Investing for the long term through a year of upheaval
To say the 2019-2020 financial year was turbulent is an understatement. While we began the year monitoring issues like earnings growth and industrial production, it was the global COVID-19 pandemic that has impacted every part of our lives and has had a significant impact on financial markets.
Pandemic containment measures contributed to sharp rises in unemployment globally – with many of our members in industries hardest hit – and dramatic falls in travel and global production. Gradually some economies have started to reopen but a number of countries have reimposed tougher restrictions as cases started to rise again (much like we’re seeing in Melbourne), and uncertainty remains.
Financial markets experienced extreme volatility. We saw significant falls in February and March, followed by strong rebounds for equities and alternative debt; but other asset classes, such as property, private equity and infrastructure, have not recovered as quickly.
Australian super funds have been impacted by this volatility. Media Super’s Balanced investment options recorded a slightly negative return for the financial year; -0.28% for super and -0.39% for pension.
Pension investment performance does not benefit from tax accruals being released when there are negative returns (as they are not taxed when returns are positive), which is why the pension option has performed below super.
For a super member with a $50,000 balance this is a loss of about $140, or $195 for pension members; but depending on incoming contributions (for super members), most members’ account balances will still have grown for the year.
Markets move in cycles and from time to time short-term losses may occur; but we understand negative returns can be concerning for members, especially if you’re retired or nearing retirement.
It’s important to remember that superannuation is a long-term investment and over the longer term, Media Super’s Balanced options are performing strongly. Over the last 10 years, super members in the Balanced option received a return of +7.57% per annum.
Your investment returns for 2019-20
Our Balanced (MySuper) option recorded -0.28% for the financial year. While this is a small loss, we are a in a comparatively better position than many funds, with a median return of -0.82%1 for Australian super funds.
The pension Balanced option recorded -0.39% for the financial year, while the median return was -0.71%.1
It’s important to note that longer term returns are still solid and meet their investment objectives. Our Balanced option’s return for three, five, seven and 10 years are all above median.1
Media Super’s Balanced options (MySuper and pension) are well diversified across a number of asset classes, including Australian and global shares, property, infrastructure, fixed interest, foreign currency and cash, as well as various alternative investments, such as our Fulcrum film and television financing fund.
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 their impact.
If you’re invested in one of our higher growth options – such as Growth, High Growth, Australian Shares or Overseas Shares – you will have seen larger short-term losses for the financial year. These options have a higher investment risk but also have a higher long-term investment objective.
Considering an investment switch? Make an informed decision
We understand that losses can be concerning, especially if you’re retired or nearing retirement.
Times of uncertainty are 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 financial markets rebound.
If you’re considering switching investment options, take the time to fully understand all options available to you and the potential impact of switching now. You can find information about our full range of investment options in the Investment Guide and Pension Guide.
And it’s a good idea to speak to our team before making a switch, so you can talk through your concerns and fully understand the options available and associated risk.
Outlook for 2020-21
We are cautiously optimistic for the 2020-2021 financial year. While there will be some ups and downs at different times (and to different extents) for the asset classes we are invested in, overall we believe the fiscal stimuli provided and emergency action of central banks, has averted a severe and extended global recession.
Accordingly, we have taken a broadly neutral position for the Balanced investment option, in line with its long-term strategic asset allocation, as we work with our investment managers and advisors to identify new investment opportunities and look for ways to enhance our existing strategies.
We believe there will be attractive investment opportunities arising over the next six to 12 months – particularly in private equity, infrastructure and credit – as government support packages expire and we discover how much excess capacity there is in the Australian economy and other developed markets across the globe.
Looking ahead we are confident our Balanced investment strategy is well positioned to continue meeting its long-term investment objective for your super and pension savings.
We’re here to help
If you have any questions or concerns about your investment options, or you’re considering making an investment switch, please call the Helpline on 1800 640 886.
We will continue to provide regular updates as the situation evolves and changes – please check this blog for the latest news on your super and pension savings.
Note: Investment returns are not guaranteed and past performance gives no indication of future returns.
Investment returns are net of investment fees and taxes.
1 SuperRatings Fund Crediting Rate Survey – SR50 Balanced options (60-76) Index & SRP50 Balanced options (60-76), June 2020.