The year of volatility

The 2019/20 financial year was a year like no other for Rest and superannuation funds in general. The biggest contributing factor to this performance of our investments was, unsurprisingly, the extreme volatility caused by the global coronavirus pandemic in the second half of the financial year. 

Following a record-breaking 10 straight years of positive returns, Rest’s default Core Strategy has ended the 2020 financial year down -1.05% over the year. For Pension members, the default Balanced strategy is -0.24% over the year ending 30 June 2020. Rest’s other Structured Options, while also lower across the board for the year, remain on track to meet/better their long term ‘CPI-plus’ objectives. Most of our Tailored Options too, have finished the year softer - the Cash, Basic Cash, Bonds, Property and Overseas Shares - Indexed options, notable exceptions.

Over the past 4 months, the deep market panic surrounding COVID-19, followed by a sharp share market rebound, reminds us all of the importance of diversification, discipline and a long-term view. These are central to Rest’s investment philosophy, and why over the long term, Core Strategy’s performance has been solid, returning +7.66% per annum over the 10 years to end June 2020. This is well above its investment objective of CPI +3% per year over the long term (rolling 10 year periods). For members, this means their retirement savings have been growing faster than the cost of living increases.

At times like these, it’s never more important to remember that super is a long-term investment. While this year provided negative returns for Core Strategy, this is only the third negative year in the 32 years since the option started on 1 July 1988. It’s also the first negative year for the option in a decade. And in those 32 years, Core Strategy has returned an average of 8.33 per cent per annum up to 30 June 2020.

Our CEO, Vicki Doyle, has summed up the year in this video.

The world markets were shocked

The longest bull market on record (2009-2020) for US stocks came to a sharp, abrupt end in March. From its February 17 all-time highs, the US S&P 500 plunged 34% in a span of just 5 weeks. The sell-off over a similar period in global equities (MSCI AC World) -32%, and Australian equities (ASX300),  -33%, was just as violent, with parts of the bond market (particularly lower rated corporate bonds), and US oil (which even went negative), not spared. COVID-19 had spread beyond China; reaching global pandemic proportions - triggering health and economic fears while setting off a dramatic sell-off not just in stocks, but also bonds and commodities making a volatile market,  these markets then later rebounded but not to their previous highs.

Unprecedented stimulus by governments

Unlike previous crises, the policy actions taken by governments and central banks across the globe to stem the economic disruptions from the COVID-19-pandemic have been both swift and aggressive. The US, UK, Europe, Australia, China, Qatar, etc., have all committed to very significant fiscal stimulus measures. The numbers are enormous. The response of central banks has been just as dramatic, with interest rates now cut to virtually zero or negative in many parts of the world, and unconventional monetary policy actions that dwarfs even the GFC (Great Financial Crisis), in scale and scope. It’s this extraordinary, ‘whatever it takes’ approach to the COVID-19-induced economic shutdown that has led to a recovery of massive proportions across financial markets from their March lows.

With a gradual reopening of global economies and encouraging progress on the COVID-19 vaccine front, global equities have staged a comeback , ending the financial year 4% higher. The S&P500 is also 7% higher, vs Australian equities, which weighed by the banks, have ended the year 8% lower. 

Rest’s focus and performance during the year

Amid this volatility, we’ve been focusing on protecting your retirement savings from adverse risks and delivering long-term returns.

Core Strategy is a diversified option, and it’s not just invested in shares. It also has investments in cash, bonds, property, infrastructure and agriculture. It’s designed to help minimise the impact of market shocks. 

In recent years, Rest believed there were heightened risks in global markets, and these markets were vulnerable to ‘shock’ events, such as a global pandemic and economic shutdown. That’s why, in the months before February’s sell-off, we continued to prefer more defensive assets, like cash, and were more defensively positioned with shares compared to some of our peers.

So, while Core Strategy returned -1.05 per cent for Rest Super members during the past financial year, during the same period Australian share markets shrunk – the ASX All Ordinaries index fell by -7.2 per cent, for example. The MSCI Europe share index also fell by 5.7 per cent. 

Rest also has a number of other options available that members can choose from according to their personal investment horizons and attitudes towards risk.

The one-year and 10-year performance for all our investment options are:

 
  Rest Super Rest Pension
Investment Option 1 year 10 year
% (pa)
1 year 10 year
% (pa)
Core Strategy -1.05% 7.66% -0.26% 8.51%
Structure Options
Balanced -0.82% 6.53% -0.24% 7.33%
Balanced - Indexed 0.44% N/A 0.44% N/A
Capital Stable -0.15% 5.37% 0.32% 6.12%
Diversified -1.27% 7.94% -0.77% 8.83%
High Growth -1.93% 8.79% -1.37% 9.70%
Member-tailored Options
Basic Cash 0.66% 2.19% 0.79% 2.58%
Cash 1.26% 2.56% 1.51% 3.06%
Bonds 1.27% 4.61% 1.55% 5.37%
Shares -2.88% 9.83% -2.31% 10.68%
Property 0.64% 7.74% 0.74% 8.63%
Australian Shares -6.95% 8.68% -3.78% 9.91%
Australian Shares - Indexed -6.72% N/A -7.4% N/A
Overseas Shares -2% 9.92% -1.87% 10.93%
Overseas Shares - Indexed 3.82% N/A 4.14% N/A

All figures as at 30 June 2020. Returns are net of investment fees and tax, except Pension which is untaxed. The earnings applied to members’ accounts may differ. Investment returns are at the investment option level and are reflected in the unit prices for those options. Returns for the ten year period are annualised returns. N/A applies to options running less than the indicated time periods. Past performance is not an indicator of future performance.

You can view more details about the performance of our options here. To find out more about Rest’s investment options, read our Investment Guide or if you are a Pension member refer to the Rest Pension PDS, or visit the Investments page of our website.

What’s next?

Ultimately, the economic impact of the coronavirus remains uncertain. Rest will continue to monitor the situation closely and actively adjust the mix of investments in Core Strategy to balance risks and opportunities. 

Thanks to our allocation to cash assets before February, Rest is now well placed to pursue value for our members. We have increased the amount of ‘growth’ assets we hold in Core Strategy, such as shares.

The table below shows how we actively adjust the amount we hold in shares – a growth asset – and cash – a defensive asset – in Core Strategy as we monitor risks and opportunities in various markets. Remember, Core Strategy is also invested in a variety of other growth and defensive assets. 

  June 2019 February 2020 June 2020
Shares 39% 39% 46%
Cash 14% 12% 6%

While there are still many risks on the horizon, we believe there is real value out there to help grow your retirement savings over the long term.

Need advice?

If you want to review your investment strategy, you should consider speaking to a financial adviser. The Rest Advice team can talk you through your options.

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