Monthly investment update – May 2022

Here’s a look at what’s been happening in investment markets recently and what it means for your superannuation.

The big picture

Since late January 2022, share markets have experienced considerable volatility. These sharp, sudden drops were reactions to increasing inflation in the US and other economies.

If we look back to April 2021, inflation already had momentum in the US, with headline inflation at 4.2%. However, share markets were divided about whether this would be temporary or persistent.

In February, the Russian invasion of Ukraine introduced further uncertainty into markets, and the subsequent shortages of food and energy fuelled inflationary fears. Headline inflation in the US reached above 8% in March and was at 8.6% in May. Over that period, we’ve seen increases in official interest rates as monetary authorities make controlling inflation a priority.

Interest rate hikes

Australia’s Reserve Bank has increased interest rates twice this year from 0.10% to 0.85%. And the US Federal Reserve has raised its interest rate target three times from 0.25% to 1.75%. The latest rise triggered stock market sell-offs in the US and elsewhere around the globe. Both central banks have indicated further rate increases are coming.

What’s on the horizon

Higher interest rates – and more expensive goods and services – impact household and corporate budgets, affecting the ability of individuals and companies to pay back debts and refinance. Central banks will be looking to find a balance between taming inflation and avoiding the risk of a recession.

Our investment approach

First Super has continued to be more defensively positioned in 2022 – notwithstanding a move to give greater weighting to growth assets in December of last year as part of a change to our long-term investment strategy.

We have had less exposure in international equities this year due to our concerns about international share market volatility. And in recent months, our assessment of the domestic share market has led us to reduce our allocation to Australian shares. These funds were invested in floating rate debt, which should benefit from increases in interest rates. (These are bonds and other debt instruments that pay variable rates based on underlying interest rates.)

How your super’s performing

Our accumulation Balanced option (for members still working and growing their super) has returned 2.5% for the 12 months to the end of May 2022. We’ve experienced negative returns in the months of September, January, February, April and May, but this overall positive return is better than many other funds’ Balanced options due to our decision to have a lower allocation to international and Australian shares, which were impacted by recent market sell-offs.

The pension Balanced option (for members who have started drawing their super as an income) has returned 2.1% to 31 May 2022. Again, an overall positive result.

You can see the investment returns for all our options here.

Weathering the storm

It’s normal to worry about your superannuation when share markets are falling, but it’s important to remember that super goes up and down over cycles and it’s the long-term investment returns that matter most. Please contact us on 1300 360 988 or mail@firstsuper.com.au if you have questions about your super account and your investments.