Investment Update - Winter 2018

TelstraSuper Chief Investment Officer Graeme Miller explains the drivers behind strong returns and discusses the market outlook.

  • Transcript

    How did TelstraSuper’s investments perform in the 2017 financial year?

    I’m delighted to report that TelstraSuper members have enjoyed exceptionally strong investment returns this year!

    In our diversified investment options for accumulation members, our Growth option delivered a return of 13.5%. Our Balanced option earned 11.4% and the Defensive Growth option earned 9.8%. The return for the Diversified Income option was 10%, and even our Conservative option delivered an impressive 7.3%!

    Remember that these returns are net of all investment fees and investment taxes.

    For our pension members, the returns were even higher, because members with account-based pensions don’t pay tax on their investment earnings. For example, our pension members earned 15% in the Growth option and 12.8% in the Balanced option.

    What have been the key drivers of these strong returns?

    The best way to understand the drivers of these strong returns is to look at the performance of the individual asset class investment options.

    The best performing assets in our portfolio were international shares. Our international shares option earned 17.1% for the year! Australian shares were similarly impressive with returns of 15.6%. In the last twelve months, investment conditions for shares turned out to be very favourable - with low interest rates, strong labour markets, and economic growth picking up in most major economies.

    Our property assets had another good year. The property option returned 10%. Returns were boosted by a number of asset sales, as well as continued demand for the high quality assets that TelstraSuper holds. We saw similarly pleasing performance from the infrastructure assets in our diversified portfolios. These include electricity networks, airports and toll roads.

    As expected in this type of environment, Cash and Fixed Interest investments lagged far behind our growth-oriented assets such as shares and property. With interest rates hovering around record-lows, it’s not surprising that our Cash option delivered just 1.9% for the year and our Fixed Interest option 2.7%.

    Of course, defensive assets such as Cash and Fixed Interest won’t always underperform shares, and many investors include them in their investments to act as shock absorbers in times of financial stress. They’re also included in our diversified options for this reason.

    Once again, all of the figures I’ve quoted are for accumulation members, so they are net of all investment expenses and taxes. Returns for pension members were even higher, and can be accessed by visiting our website.

    How do you see the outlook for financial markets?

    It’s always difficult to make financial predictions, especially about investment markets which can be quite volatile.

    That said, following last year’s strong performance, we do think that assets are now generally quite expensive and therefore we’re not anticipating returns for the next financial year to be as strong as they were in 2017.

    Investment markets will be impacted by a number of factors over the coming year – many of which will pull markets in opposite directions.

    Positive factors for the economy and financial markets include strong investor sentiment, low unemployment and low inflation.

    But there are also negative influences, such as high levels of household and government debt, high asset prices and geopolitical tensions in places like North Korea, the Middle East and Europe.

    This uncertainty about the future is the reason why TelstraSuper builds well-diversified portfolios for our members. Our investments draw their returns from many different types of assets, in many different countries, and are managed by multiple investment teams.

    We aim for our portfolios to be resilient in a variety of investment environments, and to maximise long-term returns for the risk profiles chosen by our members.

    As we enter the 2018 financial year, we’re currently holding more cash than we usually do and less fixed interest. We’re also holding more property assets than usual but have reduced our exposure over the last twelve months. Our holdings in other asset classes, including shares, are close to our long term targets.

    It’s a privilege to be entrusted with the management of your superannuation savings. We’re looking forward to the next twelve months, and 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.