Annual Members’ Meeting: steering members through challenging times

In relation to financial outcomes, we have continued to deliver on our aim to provide a smooth ride with fewer ups and downs for our Lifetime and Diversified investment options.

This has been a strategy that I have been part of for more than a decade and which is recognised for its consistency. This strategy delivered during the COVID financial market instability.

QSuper’s investment performance in the financial year was solid. Our Accumulation account Balanced option returned 13.7%, well exceeding the objective of CPI plus 3.5%.

The returns on risk assets were helped considerably by fiscal and monetary stimulus. Equities, which include listed equities and private equity, had a particularly strong year returning 33%. Our commodities allocation also experienced very strong returns of approximately 30%.

And infrastructure generated an annual return in the low teens as most companies in the portfolio – particularly ports, toll roads, energy and utility assets – continued to rebound strongly from the impacts of COVID.

Real estate also contributed positively but at more modest levels with performance driven by income certainty.

Fixed interest and the fund’s exposure to foreign currency dragged on returns overall but did their job in reducing volatility over the year. If we had invested more in equities, the returns would have been higher, but with significantly greater risk.

Over the long term, our diversified strategy has provided a smoother ride, with 4.3% volatility versus 5.7% volatility for the median peer fund. That’s approximately 25% less and yet cumulative returns have also been higher than the median peer fund over the long run.

Our investments team continues to respond dynamically to changing market conditions. Last year, we lifted commodity weights as an additional hedge against inflation and we increased foreign currency exposure as a hedge against equity risk and unexpected rises in US yields.

The weight of our unlisted investments, cash, and bonds continues to serve as a buffer against movements in equities while the world economy resets itself from the health crisis.

Robust economic recovery continued to drive demand to the end of the 2021 calendar year. But persistent supply-side bottlenecks, worsened by the Omicron variant, have made the recovery “lumpy” in many sectors.

This is visible through the ongoing volatility of the share market. Availability of vaccines should mean the ongoing recovery is at worst delayed, not derailed, over the next 12 months.

Meanwhile, inflation in the US has hit a 40-year high. Not surprisingly, the US Federal Reserve has already begun to remove some of its monetary stimulus, with market expectations focusing on rising bond yields and lower share returns.

All of this underlines the value we bring and the serious responsibility we carry to manage your retirement funds. How QSuper invests your money.

Investment is at the heart of what we do, but it is complemented by the structuring of products that suit your stage of life and insurance that helps protects your financial wellbeing and retirement.

On the product front, we flagged at the 2020 Annual Members’ Meeting that we would launch a new retirement product geared to provide income for life.

We launched Lifetime Pension in March 2021, and I’m pleased to say we now have more than 400 members who have taken advantage of a product that provides income for life, offers additional pension benefits, and guarantees a return of the initial investment.

Lifetime Pension has been made possible by Australian Government reforms to superannuation and is in accord with changes flagged under the proposed Retirement Income Covenant.

We see this as a product that will be in greater demand as members put value on the income security that will help their retirement years be their best years.

Insurance continues to play a valuable role in the lives of our members. During the year to June 30, we paid 7,506 members $399 million in total permanent disability, income protection, and death benefits.

Our insurance products recognise the special nature of the work that many of our members do, putting themselves at risk on the front line protecting the community.

The investment options we offer are most valuable when paired with good guidance. There is no doubt that superannuation and planning for retirement continue to become more complex. This is a function of the volatility of investments and the legislation underpinning superannuation, which changes regularly.

We are grateful for the high levels of trust our members have in us to both invest for their retirement and guide them through the various options.

Last year, we explained a change to how we offer advice with the objective of making the most frequently sought advice (and that is advice on superannuation) readily available.

I’m pleased to say this change has resulted in more members being able to access information and advice. In the year to June 30, our member services team helped more than 160,000 members with their inquiries. Further, 372,000 members accessed their accounts online or through the QSuper mobile app.

The questions members come to us with, offer us a lot of guidance on what you’re looking for from your superannuation fund. We also actively seek the views of members on a range of issues.

You have offered us many insights.

For example, we learned:

• Many members nearing retirement were willing to take more risk to grow their retirement benefit. We are in the process of refining our investment strategy to reflect this.
• Members in retirement wanted to be confident when budgeting their superannuation, that they would not run out of money. We developed the Lifetime Pension product because of this.
• More members want to directly influence how their money is invested. We have extended our Self-Invest options, allowing members to hold shares or exchange-traded funds through their super.
• And, as many members are paying more attention to the impact of their investment on the environment and society, we have refocussed and expanded the Socially Responsible option.

We are conscious of our responsibilities to you and the broader community, which looks to QSuper as a substantial and responsible investor able to balance financial performance with social responsibility.

Over a number of years, we have been working to develop policies targeting climate change. We have been part of global investor groups advocating for reduced carbon emissions and better environmental practices, and we have developed our own systems to help us understand and reduce our emissions profile.

More recently, we have rebalanced our global equities portfolio to substantially reduce the emissions our investments finance.

QSuper is in the business of managing risk on your behalf. We see climate change as a substantial risk. As importantly, we have been able to identify and implement change without materially impacting our broad investment strategy.

Our daily focus is our members. We are pleased when this is recognised by industry observers. In the past year we have won a number of industry awards. While this validation is welcome, it’s exceeded by the everyday responses of members who choose to keep their trust in QSuper and recommend it to others.