By Edward Smith, Chief Investment Officer
When investors look back on the financial year ending 30 June 2020, they will surely agree it was a tough year.
The year began with a roar as global sharemarkets continued their strong run from the previous year. By the end of January 2020, the Australian sharemarket had risen by 9% and global sharemarkets by 13.7% since the previous June. News from overseas was of low unemployment, strong economies, and a potential end to the trade tensions between the United States and China.
Sharemarkets in the developed world peaked on 20 February 2020, as it became apparent that COVID-19 was going to have some nasty global implications. Emerging markets had peaked a month earlier as COVID-19 was already undermining the Chinese economy. Between 20 February and 23 March 2020 the Australian and overseas sharemarkets fell by 36% and 33% respectively. The fall in overseas sharemarkets was cushioned for Australian investors by a fall in the Australian dollar, which also took a nasty hit.
Governments and Central Banks around the world swung into action to help support economies that were facing a massive challenge. Interest rates fell to record lows, Central Banks reintroduced new tools to keep financial markets properly operating, and Governments around the world spent up large on programs to support businesses and the newly unemployed. These efforts have helped soften the blow to world economies and have triggered a surprisingly strong rally in sharemarkets.
The share market rally deserves some explanation. Some companies, such as Zoom, Netflix and Amazon, have benefited from the pandemic as their services cater well to households. Other companies that were hurt by the pandemic – such as those operating in tourism and aviation – took steps to recapitalise and shore up defences to help see them through. Investors who had endured the global financial crisis (GFC) of 2007-08 were again looking for a turning point and seized the opportunity to buy shares at depressed prices. The combination of all these factors led to the Australian and global sharemarkets rising by 31% and 37% respectively by 30 June 2020.
This does not mean the COVID-19 pandemic is over; far from it. The health and economic effects will linger for years. The recovery in sharemarkets – amid poor economic news – was the result of investors anticipating future growth.
TWUSUPER’s Balanced (MySuper) investment option has returned -0.66% for the year to 30 June 2020. While a negative return is disappointing, it is nevertheless a strong result given how incredibly volatile investment markets have been.
TWUSUPER was positioned defensively at the start of the pandemic with relatively high levels of cash. This has allowed the Fund to reinvest in sharemarkets and credit markets at low prices.
While we remain optimistic about the future, we are well positioned should another sharp downturn eventuate.