Investment update – the impact of Coronavirus10 Mar 2020
UPDATED 13 MARCH 2020
As countries take action to stop the spread of coronavirus (COVID-19), the uncertainty surrounding the global health emergency has seen very significant falls in share markets around the world. We expect the uncertainty and volatility to continue as the full extent of the disruption to supply chains, household consumption and company earnings is understood.
We understand that recent falls may be concerning for members, especially those close to retirement. While unsettling, financial markets do move in cycles and are often volatile, especially during times of uncertainty. For example, following the Brexit vote in 2016, most global share markets fell and there was uncertainty about the longer-term economic impact on the Eurozone; but within months, markets recovered and losses were erased.
Share market falls during the Global Financial Crisis were greater than those of recent weeks; but what followed (from March 2009) was a 10-year ‘bull run’ (sustained rise in share prices), which added significantly to investment returns for those invested in balanced and other super investment options that hold shares.
We are actively monitoring the situation and as further market changes occur, may adjust our portfolio accordingly, but still with a focus on long-term investment objectives and returns.
While you may see a short-term reduction in your account balance, it’s important to remember that superannuation is a long-term investment.
We have observed that some members switch into defensive options during times of uncertainty because they’re nervous about losses. Unfortunately, this is often the wrong time to switch, as it crystallises and locks in losses, and can lead to lower account balances in the long term. This is because members often don’t switch back into less defensive options when uncertainty subsides, and miss out on gains when markets rebound.
Timing markets (when to buy in and when to sell out) is difficult, so we focus on staying invested through the cycle.
Sticking to your long-term investment strategy is often the most appropriate response for individuals too. Even those members close to retirement will still be invested for many years to come.
HOW IS YOUR SUPER OR PENSION AFFECTED?
Media Super has not been immune to recent volatility but our investment strategy for the Balanced option is built with times like this in mind. Media Super’s Balanced options (MySuper and pension) are well diversified across a number of asset classes, including global shares, property, infrastructure, fixed interest and cash, as well as various alternative investments, such as our Fulcrum film and television financing fund.
While there are certainly major falls in share markets, other assets have not been similarly impacted. It is also worth noting that the Balanced option is exposed to movements in foreign currencies. The falling Australian dollar has added to the value (in Australian dollars) of investments held in these foreign currencies.
Our Balanced option also has a degree of ‘portfolio protection’ in place, a mechanism designed to reduce the impact of falling share markets. We are one of the few superannuation funds that has this type of protection in place. It does not fully offset the impact of market falls, but does reduce that impact.
Looking ahead, we are confident that the Balanced option is appropriately positioned to meet its long-term investment objective.
If you’re invested in one of our higher growth options – such as, High Growth, Australian Shares or Overseas Shares – you will experience greater falls in your account balance than for those invested in the Balanced option. It’s important to remember that these options carry higher investment risk and are generally more volatile than our other pre-mixed options, which is why they have also delivered relatively higher returns over the past 10 years.
Please refer to the Investment Guide or call the Helpline for full details about risk associated with various investment options.
Investment performance for February will be available in late March.
WE’RE HERE TO HELP
We understand that some members may be concerned about the impact of share market fluctuations on their super or pension account balance. It’s always a good idea to talk to our team before making investment switches.
If you are concerned, please call our Helpline on 1800 640 886 to talk through your concerns and your investment options.