What is driving recent market volatility?
Last week, led by the US, world equity markets experienced a notable downturn. The decline in the US S&P500 index was reflected in subsequent falls in Australia and other regional markets.
Despite the recent falls, public equity markets have performed extremely well over the last 12 months, well above long-run averages.
This strong performance is generally attributed to the fact that interest rates around the world have remained around historically-low levels, despite evidence of increasing growth.
Last week’s volatility was largely caused by shifting inflation expectations leading to higher nominal bond yields and worries of future aggressive rate hikes.
Recent data from the US has confirmed inflation is rising to near the Federal Reserve’s 2% annual target, likely influenced by the Trump administration’s expansionary tax policy. While the market had already factored in a number of future rate hikes, many now believe the Fed will raise rates more aggressively than previously expected.
We have not been caught unaware. We have, over the last year, taken the view that risks in investment portfolios have been increasing. We recognised the possibility of a correction of this nature and adjusted out strategy accordingly.
The fully-valued prices being paid for public companies have made equity markets more vulnerable to small changes in market perceptions about inflation risk and the rate at which interest rates may increase over the coming years. This is precisely what has triggered recent market fluctuations.
For these reasons, we have pro-actively diversified your portfolio away from a sole reliance on public market equities for real returns. We have tried to ensure that you also have exposure to private assets around the world that are less dependent on interest rates for ongoing cash flow and earnings growth. These other asset classes haven’t exhibited the same instability as equity markets. These private assets are not easily accessed without the scale and international relationships that CSC can leverage on your behalf.
CSC’s balanced and MySuper products are more diversified than many other funds, providing you with lower-risk exposure to real growth opportunities outside of just public markets
Over our history, we have consistently captured upwards of 89% of positive equity market performance and avoided 46% of the negative returns delivered through market turbulence.
Over the long horizon of your working lifecycle, we expect to deliver you with competitive returns at much lower risk. Compared to the universe of superannuation funds in Australia, we are consistently towards the top in terms of the returns we generate per unit of risk that we take on your behalf.
Our philosophy is to preserve your wealth and grow it steadily over your working lifecycle by avoiding more of the downside in turbulent environments and broadening your access to real returns outside of public markets.
We look forward to your continued support as we work hard to deliver on your retirement goals in a responsible way.
If you have any questions, please let us know.
The CSC Team