Federal Budget briefing 2019

Chief Investment Officer Graeme Miller shares a summary of the recent proposals around superannuation and what they may mean for you.

  • Transcript

    Hi, my name is Graeme Miller and I’m the Chief Investment Officer at TelstraSuper.    In today’s video I’ll be speaking about investment returns in the first quarter of 2019.

    How did investment markets perform in the quarter?

    Well, what a difference a quarter can make!

    You may recall that global share markets fell sharply in the last few months of 2018.  I’m pleased to say that the first few months of 2019 have been the exact opposite.  We’ve seen strong returns from almost all asset classes – with global share markets leading the way.  On average, share markets across the world surged by [11.5%] in the first three months of 2019.  The Australian share market was up by a similar amount.

    There were two key changes that drove this sharp turnaround in investor sentiment, and both of these came from the United States:

    • The main catalyst was the US Federal Reserve Bank, often called the “Fed”.The Fed is responsible for setting short term interest rates for the United States economy.All through 2018, the Fed had been increasing interest rates, but at the start of 2019 they indicated that they’d be keeping interest rates on hold for a while, and would be taking a number of other steps to avoid slowing the economy.

      Unsurprisingly, this news pleased investors, because lower interest rates usually mean stronger economic growth and higher company profits.

    • The second catalyst for improved investor confidence was signs that United States and China would reach a compromise on the trade dispute that was threatening slow-down the global economy.Although not much actual progress was made during the quarter, both sides toned-down their rhetoric and indicated a willingness to find a solution to this ongoing dispute.

    What happened in fixed interest markets?

    It’s been an eventful quarter for fixed interest markets too, with sharp falls in long term interest rates.  For example the key US ten year government bond rate fell from 2.68% at the start of the quarter to 2.41% at the end.  Ten year Australian government bonds fell even further – from 2.32% at the start of the quarter, all the way down to 1.78% at the end.  In fact Australian interest rates are now at their lowest levels ever!

    These low interest rates tell us that investors and central banks do not believe that we will see much inflation over the next few years, and that the economy needs help to grow. 

    Falling interest rates are generally helpful to investors and usually result in asset price rises, as we saw during the quarter.  Falling interest rates also increase the price of fixed interest assets, so they provide a short term boost to wealth.  But falling interest rates simultaneously reduce the expected future return from fixed interest assets, which makes them less attractive.

    How have TelstraSuper’s Investment Options performed

    The strong returns of the first quarter have flowed through to all of TelstraSuper’s investment options.  The Growth option delivered a return of 7.6% for the quarter, the Balanced Option returned 6.2% and the Conservative option delivered 3.7%You can see returns for our other options and for longer term periods by visiting our website.

    What about TelstraSuper’s longer term returns?

    In March, the independent ratings agency Super Ratings released their survey of the performance of Australia’s major superannuation funds.  The survey showed that TelstraSuper’s Balanced option was the number one performer in Australia out of 47 major funds.  Our Growth option was ranked number two in its survey and our Conservative option was ranked number 3.  

    We’re very proud to have delivered these outcomes for our members.

    How are TelstraSuper’s portfolios positioned today?

    In January we made a small increase to the exposure to shares in most of our investment options.  This proved to be a good decision as markets surged ahead in February.  More recently we made a small reduction to our exposure to US shares, because we believe these are fully valued and we are cautious about the outlook for companies’ profit margins. 

    Overall, our portfolios continue to be somewhat defensively positioned.  For example in our Growth and Balanced portfolios, our exposure to shares is about two percentage points lower than our long term positioning.  We are also holding a reduced exposure to fixed interest securities and a greater amount of cash. 

    We believe that this is a prudent way to position the portfolio, given that we appear to be in the late-stage of an economic cycle and most asset prices have appeared to be elevated.  Under this positioning, our members will continue to enjoy the benefits of continued investment strength, but will also be more protected in the event of a significant market fall.

    It’s a privilege to be entrusted with the management of your superannuation savings. As always we will continue to manage your investments in a prudent and proactive manner – remaining vigilant to identify both risks and opportunities as they emerge.