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 for the financial year to 30 June 2019, and letting you know about some recent changes we’ve made to our investments.
How did TelstraSuper’s investment perform in the twelve months to 30 June 2019?
I’m delighted to once again report strong returns for all of TelstraSuper’s investment options. In the accumulation section of the Fund, our Growth option earned 7.7%, our Balanced option earned 7.1% and our Conservative option earned 5.7% for the financial year. These returns are net of all investment taxes and investment fees.
Returns for our Retire Access pension members were higher because pension members don’t pay tax on investment earnings.
These returns are well-ahead of the objectives we set for our investment options, and were boosted by strong performance of share markets in the final month of the year.
What are the key factors that influenced investment markets during the year?
The global economy grew strongly in the financial year, boosted by low inflation and strong employment. Low interest rates were another key driver of economic growth and investment returns, particularly in the second half of the financial year.
However despite the good overall results, investment markets were actually quite volatile during the year – with the final quarter of 2018 being particularly weak. The key drivers of volatility were concerns about the trade dispute between China and the United States, as well as concerns, in the first half of the year, that US interest rates would rise too quickly.
What changes have been made to TelstraSuper’s investment strategy?
Every year we carry out a comprehensive review of our investment strategies to ensure that they remain appropriate for our investment objectives. Following this year’s review of investment strategy we have made a few changes to the Strategic Asset Allocations for our diversified investment options, which have taken effect from 1 July 2019:
In summary, we have reduced the strategic allocation to hedge funds to zero in all investment options, and instead we have increased the allocations to infrastructure, unlisted property, private markets and alternative debt.
We’ve also increased the allocations to international equities and made an offsetting reduction to the allocations to Australian equities. And we’ve started to differentiate between listed property securities and unlisted property as separate asset classes.
Finally, we’ve also increased the exposure to foreign currencies in our portfolios.
Although these changes take effect from 1 July, they will be implemented progressively over a period of time, based on market opportunities and asset liquidity.
To see the updated Strategic Asset Allocations, please visit our website.
What other changes have been made to TelstraSuper’s investment options?
The other big change that has recently occurred is a reduction in the buy-sell spread costs on most TelstraSuper investment options to 0%. This means there is now no charge for transactions such as member switches or new contributions. The only exception is the Property investment option, where a buy-sell spread of 0.1% will apply.
What is the outlook for investment markets in for the upcoming financial year?
We believe that we’ll continue to see good economic conditions in the next financial year, with economic growth being supported by low interest rates, high levels of government spending and strong employment. It’s important to note however that this positive outlook is already priced into investment markets, so any if there are growth hiccups along the way, this could have an negative impact on markets.
We are monitoring two key risks:
Firstly, the trade dispute between China and the US. If the dispute escalates, this can have negative consequences for economic growth and investor confidence. On the other hand, if the dispute is resolved favourably, it may well give a boost to markets.
Secondly, we’re keeping an eye out for signs of increases in inflation. If inflation emerges as a threat, this will most likely lead to interest rate rises and falls in asset prices.
At the present time, our portfolios are somewhat defensively positioned. Our exposure to shares is about 2% lower than usual in most options, and we’re holding less 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 are elevated. Under this positioning, our members will continue to enjoy most of 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 and retirement 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.