A focus on long-term performance
Money magazine’s Best Retirement Innovator 20232
8 February 2023
It was a wild ride for investment markets in 2022 with volatility impacting super fund returns, including Australian Retirement Trust’s (ART).
Join ART's Chief Economist Brian Parker as he recaps the market ups and downs of 2022 with host Anne Fuchs. They talk about what the new year might hold for interest rates, investment markets and your super.
Hello and welcome to Super Insider, Australian Retirement Trust's Podcast series on the economy, investments, and all things impacting your superannuation.
My name is Anne Fuchs, I am Head of Advice at Australian Retirement Trust. The team and I help our 2 million plus members make the best possible decisions about their retirement savings.
Now with me today is Brian Parker, our Chief Economist extraordinaire. Before we kick off, I want to acknowledge we're on Turrbal and Yuggera country and pay my respects to Elders past, present, and emerging, and hope that you're really excited about this podcast today, we're looking at 2023 and what's in store. Whether you're on the commute on the way to work, or sitting at home, feet up, with the drink in hand, watching. Brian Parker - hello, sir.
Thank you very much, Anne, good to be with you again. Happy 2023.
Happy 2023, and you look so relaxed. I know you didn't have much of a break, but I wondered - did you have a facelift and a tummy tuck, and you got all sort of, kind of, beautiful for 2023?
She’s just being too kind. No, I didn’t, I didn't. I had a very rough Christmas, but maybe not as rough as usual.
A rough Christmas?
Yes, it was an intense Christmas, but it was fun.
But happy rough?
Oh yes, happy rough absolutely. You know, it just means that if I'm actually looking better than normal that's even better in seasonally adjusted terms.
Well, maybe sort of indulging in some good quality food and wine suits you.
Every chance it does.
Now, before we begin and look at what was, and what is coming towards us in terms of the economy, we have to make sure we meet our regulatory obligations and keep our little gold star with the compliance team.
Absolutely, as I always say, this is their favourite part of the whole podcast. So, before we start, we need to let everybody know that what we're going to cover today is just general information only. Any advice doesn't take into account your personal situation. You should consider your circumstances and think about getting personal advice before acting on anything we talk about here. You can also get a copy of our Product Disclosure Statement from our website, or by calling us on 13 11 84 if you have a Super Savings account. Or if you're a QSuper account holder you can call us on 1300 360 750.
So 2022, I didn't love 2022. It didn’t pay to turn on the news, it just, kind of, was scary.
It was indeed and for financial markets it was certainly a wild old ride. So it was a really, really challenging time for markets and certainly a really worrying time for many of our members. Whenever you see markets do what markets did in 2022, it's perfectly, it's understandable why members can get stressed, especially those members who are approaching retirement or in retirement.
Yes, and people thinking, where does this all end? What does China do? There's lots of people particularly worried. So how did we finish up in terms of performance? I know there's been a lot in the press about superannuation performance because the results have just been published. Where did we sit in all of this?
Well, it's probably worth taking a step back and looking at what markets themselves actually did. So it was especially challenging in 2022 because both share markets and bond markets were sharply negative. In the traditional asset classes we invest in, there was nowhere to hide. So bonds and shares both did badly. Conditions were very volatile, though.
So just to give you a guide, the December quarter was a positive quarter where shares and bonds did reasonably well, where you had a recovery, but that's despite the fact that the month of December was sharply negative. So it just goes to show that you're getting a lot of volatility month to month.
It's like being on a rollercoaster where you really need to have that, you know, be buckled in.
Yes, you're really in your safety harness, absolutely.
Now, in terms of performance, the typical superannuation fund had a negative year. A positive December quarter, but a negative year, and certainly we weren't immune to that. So, for the range of diversified options that our members invest in, returns were likely to be negative over the year.
But the good news is that our performance tended to hold up remarkably well and a big part of the reason for that is our holdings of alternative asset classes. These are the key unlisted asset classes like infrastructure investments, and property investments, and private equity, and private credit investments.
Now those assets are not immune to the kind of environment we've seen, and you certainly have seen those assets being affected by what's been happening in the world. But they have held their value to a much greater extent than shares and bond markets. So, in a relative sense, our performance has held up quite well because of those assets.
We always have to remember investment performance is about looking in the rear-view mirror and I guess which is what today is about, is that I know, I'll never ask you to look in a crystal ball, but we are starting it's 2023 and people do wonder, how does the war in Ukraine end? What does this mean for us? Things do seem to be improving from an Australian sense with our relations with China. But what is your view of the economic climate that we're heading into? Because certainly last year the Treasurer was really trying to hose down expectations.
