March – September 2020
Share markets had sold off heavily in the March quarter as Covid-19 cases spiralled and economies shutdown across the globe. We then saw one of the sharpest recoveries on record as markets looked through the near term economic pain in light of the exceptional emergency measures being provided by central banks and governments around the world supporting economies. This recovery continued in July and August, though share markets sold off in the month of September. European Covid-19 case numbers stepped up sharply in September and there were increasing concerns that the US may not pass another round of stimulus before their election in November.
The outlook remains challenging and we continue to monitor markets closely. Yields on traditional defensive assets such as cash and bonds are at record lows. For example, the Reserve Bank of Australia (RBA) cash rate is currently sitting at 0.25% per year. The yield on ten year bonds is a good guide to the subsequent return (before taxes and fees) if held for the following ten years and this was just under 0.8% per year as at 30 September. Both of these levels sit well below the RBA’s inflation target of between 2 3% on average over time. At these low yields inflation would have to fall well short of this target for a long time for either cash or bonds to provide decent real returns over the medium term. The outlook for shares remains uncertain and the real economy remains in the midst of a global recession. However, over the long term we continue to consider that shares will outperform defensive assets for those investors able to withstand the inevitable ups and downs that will arise.
New investment options
We have recently launched two new options, Property and Infrastructure, for our super members.
The property option invests in a wide range of primarily Australian office, retail and industrial properties, with small allocations to healthcare and education properties. This is currently achieved through investing in diversified, unlisted property funds although this option has the capacity to invest in listed real estate vehicles and may also include cash allocations from time-to-time. The property funds used will generally target gearing of 10-30% of gross asset value. Investment is primarily in existing buildings but may include some development projects on a build-to-own basis.
The infrastructure option invests in Australian and global infrastructure assets. This includes a diverse range of infrastructure sectors such as electricity distribution networks, airports, seaports, pipelines, toll roads, water utilities and other areas. Typically investment will be equity investments and the average gearing level is moderate, but ranges from low to high depending on the asset. Investment is primarily in operating assets, but may include some development projects. As with the property option, it has the capacity to invest in listed infrastructure and may include cash allocations from time-to-time.
Both options are classified as ‘High’ risk, where we would expect them to experience a negative return four years in every 20, on average. The underlying holdings are illiquid in nature (ie not easily bought or sold on a daily basis). There are a number of restrictions which apply to these options. More information is available on our website and in the relevant Investment Guide.
Fees and costs
Our fees and costs have lowered again for the third time in two years, and the way we report on those fees and costs in the Product Disclosure Statements (PDS) have changed. This change was due to regulatory requirements and assists in providing you with information that’s transparent and straight forward. View the relevant PDS here.