Posted on 28/04/2021
“Oh, why don’t you use it?
Try not to bruise it
Buy time, don’t lose it”
Duran Duran – The Reflex
March Quarter 2021 Review
The March quarter was another good one for Statewide Super members with all options excluding Diversified Bonds posting positive returns. The long-anticipated rotation from glamour stocks towards value stocks highlighted in the December quarter enabled Statewide Super’s accumulation investment options to meaningfully outperform peers and benchmarks in the March quarter^. One year from the start of the crisis, global economies have largely avoided initial fears of a prolonged depression while markets have rewarded investors with double-digit returns, more than making up for losses experienced in the March 2020 quarter.
Duran Duran’s 80s hit “The Reflex” nicely describes the tension between short- term responses and long-term retirement goals. Investing for retirement is all about having time to allow well-established diversified strategies to reveal long-term retirement goals. Short term adjustments based on market conditions merely bruises longer-term retirement needs. More on the reflections one year out from the COVID crisis later in this quarterly.
The global economies are emerging from lockdowns in various parts of the world, based on the vaccine rollout and other measures undertaken to stop the spread. In some regions, like the US and the UK, there’s optimism for herd immunity and some normal sense of pre-COVID life to look forward to in the near future. Unfortunately other parts of the world such as Brazil, Europe and India, are experiencing 3rd and even 4th waves of the virus and accompanying lockdown measures. Most economies are well-supported by low interest rates and fiscal stimulus efforts, allowing them to avoid severe recessions and indeed continue to function as they move to a new normal, post the COVID pandemic.
Markets are responding to the vaccine rollouts and various policy-induced stimuli, with good returns over the past 6-9 months across all asset classes excluding government bonds. Our view remains the same. We believe economies will continue to grow throughout 2022 with the various asset classes responding to the growth but moderating after the recent strong gains.
^SuperRatings Accumulation Fund Crediting Rate Survey Mar-21.
The table below shows superannuation investment option returns ending 31 March 2021 over 1 year, 3 years, 5 years, 7 years and since inception.*
Super Returns to 31 March 2021**
*Sourced from SuperRatings Accumulation Fund Credit Rating Survey Mar-21. Returns are net of investment fees, the asset-based administration fee and tax on investment income. Further administration and other fees apply. See our “Fees and Costs” booklet for more information. Investment returns can go up and down and are not guaranteed. All investments have risk, and past performance is not a reliable indicator of future performance. For more information on risks associated with investing, consider the "Risks of Super" and "How we invest your money" booklets available at statewide.com.au or by calling 1300 65 18 65.
Pension returns are not shown but are available here.
**Selected Statewide Super Accumulation Member Investment Options.
Pension returns are not shown but are available here.
The default MySuper option ranks 5 out of 42 funds over the 7 years ending 31 March 2021 according to the SuperRatings*** MySuper survey. Pleasingly, 8 out of 10 choice investment options are in the first quartile over 7 years and 9 out of 10 are above median using SuperRatings*** peer performance surveys.
***Sourced from SuperRatings Accumulation Fund Crediting Rate Survey Mar-21. Returns are net of investment fees, the asset-based administration fee and tax on investment income. Further administration and other fees apply. See our “Fees and Costs” booklet for more information. Investment returns can go up and down and are not guaranteed. All investments have risk, and past performance is not a reliable indicator of future performance. For more information on risks associated with investing, consider the "Risks of Super" and "How we invest your money" booklets available at statewide.com.au or by calling 1300 65 18 65.
Australia appears to be doing much better than most forecasts (including ours) predicted at this time last year. Policy support at all levels, including Federal, State and official interest rates from the Reserve Bank of Australia, has enabled the economy to grow. Moreover, employment and unemployment appear to be approaching pre-COVID levels. The outlook? We believe and hope the government maintains supportive fiscal policy over the medium term while the “pandemic” interest rate levels will over time start to rise. So far, there’s muted inflation fears, and rising inflation hopefully reflects stronger employment and ultimately wage rises. One of the side-effects of lower interest rates is higher house prices and a lack of risk-free savings for the retired. This could become an issue if rates continue to be too low, and policymakers may have to respond to the property market by tightening lending conditions.
