The investment bumpy road explained

Our investment manager, Ibbotson explains how recent market fluctuations is nothing out of the ordinary and provide their views on investment strategy.

The markets have been a bit up and down around the world over the last few months and investors have been on a bumpy ride. The main reasons for the fluctuations this time round are, the uncertainty of global commodity prices (anything from oil and iron ore to food and beverages) and slower economic growth (particularly in China) and the US central bank (Federal Reserve) interest rate rises.

So what does all this mean for your super?

While it’s uncomfortable to experience fluctuations in your account, what’s happening in global markets isn’t out of the ordinary. Ibbotson expect these market fluctuations and follow an investment strategy to even out these bumps along the way so the ride is a little smoother.

How do we keep things on a more even keel?

Ibbotson’s funds are managed with a focus on capital preservation, with the aim to avoid losing money that can’t be made back during your investment timeframe. They’re managed to a dynamic investment approach that provides the flexibility to be invested in assets (e.g. shares, bonds, cash and property) only if it makes sense to do so. If the reward isn’t worth the risk, Ibbotson will avoid that asset class.

Growth vs defensive, it depends on your stage of life

MySuper Lifestage funds move from a growth to a defensive/income bias as you get closer to retirement.

We all know that sharp market declines can happen at any stage in life. In such times, investors who are closer to retirement, and who have less time to generate future income, are less at risk of incurring significant losses thanks to the defensive bias.

Conversely, investors who are further away from retirement will have higher allocations to growth assets because they have more time to ride out periods of market volatility.

When the market’s volatile we look for silver linings

Ibbotson adopts a ‘valuation-driven’ approach to investing. This means that when shares are ‘cheap’, they can take advantage of these opportunities by ‘buying the dips’. On the other side, when shares are expensive, they are not afraid to sit on the sidelines to build up higher levels of cash as ‘dry powder’. Ibbotson are not emotional about short-term market fluctuations and neither should you be.

History repeats itself and markets always turn around

While recent share price declines have been significant, they are nowhere near the worst in share market history. In addition, periods of weak share market performance have always been followed by periods of strong performance in the medium to longer term (in fact, above and beyond previous highs). This is normal share market behaviour.

For example, Australian1 and US2 shares have returned roughly 10% per year on average over the past 25 years (to September 2015). This is despite the following events that occurred during this period (to name a few):

  • Early 1990’s recession
  • 1997 Asian financial crisis
  • 2000 Dot-com collapse
  • Early 2000’s recession
  • 2001 September 11 attacks
  • 2007 Global financial crisis
  • 2009 European debt crisis


Source: Morningstar. Data as of 30 September 2015.

1.ASX200 TR AUD, a share market index made up of the top 200 Australian shares (by market value) with net dividends reinvested
2.S&P500 Gross Return USD, a share market index made up of ~500 leading US shares with net dividends reinvested.

We continue to watch and monitor the markets, and have the flexibility to move as market conditions require, always looking for that silver lining.

This information is issued by Ibbotson Associates Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (‘Ibbotson’). Ibbotson is a member of the Morningstar group of companies (‘Morningstar’). © Copyright of this document is owned by Ibbotson and any related bodies corporate that are involved in the document’s creation. As such the document, or any part of it, should not be copied, reproduced, scanned or embodied in any other document or distributed to another party without the prior written consent of Ibbotson. The information provided is for general use only. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Ibbotson nor its third parties accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included. Ibbotson warns that (a) Ibbotson has not considered any individual person’s objectives, financial situation or particular needs, and (b) individuals should seek advice and consider whether the advice is appropriate in light of their goals, objectives and current situation. Before making any decision about whether to invest in a financial product, individuals should obtain and consider the disclosure document. For a copy of the relevant disclosure document, please contact our Distribution Team on 02 9276 4550.

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