The latest share market volatility

What it means for your investments
What it means for your investments

The key message from our Investment team is that volatility is very much to be expected. It’s the reason we’ve been focusing on diversifying sources of returns outside the equity market in recent years, as well as reducing share market exposure.

While this sort of market pull-back invariably draws sensationalist headlines, it’s important to put this latest bout of US share market volatility in the context of strong returns in the last few years, as the chart below shows. 

For Australian equities, it’s been the same story—occasional bouts of volatility that have not hindered strong long-term returns: 14.7% over 12 months, 12.4% p.a. over 3 years, and 8.4% p.a. over 5 years (All Ordinaries Index to 30/9/18).

S&P 500 (US equity) cumulative returns since 10 October 2015 (indexed to 100)

S&P 500 

Source: Bloomberg, VicSuper

The key message from our Investment team is that volatility is very much to be expected. It’s the reason we’ve been focusing on diversifying sources of returns outside the equity market in recent years, as well as reducing share market exposure.

While this sort of market pull-back invariably draws sensationalist headlines, it’s important to put this latest bout of US share market volatility in the context of strong returns in the last few years, as the chart below shows. 

For Australian equities, it’s been the same story—occasional bouts of volatility that have not hindered strong long-term returns: 14.7% over 12 months, 12.4% p.a. over 3 years, and 8.4% p.a. over 5 years (All Ordinaries Index to 30/9/18).

S&P 500 (US equity) cumulative returns since 10 October 2015 (indexed to 100)

S&P 500 

Source: Bloomberg, VicSuper

Key points
Key points

  • The latest market volatility is to be expected and is in the context of strong returns in the last few years.

  • The market volatility will not change how the VicSuper investment options will continue to be managed.

  • We've done a lot of work to buffer our investment options from this type of volatility- investing in alternative assets, infrastructure and property, etc).

  • We continue to look out for attractive investment opportunities rather than react to short-term market fluctuations.

  • The latest market volatility is to be expected and is in the context of strong returns in the last few years.

  • The market volatility will not change how the VicSuper investment options will continue to be managed.

  • We've done a lot of work to buffer our investment options from this type of volatility- investing in alternative assets, infrastructure and property, etc).

  • We continue to look out for attractive investment opportunities rather than react to short-term market fluctuations.

What has caused markets to sell-off?

  • The US stock market was down around 3.3% on 9 October. This was put down to tensions around China/US trade discussions but was also in the context of rising bond yields in the US as well as a very strong period of share market performance.
  • European stocks have also been down on concerns about Italy’s debt sustainability and rising borrowing costs.
  • In the Australian share market, we expect ongoing volatility in response to US share market falls.

How will the latest market volatility affect our investment positions?

As we mentioned in our 30 June investment update, we’ve done a lot of work to buffer our investment options from this type of volatility (investing in alternative assets, infrastructure and property, etc.) and there is a significant position in cash that can be opportunistically deployed.

The key takeaway is that this sort of volatility is not uncommon in share markets—it’s the relative lack of volatility in recent years that is the exception—and this will not change how the VicSuper investment options will continue to be managed.

More broadly, and as we have been saying, it’s critical to keep focused on the bigger investment picture, keeping an eye out for attractive investment opportunities rather than reacting in a knee-jerk manner to short-term market fluctuations.

What caused markets to sell-off overnight?

  • The US stock market was down around 3.3%. This was put down to tensions around China/US trade discussions but was also in the context of rising bond yields in the US as well as a very strong period of share market performance.
  • European stocks were also down overnight, with concerns around Italy’s debt sustainability and rising borrowing costs.
  • The Australian share market was broadly flat yesterday, but we expect increased volatility today in response to US share market falls.

How will the latest market volatility affect our investment positions?

As we mentioned in our 30 June investment update, we’ve done a lot of work to buffer our investment options from this type of volatility (investing in alternative assets, infrastructure and property, etc.) and there is a significant position in cash that can be opportunistically deployed.

The key takeaway is that this sort of volatility is not uncommon in share markets—it’s the relative lack of volatility in recent years that is the exception—and this will not change how the VicSuper investment options will continue to be managed.

More broadly, and as we have been saying, it’s critical to keep focused on the bigger investment picture, keeping an eye out for attractive investment opportunities rather than reacting in a knee-jerk manner to short-term market fluctuations.

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Important information

This advice has been prepared without taking into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice in light of your individual circumstances before acting on the advice. You should also obtain and consider a copy of the relevant Product Disclosure Statement available at www.vicsuper.com.au before making any decisions. VicSuper Pty Ltd ABN 69 087 619 412, AFSL 237333, Trustee of Victorian Superannuation Fund ABN 85 977 964 496.
— Discover more about how we invest your super
— Discover more about the value you get as a VicSuper member

Important information

This advice has been prepared without taking into account your objectives, financial situation or needs. You should therefore consider the appropriateness of the advice in light of your individual circumstances before acting on the advice. You should also obtain and consider a copy of the relevant Product Disclosure Statement available at www.vicsuper.com.au before making any decisions. VicSuper Pty Ltd ABN 69 087 619 412, AFSL 237333, Trustee of Victorian Superannuation Fund ABN 85 977 964 496.