holding cash rates at 0.25%**.

Looking forward – three things that could affect the markets

Heightened uncertainty has the potential to bring about increased levels of market volatility. Currently there are three key factors that could impact markets.

  1. Ongoing COVID19 concerns

The human and economic impact of the COVID-19 outbreak has resulted in over one million deaths and a decline in global GDP growth in the June quarter which is the deepest since World War II.

However, global monetary and fiscal support has helped to buffer these effects on markets. Future infection rates, potential vaccine developments and policy responses will be the key drivers of economic outcomes and market volatility over the medium term. 

2. US election
The US presidential election result has the potential to create further volatility in investment markets. Historically, in the months leading up to US elections the level of market volatility increases. It has been no different this time around.

Markets are not political, but they are sensitive to uncertainty, so if the result appears like it will be close or unknown for an extended period, we are likely to see heightened market volatility. For long-term investors such as Club Plus Super, it is important for us to remember that elections come and go. It would be easy to get caught up in the 24-hour news cycle coverage of the US election, but instead we take a long-term perspective to investing. Picking both the outcome of an election and the market reaction to a Republican or Democratic win is impossible. Therefore, we remain committed to our long-term investment strategy.

3. Australian budget impacts
The Australian Government recently announced the 20/21 Budget which included a slew of measures to boost the country’s economic recovery.

Among the measures are:

  • fast-tracking of personal income tax cuts,
  • instant asset write-off scheme for businesses,
  • extension of JobKeeper and a JobMaker scheme that will encourage businesses to hire young Australians

Only time will tell if these measures will have the desired effect on the economy and how the market will react going forward.

Also, US/China relations and the looming end of transitional arrangements for the UK’s economic relationship with the EU, are stresses with the potential to increase market volatility.

Our focus

To manage our investment options through this volatility, Club Plus Super draws on some of the world’s best investment managers and our experienced asset consultant.  Together we are closely following global developments and making investment decisions based on research and a disciplined investment process. We are committed to providing members with strong investment returns over the long term.

Gemma Dooley

This quarterly investment update is from Gemma Dooley, Chief Investment Officer at Club Plus Super.

Watch our economic and employment update for more insights.

Investment performance is after investment fees and taxes, but before the deduction of administration fees. Investments can go up and down. Past performance is not necessarily indicative of future performance and returns are not guaranteed. *Source: Factset. **The Australian Budget 2020-21: https://budget.gov.au/2020-21/content/download/glossy_jobmaker.pdf