Posted 21 June 2022
In the following commentary, we aim to give members a wider view of recent share market volatility and negative performance across multiple asset classes.
Over the last few months, significant volatility and negative returns have been prevalent across shares, bonds and many other asset types. This has been primarily driven by inflation concerns and expectations of central bank actions, Global share and bond markets simultaneously experienced large falls over the year to date – a rare occurrence.
Putting approximate figures on these market movements, over the calendar year to 31 May 2022:
Although still volatile over this period, the Australian share market3 fared better, returning approximately negative 1.6% over the same period.
Diversified investment options such as conservative, balanced or growth-style options are largely invested across multiple asset classes and geographies. This ‘spread’ of investments is designed to reduce an option’s exposure to adverse market events. However, the recent market downturn has impacted most asset classes across the board, with diversified option returns having generally suffered over the shorter term.
Notably, recent high inflation has produced relatively high actual or expected interest rate rises, weakening both share and bond markets at the same time. This combination of high inflation and weakened share and bond markets has lowered returns for conservative-style options.
Conservative-style options normally have a higher bond (or fixed interest) allocation than balanced or growth-style options and are usually likely to be less severely impacted by share market down turns. Note though that conservative-style options also have a lower long term return expectation. In this instance conservative style options have been predominantly impacted by the negative returns from bonds (or fixed interest) assets.
The cyclical nature of markets means short term rises and falls in super are to be expected, with long term performance being the more important focus for investment strategies.
Heightened inflation has persisted for longer than expected and central banks’ actions to curtail this by raising official interest rates, as the Reserve Bank of Australia has done, have particularly impacted share markets and fixed interest and bond markets. These markets are cornerstone exposures in diversified superannuation portfolios.
Additionally, heightened volatility caused by the war in Ukraine has exacerbated further inflation fears, supply chain delays and price hikes, especially in commodities and energy sectors.
Despite increased volatility, the Australian share market has performed better, albeit negative over the calendar year, than the overall global share market off the back of rising energy and commodity prices due to the conflict in Ukraine and its concentration in the commodities and materials sectors versus other countries.
Our diversified options have a greater allocation to international shares versus Australian shares. This is maintained on our belief that over the long term international share markets provide greater investment opportunities across countries, sectors and companies.
In addition to share market volatility, the last few months have seen record low performance in fixed interest markets. Interest rates have been at historic or near historic lows and there has been intense shifts in bond yields as a result of market expectations of multiple official interest rates hikes to curb inflation this has resulted in the low performance in fixed interest markets.
A further explanation on the relationship between fixed interest investments and rising interest rates can be found in an earlier article we published in the February 2022 Accumulate Plus and Retirement Access newsletters entitled “Investment market update”.
Below is an outline of our options’ short term performance for the period 1 January 2022 to 31 May 2022. Also provided is a performance measure of the Australian and International share and fixed interest markets.
The returns shown below for Accumulate Plus and the Retirement Access Transition to Retirement Income Stream (TRIS) are based on taxable unit prices and are shown after tax, investment fees and asset (percentage) based administration fees. Retirement Access account-based pension returns are based on non-taxable unit prices and are shown after investment fees and asset-based administration fees. Investment market indices returns are gross returns.
Short term downturns are expected, but we believe our investment options can deliver their stated objectives over the longer term. Whether an investment option is suitable to your needs depends on many factors specific to you, including your willingness or capacity to take on risk and / or short term volatility, when you plan to retire, and your personal circumstances. Make sure you understand the option(s) your super is invested in, how those options invest and consider seeking advice from an authorised financial adviser.
If you have any questions, please call us on 1800 023 928, or +61 3 8306 0977 if calling from overseas.
Footnotes:
1 Based on performance of the MSCI ACWI ex Australia Net 25% Hedged index – please see further information regarding these figures and their source below.
2 Based on performance of the Bloomberg Global Aggregate, Hedged AUD index – please see further information regarding these figures and their source below.
3 Based on performance of the S&P/ASX300 Index– please see further information regarding these figures and their source below.
4 The "S&P/ASX300" is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and ASX, and has been licensed for use by the trustee of Commonwealth Bank Group Super (“the trustee”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); ASX are trademarks of the Australian Securities Exchange and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the trustee. The trustee’s product is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, or ASX and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the S&P/ASX300 index.
5 The MSCI data is comprised of a custom index calculated by MSCI for, and as requested by, the trustee of Commonwealth Bank Group Super. The MSCI data is for internal use only and may not be redistributed or used in connection with creating or offering any securities, financial products or indices. Neither MSCI nor any other third party involved in or related to compiling, computing or creating the MSCI data (the ‘MSCI Parties’) makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and the MSCI Parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to such data. Without limiting any of the foregoing, in no event shall any of the MSCI Parties have any liability for any direct, indirect, special, punitive, consequential or any other damages, including lost profits) even if notified of the possibility of such damages.
6 Bloomberg® and Bloomberg AusBond Composite Bond Index 0+yrs and Bloomberg Global Aggregate Hedged AUD are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by the trustee of Commonwealth Bank Group Super (“the trustee”). Bloomberg is not affiliated with the trustee, and Bloomberg does not approve, endorse, review, or recommend any trustee’s Accumulate Plus or Retirement Access products. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the trustee’s Accumulate Plus or Retirement Access products.
