Market update: Global markets reach turning point
29 June 2022
If the first half of 2022 has shown us anything, it’s clear this year will be more challenging than the last several years for superannuation.
2022 has seen volatility return with losses in both equities and fixed interest markets over the year to date. In recent decades it’s been unusual for both equities and fixed interest investments to suffer losses at the same time. However, the combination of sharply higher inflation and rising interest rates has impacted growth and defensive assets alike.
While this may be concerning, members are reminded that returns have been very strong for Australians who have invested in their super over the past decade. Since the introduction of compulsory superannuation in 1992, Growth funds have only experienced four years of negative returns. Even in 2019/20 during the COVID-induced share market meltdown, the median loss was just 0.60%1.
Through all the ups and downs in recent years, the Suncorp Multi-Manager Growth Fund has delivered an average return 8.70% p.a. over the five years to 31 May 2022 (for accumulation accounts). Returns for the Suncorp Multi-Manager Funds and Suncorp Lifestage Funds over 5 years are shown in the table and returns over other periods and for all options are on our performance page.
1 Source: Chant West, Media Release 18 May 2022.
Table shows 5-year returns as at 31 May 2022 for accumulation (super) members. Returns are net of administration fees for Personal super members.
A period of weaker returns is not unexpected after such a strong run of robust returns. However, one positive is that with central banks now raising official interest rates, this reset will in time provide more attractive returns on defensive assets such as cash and fixed interest.
The recent market correction can largely be attributed to rising interest rates, higher inflation, supply side bottlenecks and the transition from COVID-induced emergency fiscal and monetary conditions to more normal economic conditions.
While higher inflation rates were previously seen as a temporary response to supply chain issues caused by COVID-19, it has become clear that this is a more enduring trend. Higher inflation has been driven by strong demand on the back of government COVID-related support measures, low unemployment and interest rates, and rising wage pressures, while being exacerbated by Russia’s invasion of Ukraine and the resultant boom in oil and gas prices. Central banks such as the Reserve Bank are attempting to reduce inflation by increasing interest rates to slow demand in the economy.
Returns are likely to be lower going forward due to the reduction in support for the economy by governments and central banks. Rising interest rates dampen consumer and corporate demand – and overall economic activity – by increasing borrowing costs.
Fixed interest markets have already priced in the prospect of significant interest rates by central banks in coming years, and the worst may be behind us. However, equity markets, while off their recent peaks, are still to navigate the fallout from higher interest rates as the economy and corporate profits weaken.
We are working to protect our members by building a diversified investment portfolio, spreading our members’ money across a range of shares, property, infrastructure, debt, and other growth assets. This has been shown to reduce overall portfolio risk as different asset classes provide different returns at different times.
Our highly skilled investment managers are continuing to closely monitor the performance of our investments, the market and macroeconomic conditions, to maximise returns for our members while delivering investment security.
As we saw with COVID-19, volatility brings challenges and opportunities, both of which our team is well-equipped to respond to and help protect the interests of our members.
Through these volatile times, the fund and our investment managers have continued to monitor the situation in Russian markets, to ensure we make any decision regarding our holdings in our members’ best financial interests. Fortunately, direct exposure to Russia and Ukraine is extremely small, although the flow-on effects can still impact portfolios due to the interconnectedness from decades of globalisation.
Past performance should not be taken as an indication of future performance. We calculate investment performance using the withdrawal unit price for each investment option in accordance with industry standards. Investment performance is calculated net of taxes and fees such as the investment fee, the investment performance fee, the administration fee, member fee and the expense recovery fee. However when calculating investment performance we do not take into account contributions taxes, the contribution fee, deferred contribution fee, withdrawal fee and any discretionary ongoing fees such as insurance premiums and adviser service fees.