Key points
  • We started making shifts in our portfolios in 2019, thereby minimising the impact of losses on members’ investments during COVID-19.
  • We’ve been investing in small companies that have been performing well particularly during the pandemic.
  • Given the uncertain economic climate, we continue to take a cautious approach when investing our members’ super.

The past six months have been a roller coaster ride for investment markets and individuals around the world. While it’s heartening to see that businesses have started to re-open and people returning to the workplace, many remain cautious in carrying out their daily lives.

We understand that uncertainty can be uncomfortable for some people particularly when it comes to their super. To help you understand what’s been happening to your retirement savings, we’ve developed a summary of how we’ve been managing your super investments over the past six months.

You may also like to read ‘Understanding the basics of super investments’ to have a more holistic view of our investment approach.

Background

To provide context around how we’ve been investing your super over the past six months, we need to look back at our investment strategy in the months leading up to 2020.

During our weekly portfolio reviews around mid 2019, we found that Australian and international shares were overpriced by more than 10 per cent when compared to long-term historical averages. We believed that share prices were unusually highly priced as global economies had reached peak growth and company profits were lower than expected. Consequently, we began to divest some of our equity holdings in our portfolios. This meant that we were able to sell those equities at a time when prices were higher, therefore helping to reduce your risk exposure to expensive investments. Therefore, if you had invested in one of these options (for example, our Growth, Balanced or Conservative options), you’d have benefitted from holding more units of shares that had a higher expected return (i.e. cheaper stocks) and holding less units of shares that had a lower expected return (i.e. expensive stocks).

By the time the COVID-19 outbreak became widespread in January 2020, we held around 15 per cent less equities than we did in July 2019. This gave us an opportunity to purchase Australian and international equities at a cheaper price. When the equity market began to rise again between March and April 2020, we were able to gain from the sale of shares at a higher price, once again, helping you manage the balance between risk and return on their investments.

Companies that we invest in

The Reserve Bank of Australia has set the official cash rate at a record low of 0.25%, which has resulted in minimal returns on cash and bond investments.

To help you maximise their returns, we’ve invested in small, profitable companies valued at less than $2.6 billion. As a smaller super fund, we’ve been able to use our size to our advantage by buying shares in these companies, which bigger super funds would not be able to invest in due to regulatory requirements.

One of the companies we’ve invested in is Marley Spoon, whose services have been in demand as consumers focused on food delivery and cooking at home during the COVID-19 pandemic.

We’ve also purchased shares in Kogan. Its products have also increased in popularity given the growth in online shopping.

Taking a long-term view

Each week, we review our investment portfolios to help maximise the returns against the risks of your investments and ensuring that the decisions we make align with the fund’s long-term strategy.

History has shown that volatility in investment markets tend to flatten out over extended periods, which helps to balance any losses in your super. You can see this in the graph below, which summarises the performance of our most widely-selected option, Conservative Balanced, between the years 2004 and 2020. Despite sharp falls in returns during the 2007/2009 global financial crisis, the returns on this investment option over 10 years have remained stable between 3.5% and 7.4% compared to the sharp falls (-19.7%) and rises (21.3%) of the yearly returns as depicted by the blue line.

Consequently, it’s important that you take a long-term view for your super, so that your investments have a chance to increase in value after a market downturn. If taking a long-term approach isn’t suitable for your situation or if you are not able to tolerate short-term volatility, you may like to consider other investment options that we offer.

Conservative Balanced Option Performance Line Graph

Read more: Should I switch my investments during a market downturn?

Diversification

Some of the investment options that we offer our members comprise a mix of risky, growth assets such as shares and property, as well as lower risk, defensive assets such as cash and bonds. By adding diversification and defensive strategies to some of our options, we help to soften the impact of wild swings in the share markets.

To illustrate the benefits of diversification, have a look at the table below. Since COVID-19 began impacting global share markets, our Conservative Balanced option has on average, outperformed similar options offered by other super funds as well as the Australian share market.


Return on Australian Catholic Super Conservative Balanced option  Median return of comparable Conservative Balanced options  Australian share market returns
Jan 2020  1.2%  1.8%  5.0% 
Feb 2020  -2.3%  -2.2%  -7.7% 
Mar 2020  -7.1%  -7.1%  -20.7% 
Apr 2020  3.2%  2.4%  8.8% 
May 2020  1.7%  1.7%  4.4% 
Compounded returns for the period -3.6%  -3.7%  -12.7% 

As outlined in the previous section, short-term volatility will flatten out over extended periods, so it’s important to consider the long-term when making decisions about your super.

Our view of investment markets in upcoming months

Since April this year, the value of Australian and international equity markets have been trending upwards despite Australia and the rest of the world being in a recession. It’ll take some time for global economies to fully recover from the impact of COVID-19, therefore we remain cautious in our investment approach.

At the time of writing (July 2020), we believe that equity markets are still overpriced given that investors seem too optimistic about the prospects for shares while COVID-19 continues to pose a risk to investment markets and global economies.

We continue to monitor the investment markets closely, helping to ensure that your retirement savings are protected during uncertain times like these.

If you would like more information about how we invest your super, contact us or speak to one of our financial planners for advice that is tailored to your circumstances.

Any advice contained in this document is of a general nature only, and does not take into account your personal objectives, financial situation or needs. Prior to acting on any information in this document, you need to take into account your own financial circumstances, consider the Product Disclosure Statement for any product you are considering, and seek independent financial advice if you are unsure of what action to take. Past performance is not a reliable indicator of future performance.

 

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