Investments update - July 2022
In the context of recent widely publicised financial market falls and rising economic uncertainty, legalsuper’s investment returns remain strong relative to other funds.
legalsuper's MySuper investment option, where most members' superannuation is invested, delivered a return of 2.6% which was 3.0% above the SuperRatings* all superannuation fund median of -0.4% for the eleven months to 31 May 2022.
This out-performance continues a long-term trend, whereby our MySuper returns have also been higher than the SuperRatings all fund median over 1, 3, 5, 7, and 10 years. **
In June, markets remained volatile resulting in a significant fall. Our MySuper interim returns to 30 June 2022 was -0.9%. This return outperformed the predicted average return of between -3.0% to -3.5%***. Final returns will be available in late July.
A key driver for this sustained out-performance is our continued commitment to active investment management.
As a boutique fund, we actively take advantage of our scale to make informed, innovative, and timely investment decisions, to avoid overvalued and exposed areas of the market, and seek out new institutional-quality investment opportunities in areas of long-term innovation and technology.
As a legalsuper member, the benefits of this approach are that your superannuation savings are being invested in a high-performing fund with a diversified portfolio, strong investment core, and a rigorous focus on identifying and accessing upside opportunities quickly and efficiently – while at all times exercising the highest levels of investment oversight and due diligence.
Why are investment markets performing this way?
The financial markets are at an inflection point, bringing in a new monetary regime that will be characterised by higher inflation and higher interest rates to name just two.
Whilst this has been expected to an extent, the pace and magnitude of central bank rate hikes (particularly from the US Federal Reserve) has been unexpected. Bond yields have reacted by ratcheting up sharp moves to factor in higher inflation expectations, which have also been compounded by the effects of the pandemic, and geopolitical tensions arising out of the Russia/Ukraine conflict.
In light of these developments, not surprisingly, financial assets have taken a tumble as investors move towards de-risking. The equity markets have fallen 15-25% from their peaks.
It is expected that the path towards normalisation will be patchy and characterised by further volatility, making for some turbulent times in the near to medium term from an investor perspective.
There are three key factors to bear in mind overall while being invested in the markets, but more so during such periods of high volatility.
- Super fund investors have a long-term investment horizon and on average, the impacts from periods of high volatility will get smoothed out over the long run.
- Declines are a normal occurrence of market activity and as such, provide for greater clarity in investable fundamentals and create further investment opportunities.
- The legalsuper portfolio is constructed with a view to providing a robust and resilient outcome across a full business cycle and is targeted at consistent returns generated from taking a disciplined approach to risk.
Going forward, legalsuper management are focused on managing the prevalent risks and maintaining the portfolio's downside protection capability.
Dealing with market volatility
There are 5 key factors to remember during periods of high volatility:
- Super is a long-term investment. Investors have a long-term investment horizon and on average, the impacts from periods of high volatility will get smoothed out over the long run. Even members in the pension phase who are drawing down on their investment still have many years where their super remains invested in the market.
- It's time in the market, not timing the market. During times of market volatility, it can be tempting to put all your money into cash. However, history has shown that it's time in the market, not being able to time the market that helps balances recover. If you had invested $100 in Australia shares in 1926 and left it invested through all the highs and lows, you'd have upwards of $1.6 million in 2016. That same $100 invested in cash would have earned you about $15k.^
- Volatility provides opportunities. Declines are a regular occurrence of market activity and as such, provide greater clarity and create further investment opportunities.
- Our portfolio is managed by investment experts. The legalsuper portfolio is constructed with a view to providing a robust and resilient outcome across a full business cycle. It is targeted at consistent returns generated from taking a disciplined approach to risk.
- Understand your risk appetite. Everyone's appetite for risk is different and although you shouldn't time the market, you should choose an investment strategy that you're comfortable with through all market conditions. By answering a short risk profile questionnaire, our Adviser Online tool can help you determine the best investment strategy, based on your age, risk profile, and investment time horizon. To access Adviser Online simply login to your secure MemberAccess account and click on the Adviser Online tile.
*SuperRatings is an independent research provider for the superannuation industry.
** SuperRatings balanced option median.
*** Source: Australian Financial Review 4/7/22
^Source: Long-term asset class returns
This information is of a general nature and does not take into account your specific needs. You should consider your own financial position, objectives and requirements before making any decision. You should also obtain and read the relevant legalsuper Product Disclosure Statement (PDS) and Target Market Determination (TMD) before making any decision in relation to legalsuper. The PDSs and TMDs can be obtained at legalsuper.com.au. Past performance is not necessarily an indicator of future performance.
Legal Super Pty Ltd ABN 37 004 455 789 AFSL 246315 as Trustee for legalsuper ABN 60 346 078 879.