Future success for Australia from here also involves successful rollout of various vaccines into the population. Thus far, the progress has lagged all governments’ own forecasts from late last year. One of the keys to sustaining a good economy will be for all state governments in Australia to increase their vaccination rollout throughout the community. Maintaining appropriate policy settings plus vaccine success will hopefully allow Australia and indeed the rest of the world to enjoy sustained economic growth for a number of years and thus reduce unemployment back to low levels not seen since the record low of 4.0% in February 2008****. The chart below compares this crisis to others.
The risks for Australia continue to be the various COVID strains, the coming seasonal winter risk for further COVID outbreaks and frankly some geopolitical tensions that are likely to resume. Geopolitical tensions are notoriously difficult to forecast but are typically due to trade, energy or sovereign issues like China/Taiwan and Russia/Ukraine.
****Australian Bureau of Statistics, 6202.0 - Labour Force, Australia, Feb 2008 (abs.gov.au). Accessed on 23 April 2021.
Lessons from the crisis one year on
1. Everyone has a plan until they literally get a sneeze in their face
Deep crises are more frequent than we give them credit for. For example, since 2000, we’ve had four major market/economic events; the ‘dot com’ bubble burst and the 9/11 terrorist attacks in 2000-2001, the global financial crisis in 2007-2009, the Greek/European crisis in 2010-2012 and more recently, the COVID pandemic in 2020. In other words, investing over the long term is not without risk. Therefore, we support taking a diversified approach (briefly described last quarter) to assist with navigating difficult markets and economies as they arise from time to time. They key is to seek help and advice when these events take hold. The chart below shows the returns for various Statewide Super investment options against the ASX AllOrds from 30 June 2019 to early April 2021 showing the COVID market fall.
2. The correction was short, sharp and brutal
Most markets do recover from a crisis over time. Same may take months however others take years, like the global financial crisis, or generations, like the Japanese stock market bubble in the 80s. The path to recovery cannot be forecast and it takes patience and limiting exposure to one asset class in order to recover losses.
3. Quick response by Central Banks and Government
Policymakers around the world including Australia are to be commended for their swift response to the current crises. Their actions definitely helped to avoid a deeper economic depression. But all crises are different and it pays to follow what our policymakers do to help the economy in the short-to-medium term.
4. Still in COVID/post-COVID world
Despite the growing economies and surging markets, we cannot declare victory. Many parts of the world, and sectors in our own economy, are still deeply impacted by the current COVID restrictions with many not likely to recover for many years. There are still various strains of the vaccine, and unfortunately many parts of the world are still dealing with the deadly effects of the virus. Sadly there are twists and turns to come in dealing with this.
5. Vaccine speed and announcement was the best surprise
Human ingenuity was the key positive aspect from the current crisis. Many businesses simply evolved to work from home, and markets continued to function despite the stringent lockdowns. Moreover, quite a few vaccines were developed and rolled out to help prevent serious medical conditions in the populations widely affected with the virus.
To sum up, short-term forecasting of economies and markets is hard. Pre-retirement and post-retirement saving is all about having a medium-to-long term plan and sticking to that plan despite short-term market shocks. Unfortunately, members granted early access to their super or those who switched to lower risk options have potentially missed out on once-in-a-cycle double-digit returns that could be considered typical following large market falls.
With three months to go in the financial year, returns are largely on track to record a strong year after a difficult 2019/20. Clearly, the world is in a better place than initially feared but there’s still work to do as we move into a post-pandemic economy.
Diversification (for example, holding cash, bonds, property and infrastructure in addition to shares) in various weights depending on their risk/return profile, continues to define our key long-term investment strategy.
We thank you for your continued membership. Please contact us if you require guidance regarding your superannuation with Statewide Super.