Share market volatility

We’ve seen some recent volatility in world stock markets leading to a fall in equity markets. After a strong start to the year, global and local equity markets have recently experienced increased volatility based on concerns that inflation may rise in the US, and force the US Federal Reserve to raise interest rates and consequently, dampen economic growth.

The US equity market (S&P 500) has fallen with some rebounds throughout early February. However it’s important to keep in mind that it is still up by more than 20% since the start of 2017 and just back to where it was in December. Globally, other equity markets have also declined but not to the same extent as the US. A market sell down after an extended period of strong market performance and low volatility is not unexpected and very much within the bounds of what can happen over a full market cycle

Why has it happened and what’s the outlook?

We’ve seen these types of market corrections before. While we don’t want to play down this recent market volatility, we believe it’s important to highlight this is probably not the time for a knee jerk reaction to what is likely playing out as a short term correction. The consensus view remains that global economies are strong and economic fundamentals remain robust, with no indications that this is likely to change over the course of 2018.

There doesn’t appear to be any clear trigger for the sharp falls in equity markets, (there hasn’t been any specific ‘news event’ driving this). The sell down has coincided with the US Federal Reserve’s meeting (where there was no change to interest rates) and the release of some US economic data, including wages growth which was slightly higher than expected. This seems to have led the market to conclude that the US Federal Reserve may raise rates more quickly than anticipated given the unexpected rise in inflation, due to stronger wages growth and the US tax cuts.

After such a strong start for the US market since the beginning of the year increasing valuations, investors are pricing (or expecting) only positive news. In a situation such as we have seen in the last week where questions are raised that may cause doubt around the outlook, a sell down can be considered normal. Certainly the size of the fall over such a short period does lead to headlines, but as we’ve said previously it’s really important not to react to the noise.

It’s also important to remember that the strong markets over the past 5 years have generated some exceptional returns for members. Our MySuper default Growth Option has returned 13.15% for the year to the end of January and an average of 10.21% p.a. over 5 years*.

What does this mean?

Like all super funds, any short term market volatility will impact more immediate returns across our investment options, particularly those options that have a higher exposure to growth assets such as equities.

We want to reassure you that VicSuper has a robust investment strategy in place to manage market volatility. And we’re confident that, in the longer term the asset allocation of these investment options will continue to drive returns for members, albeit in what we expect to be a lower growth and lower return environment over the medium term.

What are we doing about it?

As part of our investment strategy we’ve been reducing our equities exposure for some time and will continue to reduce exposure to equities in favour of real assets (such as property and infrastructure) and our alternative assets. Plus, these short term events may provide a potential opportunity for long term investors, like VicSuper, to purchase quality assets at a discounted price.

We remain confident that we are positioning our Fund correctly to deliver our longer term performance goals, by both protecting against downside risk, and identifying and capitalising on opportunities as they arise.

Superannuation is a long term investment and it's important to remember that the world economies are in better financial health than what may be implied in a newspaper headline. The nature of the share market is that it will experience ups and downs. Whilst sentiment and valuation might drive short term behaviour, it's the financial health of the companies and economies that will determine the value of the market over the long term.

I’m concerned – what should I do?

It’s natural to be concerned when you hear of these types of events. But it’s important to remember that a ‘knee jerk’ reaction is probably not going to be in your best interests. Selling your investments when markets are low and then buying them back when markets rebound may not be as beneficial as holding your course through the market volatility.

It can be a big relief to talk to someone. We can help. If you’d like to review your investment options or want to discuss anything about your super, take advantage of our available advice service provided at no additional cost to members in most cases. You can book a conversation or call 1300 366 216.

* Past performance is not a reliable indicator of future performance
We’ve seen some recent volatility in world stock markets leading to a fall in equity markets. After a strong start to the year, global and local equity markets have recently experienced increased volatility based on concerns that inflation may rise in the US, and force the US Federal Reserve to raise interest rates and consequently, dampen economic growth.

The US equity market (S&P 500) has fallen with some rebounds throughout early February. However it’s important to keep in mind that it is still up by more than 20% since the start of 2017 and just back to where it was in December. Globally, other equity markets have also declined but not to the same extent as the US. A market sell down after an extended period of strong market performance and low volatility is not unexpected and very much within the bounds of what can happen over a full market cycle

Why has it happened and what’s the outlook?