Yes, and he was right to do that. I still think 2023 is going to be a challenging year. Now as far as financial market are concerned, share markets certainly have started the year on a pretty positive note and given the way we ended 2022, that's been a bit of a surprise. As far as the economy goes, I still think 2023 is going to be a challenging year. Certainly there are reasons for optimism. Some of the European numbers have held up much better than certainly I would have thought, some months ago.
Is there any reason why, do you think?
I think the Europeans have done perhaps a better job of adapting to the kind of energy price shock that we've seen courtesy of the war in Ukraine. But certainly the European numbers so far are holding up much better than you might have thought a few months ago. The US economy also, so far, seems to be holding up reasonably well. The Australian economy, consumers are still out there spending money despite the fact that the cost-of-living pressures that we talked about last time are very real and are certainly impacting those Australians, especially on low and middle income, low and middle incomes. But generally speaking, the economy is holding together a lot better than we might have thought a few months ago.
I hope as many members as possible listen to this because I think sometimes if you just watch the news, things that you see what's happening, what's happening in America, and the economy, there can be very much of a negative, or grim, sort of story being told. But what I'm hearing from you is there is cause for a bit of optimism and, dare I say it, the light at the end of the tunnel? Or are we not at the light at the end of the tunnel?
I don't think we're at the light at the end of the tunnel yet. For example, no one knows how events in Ukraine are going to pan out. No one knows exactly when and how the war in Ukraine ends. This is going to remain a source of volatility.
Geopolitics more broadly is going to remain a source of volatility. And even though I think there's some reasons for optimism about the economy, it's still going to be a very challenging year. Don't forget, interest rates have risen very, very aggressively, the world's major central banks, in response to a big surge in inflation, have jacked up interest rates very aggressively.
Because I was going to ask you that about what this means for superannuation returns, and in particular the Australian inflationary environment. What should members expect from that?
While ironically, given the fact that we've had a really challenging year and share markets have weakened, bond markets have weakened, what that means is that we're setting ourselves up for better medium to long-term returns and probably requires a bit more explanation. But if I'm investing in, say, cash and term deposits and in bonds, I'm getting better rates today than I was a year ago.
Which you are and I am because we're members of Australian Retirement Trust.
Well, and it applies more broadly than that as well because it just means that the rates I am getting, if I start my investment journey today, are better than they would have been a year ago. The yields on offer are more attractive and share markets are cheaper than they were a year ago. So we're getting the opportunity to acquire assets at cheaper prices. This is ultimately what we pay our investment managers to do, and what our investment team is paid to do, is take advantage of opportunities that present themselves when markets are volatile. You get the opportunity to acquire assets in much more attractive prices, and that sort of sets you up for better medium to long-term returns.
I know a lot of our older members are comfortable with the bonds and the cash and the fixed interest asset class. I know my sister's mother-in-law, Val, if you're listening. Hi, Val. You know, she logs in all the time.
G'day Val, thank you very much for your support.
She logs in all the time to the app and is checking her balance and wanting to understand how it correlates to things like the cash rate. What would you say to Val about logging in every day and looking at her retirement income account and all this sort of volatility?
It’s an interesting question. One thing I would say is that if you're looking at your balance every day, or even every week, that would suggest to me that you're perhaps unduly worried about where your money is invested.
I think it'd be an opportunity for Val to maybe get some advice about how she's invested. Because if you, if you're so worried about what's happening in markets that you're checking it every day, maybe you need to sort of think about how much risk you're taking and how much risk you're comfortable with. This is where, you know, we've talked about this on these podcasts before, this is where the value of financial advice really comes into its own.
Maybe if you've had financial advice, and you're still doing it, maybe just put the iPad away.
Absolutely. At the end of the day, life is too short to spend time on the app checking unit prices, checking it day to day, week to week performance. It's useful to take a step back.
I know the world is a really worrying place. There is a whole litany of things that we're worried about. Twenty twenty-two, as you said, was a very challenging year. Twenty twenty-three, even though I think there's potentially a light at the end of the tunnel, it's still going to be a challenging time for the next little while. But despite that, is looking at the balance every minute of the day going to really change that?
No, and all our members, and Val, pay a fee to Australian Retirement Trust so that we can pay the best of breed investment professionals to do the worrying on your behalf as members, and to make the best possible decisions. So I guess that leads me to – so what are we doing about all of this? What do we do to mitigate that risk and optimise people's retirement savings, because they're so precious?
