Investment markets update: March 2020
April 24th, 2020
Global share markets continued to fall sharply in March, as the COVID-19 outbreak evolved into a global pandemic.
To prevent the spread of the virus governments around the world have brought in stricter quarantine measures on travel, social distancing, and closure of educational institutions and non-essential businesses. This has affected many businesses and, in turn, the share market listed companies inter-connected with them.
Here in Australia, the Federal Government announced broader quarantine measures, including state border closures and tighter travel restrictions. As a result, Australian equities (shares) continued to follow the trend of the global equity market, producing negative returns over the month.
First Super’s Balanced (default) option for accumulation members returned -6.35% for the month of March, meaning a total return of -2.89% for the financial year to date.
Although disappointing, this is a better result than those reported by other funds. The reason is that our Balanced option has a lower allocation of growth assets (for example, assets like shares) than those other funds’ MySuper options. Our Balanced option is broadly invested in 60% growth assets and 40% defensive (protective assets), so as share markets fall, our members’ savings are less exposed to these losses. We also increased our cash holdings in late 2019, which also protects against financial loss during share market volatility.
Our investment philosophy is to invest for the long run. And this means not overreacting to market volatility that we’ve seen over the past few weeks.
Our investment time frame for the Balanced option is 10 years. We aim to return an average of the Consumer Price Index (CPI) plus 3.5% a year over that time – that’s the key point to remember. Investments can go up and down at any point, but the main thing is achieving this average return over the 10-year period.
How super balances and investment performance are linked to COVID-19
The value of your super is always changing. Since February, most investments around the world have fallen in value for reasons largely linked to the coronavirus pandemic. This has affected the value of shares (equities), properties and even term deposits – pretty much all the things super funds invest in.
COVID-19 has caused many businesses to close temporarily and many people to lose their jobs, leaving some companies to face an uncertain time ahead of them. As a consequence, the value of shares in those companies has fallen.
Many commercial properties that super funds own are likely to earn less in rent in the coming months, so their value has fallen. Airports, toll roads and shopping centres that super funds own all have fewer people using them at the moment, which means they will be making less money and some even running at a loss.
With all this in mind, most Australians will see that their super is worth less now than it was at the beginning of February. Each person’s super investment choice and each super fund is different, but your super might be worth between 5% to 15% less than it was six weeks ago. You can check your account balance online here.
The good news is that as Australian and global economies recover, the value of the investments your super fund holds will begin to recover. This means that in time you can expect the value of your super will return to where it was and continue to grow over time beyond that. Investment markets can fall in value quickly at times but, as we have just seen, history shows us they can rise quickly too.
What if I have questions about my investments?
Any questions or concerns you have are likely to be shared by many other members.
If you have queries about your super, you can always talk to our Member Services Team. Or for personal advice about your plans for your financial future, book an appointment with one of our financial planners.
When it comes to investment strategy, our financial planners can talk with you to work out what’s the best option for you, taking into account things such as how long you’ve got left in the workforce and how much investment risk you are comfortable with. The outcome is a personalised plan to meet your retirement goals.
In the meantime, you can rest assured that First Super is taking a structured and planned approach to managing this market volatility for the good of all our members. Look out for further updates in our InvestorsFIRST e-newsletters.
WE’RE HERE TO HELP.
For more information contact our Member Services Team on 1300 360 988 or email.