Our investment performance in 2021-22

Mid way through the financial year the excellent market returns were derailed by war and the pandemic, explains Ed Tomlinson.

• Firstly, sharemarkets have always recovered from losses in value, the duration of recovery time is what tends to differ. In recent history, the pandemic market dip of early 2020 and global financial crisis of 2008 were quick, aggressive market downturns followed by strong recoveries.
• Secondly, our experts are managing our investments to minimise the impact of the downturn and expect long-term results to remain competitive. Our popular MySuper investment choice is designed to endure market downturns – while some loss may be inevitable, it’s a strategy you can feel secure about for the long term.
• Thirdly, be cautious if you’re considering changing investments in response to losses in value. Time and again we see members make any losses worse by changing strategies. While it’s hard to predict when markets will recover, superannuation is a long-term investment, so it’s usually best to stick out the tough times and focus on long-term growth.
  
  If you’re closer to retirement, decline in value can be more of an issue, and for those members it may be worth getting advice about what is right for them to do.

We’ve put together a careful explanation of what’s happened to investments this year and why their value has fallen. So below I’ll give a quick recap on the most important points and suggest what may be ahead:

• Central banks are hiking interest rates the world over to control fast-rising prices. They see inflation as the biggest economic threat and the pain of higher interest rates is necessary to bring prices under control.
• It’s those interest rate rises, and their potential to cause damage, if not recession, to economies that is bringing down the value of investments, as investors pull out their money in response.
• Unusually, this downturn affects all markets, from shares, to bonds, to property, which is why super funds are showing losses across growth and defensive options.

• There’s much uncertainty in the global economy, especially in Europe, heightening the risk of a significant and fast recession there that could spread to the rest of the world.
• Both the global sharemarkets and bond markets are predicting more economic pain is to come. The delivery of goods is still hampered by the pandemic and other factors (causing prices to rise), companies are struggling to increase profits and employees are struggling to increase wages.
• Governments are deeply in debt, meaning it’s not easy to increase spending to help manage these conditions – that burden falls on central banks, who for the moment plan to keep increasing rates.
• Investors are hoping that weaker consumer spending in response to higher interest rates, combined with falling commodity prices, will dampen inflationary pressures. We think this means central banks won’t have to tighten as aggressively as feared, offsetting the risk of recession.

As superannuation is a long-term investment, we know from experience that while periods of market volatility can be unsettling, they also create new investment opportunities.

It is important for you to remain focused on your long-term investment objectives and remain aware that short-term returns can sometimes see violent swings. In response to the recent downturn, smartMonday is readjusting investment in alternative assets and unlisted property to provide protection from any further inflationary surprises. We had already reduced allocations to shares as conditions become less supportive, while continuing to search for new investment opportunities where we see long-term value.

Please also review our frequently asked questions about the 2022 market downturn.

Ed Tomlinson is chief investment officer at smartMonday