A focus on strong performance
SuperRatings' Pension of the Year 4 years in a row4
Head of Investment Strategy Damian Lillicrap reflects on how history has helped shape QSuper’s handling of the coronavirus pandemic.
Unprecedented is the word I’ll always associate with 2020.
The fall in global share markets during March broke records for speed. Unprecedented. A global recession, driven not by the normal economic cycle, but by a health emergency. Unprecedented. Staggering changes in levels of unemployment. Unprecedented.
At QSuper, we did not anticipate a pandemic, but we did have an investment strategy and investment processes that were well equipped to handle it.
QSuper’s Balanced option holds fewer equities (shares) and more bonds than standard Australian super funds. This reflects QSuper’s investment strategy, which is also implemented across other QSuper diversified investment options such as Moderate, Aggressive and Lifetime Accumulation.
As stock markets fell, the QSuper balanced option therefore incurred fewer losses in the shares. And, as they tend to do, when share markets fall, bonds performed strongly, also benefiting members.
Other exposures in the portfolio, such as foreign currency (the US dollar exposure for example), also helped.
We didn’t avoid losses, but again considering the Balanced option, QSuper members had much smaller losses than most other funds. That means a smoother ride, a less scary ride.
A more volatile ride may see more members switching out of investment risk at the worst time, crystallising losses, so a smooth ride helps our members stay the course.
So, while what happened was unprecedented, QSuper were quite prepared for it. Our unique “risk-balanced” investment strategy recognises that events such a pandemic can happen, and that we shouldn’t be overly exposed to one asset class – notably equities – if that can be avoided. And as our top-tier, long-term returns show, you can manage risk via diversification and not give up returns.1
When we are in an event such as COVID-19, we often think back to when things were “normal”.
When the fund developed its investment strategy we looked back at history. One takeaway is that it is tough to find a time when things were “normal”.
Each decade seems to have had a different theme.
The past decade has seen us recovering from the 2008 global financial crisis. The GFC came after a run-up in property prices and credit growth, which was in part a consequence of central banks’ response to the “tech wreck”. The “tech wreck” was the stock market crash that followed the “tech bubble” at the end of the 1990s.
Looking further back, there were decades when inflation ran to unprecedented levels, and decades where inflation fell more than people believed it would. We had wars, world wars, followed by decades of rebound growth as we rebuilt.
When we look back, no two decades were the same. Dare I say it, every decade was “unprecedented”.
When it comes to economic outcomes, Australia has been the lucky country. Generally, we’d expect to see one or two recessions in any decade, but Australia had 28 years without a recession. That is a world record for any country.
Legendary American investor Warren Buffett says “be fearful when others are greedy and greedy when others are fearful”. While it sounds simple, it requires discipline and there is a lot of work involved in managing the process to try to maximise outcomes.
At QSuper, I am surrounded by a great Investments team who worked incredibly hard through the peak of the COVID-19 crisis, and are working hard still, to do just that.
We know, too, just how hard these times have been for others. The start of 2020 saw bushfires impact many people, with many QSuper members in jobs that saw them on the front lines helping others. Then the coronavirus pandemic emerged, resulting in layoffs and economic uncertainty, with QSuper members also on the front lines of this medical emergency.
A mantra that the Investments team have had as we were managing through the various crises this year, is that we are looking after members’ money as they are looking after others. Our members have enough to worry about. If they are getting strong, long-term returns with less risk from their super, that is one less thing for them to worry about. It is a privilege to go the extra yard for them.
For over 100 years QSuper has been there for members – in the good times and the tough ones – and today is no different.
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1. Past performance is not a reliable indicator of future performance.
The opinions expressed by Head of Investment Strategy Damian Lillicrap are his alone, and do not necessarily reflect the opinions of the QSuper Board. No responsibility is taken for the accuracy of any of the information supplied and you should seek advice for your circumstances.
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