CareSuper Investment Update – September quarter 2020

Investment markets – a snapshot

Investment markets have continued to recover over the September quarter, helping to deliver an uplift in returns for members. Despite this comeback there is still a lot of uncertainty in markets due to various factors – so we remain cautious in our outlook.

Wrap of performance

CareSuper’s Managed options have seen solid returns in the first quarter of the new financial year with our Balanced (MySuper) option returning 2.2% for the three months to 30 September 2020. Gains were largely driven from allocations to overseas shares, private equity, credit and our infrastructure assets.

Our longer-term returns remained strong with the Balanced (MySuper) option posting returns of 8.2% per annum, over the last 10 years to the end of September. This is well above the SuperRatings median fund return of 7.1% per annum.^*

Returns for our pension members were slightly higher as pension members don’t pay tax on investment earnings.

You can see the returns for all of our investment options over various time periods set out in the performance table.

What happened in markets

Global share markets performed strongly throughout the September quarter with the MSCI World Index returning just under 4% (in Australian dollars) in the three months to 30 September 2020. This performance was largely driven by the US, where the S&P 500 returned investors 8.5% and the tech heavy Nasdaq index rose by 11%. European share markets were generally weaker, with some experiencing meaningful declines.

The September quarter, however, was a difficult one for the Australian economy. Australia entered into its first recession in almost 30 years, despite record low interest rates and large amounts of government stimulus.

The Australian share market was largely unchanged by quarter end, with the S&P/ASX 300 index generating a small negative return of 0.1% over the quarter. The strong performance from consumer discretionary shares as well as good gains in IT were broadly offset by the share price falls among the banks, insurers and energy companies.

Australian long-term interest rates continued to also fall during the three months to 30 September 2020, and as a result, the return on Australian fixed interest securities was up by 1% for the quarter. Returns for global fixed interest were slightly lower at 0.7%.

The Reserve Bank of Australia (RBA) kept the official cash interest rate steady at 0.25% through the September quarter and extended the program it introduced in March 2020 to support low-interest banking lending. However, as part of a suite of measures to stimulate the Australian economy out of a COVID-19 driven recession, Australia’s official cash rate was reduced to 0.1% on 3 November 2020.

The Australian dollar continued to climb from its March low, reaching over 73 US cents at the end of August, before weakening in September. At quarter’s end, it was trading at 71.7 US cents, or about 3 cents higher than the beginning of the quarter.

Looking ahead

We remain cautious in our outlook given that the impact of COVID-19 on financial markets remains significant.

‘We’re seeing a resurgence of coronavirus cases across Europe and the US with the spike in infections resulting in renewed lockdowns,’ says CareSuper’s Chief Investment Officer Suzanne Branton.

The continued uncertainty from COVID-19 is likely to cause further volatility in markets. But on the plus side we’re expecting governments and central banks to continue to support low interest rates and stimulus programs, which is supportive of asset prices over the long term.

However, with continued low interest rates, returns on fixed interest investments are set to remain low. The low yield environment also reduces returns for cash investments with returns now close to zero.

‘In the current low interest rate environment, we continue to see the benefits of diversification through unlisted assets, like infrastructure, credit, property and private equity’, says Branton.

‘We believe that sticking to our tried and tested active management approach allows us to identify and take advantage of opportunities. And as always, we continually monitor financial market movements with a focus on delivering strong long-term, risk-adjusted returns.’

* SuperRatings Fund Crediting Rate survey SR50 Balanced (60-76) Index – September 2020.

CareSuper’s performance figures shown are before tax but net of investment fees, and have been rounded to one decimal place.

Past performance is not a reliable indicator of future performance and you should consider other factors before choosing a fund or changing your investments.