Oh, look, absolutely. I think the key thing is diversification. We ultimately get paid to build well-diversified portfolios that are designed to deliver medium to long-term returns. In doing so we're not trying to pick where markets are going in the next month or the next six months, we don't believe anyone can do that in any reliable way. What we can do, though, is to build diversified portfolios that are going to meet the investment objectives that we communicate to members in our Product Disclosure Statement, but also during volatile market conditions be prepared to take advantage of opportunities that come our way, and we've certainly done that.
We have been able to buy into share markets, for example, on a weakness. Take advantage of weaker share prices, to buy shares at a cheap price. To buy into bond markets when yields rise, because the future returns are going to be better. We’re also looking for opportunities in the alternative assets space. Are we finding opportunities in property, and in infrastructure, and in private equity? Opportunities to acquire assets at good prices. Yes, we are. These are the kind of assets that we think really help deliver those longer-term returns for members.
Is it worthwhile reminding our listeners about, at this time of year, because probably a lot of our members might have visited one of these assets that generate this sort of diversification and manage the volatility.
Well, firstly, any of our members that flew through either Brisbane or Sydney airports, or Gold Coast Airport, thank you very much. These are assets that deliver very good returns for our members.
Airports are an interesting one because obviously, how do those assets fare during COVID - not well - but we're seeing quite a decent recovery in air, and in passenger volumes coming through.
Yes, I just took the girls to Sydney to visit their godmother after New Year's, and Sydney Airport and Brisbane Airport were packed.
Absolutely, and you're seeing a good recovery in passenger numbers and certainly our members are benefiting from that recovery.
So we invest in a range of these assets around Australia, and around the world, that are designed to deliver the sort of nice high, real returns that our members need to retire on. But also the good thing about these assets is that they tend to help cushion the blow during difficult financial market conditions. As I said in the intro, some of our assets in property, in an infrastructure, and in private equity, have they been impacted by the market turmoil?
You bet. Of course.
Yes, they have but they have held their value to a much greater extent than share markets and bond markets over the year. And the way I describe it, is that having significant exposure to these assets, and this applies for both our Super Savings members and our QSuper members, they help smooth the ride. It just means that our members are not as exposed to that volatility you read about in the paper every other day.
Also too, obviously, we are then changing the asset mix the older you get, the closer you get towards retirement, to help mitigate that risk, too.
Absolutely, so for those members in our default options as you approach and then enter retirement, we gradually reduce your exposure to market risk, in particular reduce your exposure to the volatility of share markets. Because the one thing we don't want to see is, we don't want to have our member's retirement plans ruined by a stock market crash the month they decide to retire, or when they enter retirement.
Okay, so finishing up. No genie in a bottle. No predictions, even though I so want to. We're going to finish on a high.
I know you do, and I basically raise the bat every time and let it go through to the keeper.
Yeah, I know. You just tell me to buzz off, that's fine.
Not quite, but I do it politely.
So the final message for listeners today, if they're sitting on the train on the way to work, or on their sofa about what 2023 means for their retirement savings, what's your one message?
Oh, can I make it several?
Of course, Brian, whatever you want.
Because I can't give just one message. Okay, look, at the end of the day, if you are worried about what's happening in markets and how that's impacting your superannuation, especially if you're approaching retirement, or you're in retirement, please pick up the phone and get some financial advice. We are more than happy to help.
Or if you have your own adviser talk to them.
Or, if you have your own adviser, please call them, and get some advice to make sure the investments that you're in suit you, suit your stage of life, suit your appetite for risk. But also to remember that even though the last 12 months has been challenging, superannuation is the longest-term investment any of us will ever have, and the long-term returns from super have been very, very solid.
If I look at, for example, the range of diversified investment options that Australian Retirement Trust members are invested in, whether in the public offer division, or in our Queensland Government division, the diversified options where the vast majority of our members have invested in, they have met or exceeded their long-term return objectives. And, at the end of the day, this is a long-term investment game.
The final thing I'd say is that even though the world is a very, very challenging place right now, don't forget that every crisis, every downturn, every bear market, every recession comes to an end, bar none. The troubles the world is going through right now will be no different.
Thank you, Brian.
And look, thank you to our listeners. If you enjoyed this podcast, please tell your friends about it. Tell your family. We're on Spotify, we are on Apple Podcasts. Thank you so much, listeners, and we'll look forward to you joining us again soon.
This podcast is brought to you by Australian Retirement Trust Pty Ltd (ABN 88 010 720 840, AFSL No. 228975) the trustee for Australian Retirement Trust (ABN 60 905 115 063) (the Fund).