our CIO on share market volatility

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There has been a lot of media coverage recently regarding the volatility seen in share markets over the past few weeks, both in Australia and overseas.

Although share markets have experienced a sharp pullback, this has been on the back of strong gains. As a result, calendar year-to-date returns in global share markets are only marginally negative (-3.9%)^. Over the same time period the Australian share market is down -3.4%#.  

 

A close eye on global markets

It is always difficult to identify a specific trigger for share market negativity. Among some of the issues causing uncertainty are expectations of further interest rate rises, particularly in the US, concerns about trade disputes between the US and China, and the extended length of the business cycle. Although the environment remains challenging, our internal investment team and our external investment managers are experienced at managing market ups and downs, and are carefully monitoring the investment landscape.

Although the environment remains challenging, our team and our external investment managers are experienced at managing market ups and downs

 

A long-term view

It’s important to remember that, if you are still accumulating retirement savings, super is a long-term investment. While markets can fluctuate over the short term, it is the returns generated over the long term that matter.  Even after periods of extreme market volatility, like the Global Financial Crisis (GFC), long-term investment returns recovered well. In the 10 years to 30 June 2018 which include the impact of the GFC, Core Pool, our default investment option, achieved a 6.89% p.a. average return, outperforming its long-term CPI +4% investment objective (6.12% p.a.)*.

 

Managing risk is key

A key risk management approach across our diversified investment options is to spread investments across a range of asset classes, markets and geographical regions, providing a level of protection in adverse market conditions. Core Pool is our most diversified option.  

Our Income Stream default strategy (a combination of Balanced and Defensive investment options) is deliberately designed to be lower risk than Core Pool. The combination of the two options, when compared to Core Pool, provides lower exposure to listed shares and higher exposure to the more defensive holdings of cash and credit.

Share markets tend to deliver investment returns over longer timeframes despite short-term drawdowns. However, we understand that market volatility can be concerning, particularly when you are approaching, or are in, retirement. It’s a good idea to keep checking that your investment choice reflects your risk tolerance, investment timeframe and personal circumstances.  It’s worth seeking advice if you plan to change your investment choice, or believe you may have a short-term investment timeframe (typically less than five years).

In times of change, one thing stays the same: we’re working hard every day to make a real difference to your financial future.

 

Sonya Sawtell-Rickson
HESTA Chief Investment Officer

 

^ MSCI All Countries World Index ex-Australia (Hedged) Net Total Return Index as at 26 October 2018.

# S&P/ASX300 Accumulation Index as at 26 October 2018

*The CPI movements and annualised return shown is as at 30 June 2018. The return is net of investment fees, indirect costs and taxes.

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