The year to 30 June 2018 was a pretty good one for markets and investors with global and Australian shares posting double-digit returns.
Global shares returned 10.8% on a hedged basis and 15.3% in unhedged terms. Unhedged returns were higher due to a falling Australian dollar; when the dollar drops in value, the worth of overseas assets increases.
Despite a poor show by financial stocks, which suffered from negative investor sentiment following the Banking Royal Commission, Australian shares posted a financial-year return of 13.2% with strong results from health, energy and materials sectors.
The news was not as good for more defensive investors as central banks tightened monetary policy by raising cash rates or curbing stimulus measures. Local and overseas bonds delivered low single-digit returns for the financial year.
Super delivers positive returns …again
Most super fund investors enjoyed their 9th consecutive year of positive returns with both “balanced” and “growth” options averaging healthy returns of around 9%.
Superannuation research firm Chant West says Growth options – which it defines as those with 61% to 80% of their investments in growth assets – have delivered a cumulative return of over 130% since the GFC low point back in February 2009.
“Naturally, the financial year performance will get most of the attention but it’s always important to look at the latest returns in a longer-term context,” senior investment research manager Mano Mohankumar says. “Super fund members have enjoyed a fantastic run with 2008/09 being the last negative year that most experienced.”
Mercer Growth returned 9.2% for the financial year while Mercer High Growth rewarded customers with gains of 11.4%. Mercer SmartPath options – the default investment choice for Mercer Super – also produced strong returns of 11.4% for customers born between 1969 and 1988.
A year in two halves
The first and second halves of the financial year threw up very different conditions for share markets and investors.
Markets continued their strong run of growth in the six months to December despite barriers, including growing tensions Korean Peninsula, conflict in Spain, two hurricanes in the US, earthquakes in Mexico and flooding South-east Asia.
The US S&P 500 Index – one of the most common benchmarks for US market performance – reached record highs in January 2018 following the passage of much anticipated personal and corporate tax cuts.
But volatility returned in following months due to fears of steep rate hikes in the US and the Trump administration’s controversial trade tariffs on China as well as close allies; Canada, Mexico and the EU.
European markets were anxious as the British Parliament and EU leaders entered Brexit negotiations and Italy’s weak economy and the new coalition Italian government’s spending plans created market concerns late in our financial year.
At home, sentiment took a turn for the worse in response to Banking Royal Commission findings of alleged misconduct by major Australian banks.
What’s next and what should I do?
Markets face a range of economic and geopolitical challenges in the year ahead, including the ongoing threat of a global trade war, political risks in Europe – the lingering possibility of a ‘hard Brexit and Italian political uncertainty) – slowing growth in China and fears the US Federal Reserve may be too aggressive in raising interest rates.
Most superannuation investors are exposed to share markets to some degree so will be affected by market volatility, but super is a long-term investment and that means there’s time to make up any losses from volatility events.
Whatever happens, “don’t panic” really is good advice. Do not make knee jerk decisions that might damage your longer-term objectives; stick to your long-term plan.
In uncertain times it’s important to keep a clear head. If you’re heading towards retirement, now is a good time to speak to an adviser. Contact a Mercer Financial Adviser on 1300 850 580.