We’ve seen these types of market corrections before. While we don’t want to play down this recent market volatility, we believe it’s important to highlight this is probably not the time for a knee jerk reaction to what is likely playing out as a short term correction. The consensus view remains that global economies are strong and economic fundamentals remain robust, with no indications that this is likely to change over the course of 2018.

There doesn’t appear to be any clear trigger for the sharp falls in equity markets, (there hasn’t been any specific ‘news event’ driving this). The sell down has coincided with the US Federal Reserve’s meeting (where there was no change to interest rates) and the release of some US economic data, including wages growth which was slightly higher than expected. This seems to have led the market to conclude that the US Federal Reserve may raise rates more quickly than anticipated given the unexpected rise in inflation, due to stronger wages growth and the US tax cuts.

After such a strong start for the US market since the beginning of the year increasing valuations, investors are pricing (or expecting) only positive news. In a situation such as we have seen in the last week where questions are raised that may cause doubt around the outlook, a sell down can be considered normal. Certainly the size of the fall over such a short period does lead to headlines, but as we’ve said previously it’s really important not to react to the noise.

It’s also important to remember that the strong markets over the past 5 years have generated some exceptional returns for members. Our MySuper default Growth Option has returned 13.15% for the year to the end of January and an average of 10.21% p.a. over 5 years*.

What does this mean?

Like all super funds, any short term market volatility will impact more immediate returns across our investment options, particularly those options that have a higher exposure to growth assets such as equities.

We want to reassure you that VicSuper has a robust investment strategy in place to manage market volatility. And we’re confident that, in the longer term the asset allocation of these investment options will continue to drive returns for members, albeit in what we expect to be a lower growth and lower return environment over the medium term.

What are we doing about it?

As part of our investment strategy we’ve been reducing our equities exposure for some time and will continue to reduce exposure to equities in favour of real assets (such as property and infrastructure) and our alternative assets. Plus, these short term events may provide a potential opportunity for long term investors, like VicSuper, to purchase quality assets at a discounted price.

We remain confident that we are positioning our Fund correctly to deliver our longer term performance goals, by both protecting against downside risk, and identifying and capitalising on opportunities as they arise.

Superannuation is a long term investment and it's important to remember that the world economies are in better financial health than what may be implied in a newspaper headline. The nature of the share market is that it will experience ups and downs. Whilst sentiment and valuation might drive short term behaviour, it's the financial health of the companies and economies that will determine the value of the market over the long term.

I’m concerned – what should I do?

It’s natural to be concerned when you hear of these types of events. But it’s important to remember that a ‘knee jerk’ reaction is probably not going to be in your best interests. Selling your investments when markets are low and then buying them back when markets rebound may not be as beneficial as holding your course through the market volatility.

It can be a big relief to talk to someone. We can help. If you’d like to review your investment options or want to discuss anything about your super, take advantage of our available advice service provided at no additional cost to members in most cases. You can book a conversation or call 1300 366 216.

* Past performance is not a reliable indicator of future performance

Highlights
Highlights

  • The US equity market (S&P 500) has recently been volatile, however it is still up by more than 20% since the start of 2017.
  • Market corrections are not uncommon. After such a long sustained rise, a sell down can be considered normal, in this case it was also driven by the conclusion that the US Federal Reserve may raise interest rates sooner than expected.
  • We have a robust investment strategy in place to help manage market volatility.
  • It’s important not to make decisions based on a knee jerk reaction. If you’re considering changing investment options talk to us first – financial advice on your VicSuper investment options is provided at no additional cost.
  • The US equity market (S&P 500) has recently been volatile, however it is still up by more than 20% since the start of 2017.
  • Market corrections are not uncommon. After such a long sustained rise, a sell down can be considered normal, in this case it was also driven by the conclusion that the US Federal Reserve may raise interest rates sooner than expected.
  • We have a robust investment strategy in place to help manage market volatility.
  • It’s important not to make decisions based on a knee jerk reaction. If you’re considering changing investment options talk to us first – financial advice on your VicSuper investment options is provided at no additional cost.