Recent market volatility and your super

Investments

21 June 2022

In recent months global share and bond markets have experienced falls which have impacted super account balances.

We understand that it’s unsettling to see your super fluctuate, but it's important to remember that super is a long-term investment. You can also take comfort in knowing our active investment strategy aims to smooth out the ups and downs of market cycles, protecting your capital in volatile times and taking advantage of opportunities when markets rise.

We’ve explained more about what’s happening in investment markets and how we’re protecting your super while also focusing on long-term growth.

What’s happening in financial markets

A considerable increase in market volatility since the beginning of 2022 has created a challenging environment for investors and the wider superannuation industry.

As a result, you may have noticed your account balance fluctuating — and if you’ve checked your super balance recently, chances are it’s lower than it was at the start of the year.

That’s because the value of major financial markets has been falling. Rising interest rates, inflation expectations and geopolitical concerns (mainly arising from the Russia and Ukraine situation) have been the main factors causing market falls in recent months.

These factors have mainly impacted share and fixed interest markets which have contributed to our recent performance results. For more on the drivers of financial markets, watch our investment update May 2022 video.

The impact of market movements on investment option returns

Like any long-term investment, how market volatility affects your super largely depends on which investment option(s) you’re invested in and when you intend to access your super.

Most investment options are likely to be affected in the short-term in some way. Given the recent financial market falls, generally, options with higher allocations to shares and fixed interest will be more adversely affected than those with lower allocations.

Our performance tables show how market volatility has affected our different investment options for 1- and 3-months, and 1-, 5-, 7- and 10-year periods. While some investment options show negative results over shorter periods, returns across all investment options over the long term (such as over 5-, 7- and 10-year periods) are positive.

Fixed interest investments and negative returns

While fixed interest securities are important diversifiers for investment portfolios, and have historically provided stability when riskier assets like shares are more volatile, there are times in the market and economic cycle when fixed interest securities can have negative returns.

The prices of fixed interest securities have an opposite relationship with interest rates. So, when market interest rates rise, the value of a fixed interest investment can fall. As the economy recovers from the COVID-19 economic downturn, interest rates have been trending higher, so this has put downward pressure on the value of fixed interest assets. In fact, this is the sharpest rise in interest rates we’ve seen since the late 1990’s. This is mainly because we’re coming off very low rates as policy setting resulting from COVID-19 stimulus measures have now been removed and inflation is at record level highs.

To find out more about fixed interest securities and how they generate returns, you can read our FAQs or watch our video.

Volatility and the outlook

Reserve Bank of Australia (RBA) Governor Philip Lowe says inflation is expected to peak around 7% later this year, and we can expect the cash rate to reach 2.5% by the end of 2022^#. We don’t know how long the volatility will last — but markets have already factored in the substantial rise in interest rates and inflation, and have begun to adjust.

And while share markets and fixed interest could decline further, no-one can predict the short-term ups and downs. But as markets adjust, we know to a degree they’ve considered the challenges ahead.

Our investment strategy remains cautious. As tensions around the world continue to unsettle investors, the future remains uncertain. That’s why it’s important we stick to our disciplined investment approach and focus on outperforming over the long-term.

How we navigate market cycles

In this environment, our focus remains on delivering the best financial outcomes for members over the long term. While changes in your balance can look worrying, market fluctuations (i.e. ups and downs) are a normal part of investing. That’s why keeping a long-term view is important.

We’re continuing to monitor our portfolio and markets closely, and we’re continuing to assess the outlook and manage our investment strategy. This may include taking advantage of opportunities across the various asset classes that become available.

But more importantly, our investment philosophy that guides the way we invest your super prepares us for scenarios like this. We’re well placed to navigate the current market volatility, with our investment strategy designed to:

Focus on the long term
Actively invest for growth and mitigate downside risks
Diversify our investments to help manage risks.

You can read more about our investment philosophy or watch our video on how we invest.