It was an eventful year for investment markets. The world was struggling with the aftermath effects of the COVID-19 pandemic. Rising inflation was the most obvious effect which created uncertainty and caused a sharp rise in interest rates.
Reflecting back to June 2022, the Chinese economy was still closed due to efforts to manage the spread of the disease and with many industries outsourcing their manufacturing to China the closure significantly impacted the supply chains in most countries. The closure also resulted in hefty increases in shipping costs and limited the supply of many goods just as Western economies were opening up again. After being locked away and only able to buy essentials during the pandemic, consumers were keen to spend and the result was unexpected price rises across the board that many policy makers had not predicted.
Low interest rates, Government spending and support payments had successfully kept the economy afloat during the height of the pandemic but an increased level of consumer spending and unexpected price rises followed and this caused inflation to rapidly increase. The Reserve Bank of Australia (RBA) was left with no option but to increase interest rates.
Higher interest rates can make life difficult for people paying off a mortgage and servicing other debts. Consumers find it harder to make their repayments so they reduce their spending which in turn makes it difficult for many businesses to be profitable.
The positive side of high interest rates is the higher returns for cash investors and an adjustment in market prices. This means the expectation of future returns is positive for all other asset classes.
Investment markets need time to adjust to changing interest rates but by June 2023, we saw they had adjusted and future rate rises had also been factored in. Companies started to become profitable again. As a result, it seems share markets have moved through the shadow of the global pandemic, and returns have been very good, leading to a generally positive outlook for Super and Pension options.
Hear from our Chief Investment Officer, Edward Smith, reflecting on the investment markets over the past financial year
We have developed our investment strategy by considering a wide range of scenarios, including many adverse ones. While we could not have known the specific details of an emerging global pandemic or its economic effects before they happened, the scenarios we used to design our portfolios anticipated similar adversity. As a result, we were well prepared for investment market disruption. We have adjusted our portfolios over time to reflect both risks and opportunities, but the broad strategy has proven resilient and is largely unchanged.
There is no one answer to this question that applies to everyone. How you respond to higher volatility depends on your personal circumstances and your appetite for risk. If you are thinking about changing your investment option*, we would suggest a call to our advice team. You can call our Melbourne-based call centre to make an appointment from 8am to 8pm (AEST/AEDT) on 1800 222 071.
As a general rule, periods of volatility come and go. If you can handle these periods, then its generally better to ride them out.
*You should consider your personal financial situation, needs and objectives, which are not taken into account in this information, and read the TWUSUPER Product Disclosure Statement (PDS) and Target Market Determination (TMD). Download a copy at www.twusuper.com.au before making an investment decision.
You can find the investment strategy for each of our investment options in the Investment Guide. Download a copy at twusuper.com.au/investmentguide
If you are unsure which option you are invested in, you can find out by logging into Member Online. Go to twusuper.com.au/login and sign in to view your account. For Current Investments click on Investments in the menu on the right hand side. You’ll be taken to a page that shows your Current Investments and where your Future Contributions will be invested.
You can see up to 10 years of investment returns for the Cash Plus, Balanced (My Super) and High Growth options on our website. The Conservative and Moderate options were launched in September 2021, so there are no long-term performance figures for those options yet. To see the long-term results, go to twusuper.com.au/longterm
We hedge currency in varying proportions for each asset class. For example, international bonds are fully hedged, while international shares are around 30% hedged. Currency exposures are managed as a way to help manage risk. It is worth noting that in some circumstances currency exposures can actually reduce investment risk.
TWUSUPER is a $6.5 billion fund. This is consistent with other funds, but much smaller than some of the larger funds that measure their assets in hundreds of billions. The strategies used by TWUSUPER are different to these large funds as we seek to play to our advantages and offset our disadvantages. Our investment beliefs provide a clear summary of this. Independent researchers SuperRatings and Rainmaker have measured our risk adjusted returns to be above average.
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