Investment update May 2020

If markets feel much more volatile than usual, it's because they are

What's been happening?

Unsurprisingly, the last few months have seen a lot of ups and downs in global investment markets. And while it’s not the first time such impactful change has happened, it’s likely to be the sharpest economic downturn since the 1930s and the Great Depression.

From the 20th February to the 23rd March we saw share markets fall between 30-40%. As is often unfortunately the case, while the share markets fell heavily in February and March, ahead of the ongoing distressing economic news, they’ve somewhat recovered. Unemployment, however, has risen sharply in a very short space of time and continued to rise in April/May. In the US, it went from 4 to 16%1. In Australia economists are predicting we’re sadly heading towards 10%2.

The global economic downturns are the result of disruption to international trade and domestic productivity, and their impact on investor and consumer confidence in response to the COVID-19 (Coronavirus) pandemic.

Has the share market bounced back?

Most share markets have rebounded, generally between 20-35%, although generally not to pre COVID-19 levels. This is largely from a joint effort between central banks and governments around the world.

They’re implementing an extraordinary amount of policies very quickly, ones they know worked well during the Global Financial Crisis (GFC) in 2008. In the last ten weeks, global central banks have stimulated the economy to the tune of US$6 trillion, significantly more than they did during the GFC period in 2008 and 2009. Although share market recovery was expected from this recent stimulus activity, many have been surprised by how quickly markets have bounced back.

So far, central banks have been successful in what they’ve set out to do, but there’s still a long way to go. The markets will continue to be volatile throughout the COVID-19 crisis. So, until we have a mass-produced vaccine or effective treatments, it’s likely we’ll continue to see ups and downs in the economy and share markets.

What does this mean for your LUCRF Super account?

Although we’ve seen most of our investment option returns fall into negative territory, our investment strategy has allowed us to be prepared.  Our above-average levels of cash have protected us from the deeper losses experienced by some other funds. It’s also meant we were more able to prepare for the new Government initiative of temporary early access to super. The other thing that’s worked in our favour is our higher than normal levels of currency exposure. Often when the share markets fall, the Australian Dollar (AUD) falls. When you own foreign assets, such as shares, and convert them back to AUD, rising foreign currencies (or a falling AUD) provides some return upside, or at least less downside. And in this case, that’s been positive for members in investment options with exposure to foreign investments, including our MySuper Balanced / Pension Balanced option.

We also saw an opportunity to purchase more shares (especially Australian shares) in late March when prices were low and that’s worked in our members’ favour while the market has been recovering. We will continue to navigate this period with our eyes open to opportunities and we’re well positioned to navigate the coming months of market volatility.

Looking ahead

The last few weeks have shown the importance of keeping a diversified portfolio. Although our MySuper Balanced option has recorded a year to date return of -2.39% as of 26th May 2020, our less diversified options have been hit hard, particularly our Property and Australian Shares option.

The financial year to date investment return for our Australian Shares option is -8.4%, and -17.4% for our Property option (both to 26 May 2020). By way of reminder, our Property option is invested passively in Australian listed property securities.

Meanwhile, the Reserve Bank of Australia (RBA) has set the official cash rate at record low levels of just 0.25% and it’s likely to remain at historically low levels for the foreseeable future.

This means that, for those members in the retirement phase who have much of their super invested in the Cash investment option they’ll experience very low investment returns, with a very real possibility that their retirement savings will run out sooner than expected.

Your situation is unique

Our Financial Advisers are currently providing over the phone financial advice and can help you select an appropriate investment option for your personal circumstances.

Request a callback

1 A dangerous gap - The market v the real economy, The Economist, 7 May 2020, source

2 RBA: 10pc contraction by June, then fast recovery likely, Financial Review, 8 May 2020, source

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