Summary: Steve Gamerov, Head of Diversified Portfolios at MLC Asset Management digs more deeply into the drivers of performance and how the MySuper Growth Portfolio is being positioned for the future.
Investment markets are rarely calm. Even when everything looks settled on the surface, dig a little deeper and there’s always something to keep portfolio managers, like me, on our toes.
This was again the story over the past year with high inflation and interest rates, falling business and consumer confidence, and softening company profitability trends being the order of the day.
Despite this, sharemarkets delivered surprisingly upbeat returns.
The Australian sharemarket (ASX 200) delivered 14.4%1 over the past 12 months, while the global sharemarket returned 16.5% (hedged to the Australian dollar) and 20.4.% (unhedged to the Australia dollar).
Over the same 12 months, the Australian bond market returned 1.2%, while the global bond market slipped 1.2%.
A few reasons are put forward to explain the impressive Australian and global sharemarket performance, in spite of economic headwinds.
Firm commodity and energy prices boosted the profits of Australian mining and energy companies, while rising interest rates boosted local banks’ profits.
Globally, reasons include very strong performance from a small number of US technology firms that now also features companies involved in artificial intelligence.
Investors also appear to believe that the US Federal Reserve is nearing the end of its interest rate hiking cycle.
Positive return achieved for members
MLC’s MySuper Growth Portfolio delivered a positive 8.1%2 return for the 12 months to 30 June 2023.
For the past three years, members in the MySuper Growth Portfolio have enjoyed returns of 8.6% per annum—a 28.2% increase in investment return since COVID.
Additionally, the MLC MySuper Growth Portfolio is ranked in the top 25% of MySuper investment options surveyed over three years to 30 June 2023, according to SuperRatings SR50 MySuper Survey.3
How we delivered returns for members
Investment diversification is a feature of the MySuper Growth Portfolio. This means that overall returns are sourced from many assets, rather than being over-reliant on especially strong performance from just a handful of investments to drive performance.
Diversification again showed its value, over the past year, as the MySuper Growth Portfolio’s unhedged global share investments contributed meaningfully to overall returns as did its alternative strategies—strategies with return patterns that differ from those provided by share or bond markets.
Alternative strategies that contributed to the MySuper Growth Portfolio’s returns can also be described as ‘esoteric credit investments’ backed by high quality assets and cash flows uncorrelated to the broader economy.
In both cases, the MySuper Growth Portfolio gets paid to assume risk regarding when a payment is made, but with minimal risk, in our view, as to whether it will be paid.
MySuper portfolio’s protection against potential market downturn
The MySuper Growth Portfolio’s assets—shares, corporate bonds, unlisted assets and alternatives—exhibit strong, resilient cash flows that would be expected to weather difficult economic conditions better than many.
We believe that global business conditions are likely to continue to keep softening and current sharemarket valuations don’t fully reflect this.
Consistent with our cautious view, we have taken out further protection for our sharemarket investments through what are known as “derivative strategies”, which are a kind of portfolio insurance.
Should sharemarkets weaken, as we think they will, the MySuper Growth Portfolio will receive a payout from the derivative strategies.
At the same time, the MySuper Growth Portfolio provides members’ super accounts with exposure to a wide range of return-seeking assets with the potential to deliver strong long-term returns.
Performance Disclaimer:
Past performance is not a reliable indicator of future performance. The value of an investment may rise or fall with the changes in the market. All returns are net of investment fees and tax considerations and do not include administration fees and costs.
1 Sources quoted in this article. All returns to 30/06/2023 unless otherwise stated, Australian shares - S&P/ASX 200 Total Return Index; Global shares (hedged) - MSCI All Countries World (A$ hedged, Net); Global shares (unhedged) - MSCI All Countries World in A$ (Net); Emerging markets - MSCI Emerging Markets in A$ (Net); Australian bonds - Bloomberg AusBond Composite 0+ Yr Index; Global bonds (A$ hedged) - Barclays Global Aggregate (A$ hedged, Gross).
2 MLC Asset Management
3 MLC MasterKey Business Super – MySuper Growth Portfolio in SuperRatings Fund Crediting Rate Survey – SR50 MySuper Index to June 2023. Returns are calculated net of investment fees, tax and implicit asset-based administration fees. Explicit fees such as fixed dollar administration fees, exit fees, contribution fees and switching fees are excluded. Past performance is not a reliable indicator of future performance. Ratings are only one factor to be taken into account when choosing a super fund.
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This article has been prepared by NULIS Nominees (Australia) Limited ABN 80 008 515 633 AFSL 236465 (NULIS) as trustee of the MLC Super Fund ABN 70 732 426 024. NULIS is part of the Insignia Financial group of companies comprising Insignia Financial Ltd ABN 49 100 103 722 and its related bodies corporate (‘Insignia Financial Group’). The information in this article is current as at November 2023 and may be subject to change. This information may constitute general advice. The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider obtaining independent advice before making any financial decisions based on this information. It is recommended that you consider the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) before you make any decisions about your superannuation. You can obtain the latest copy of the PDS (or other disclosure documents) and TMD by calling us on 132 652 or by searching for the applicable product at mlc.com.au. You should not rely on this article to determine your personal tax obligations. Please consult a registered tax agent for this purpose. Opinions constitute our judgement at the time of issue. The case study examples (if any) provided in this article have been included for illustrative purposes only and should not be relied upon for decision making. Subject to terms implied by law and which cannot be excluded, neither NULIS nor any member of the Insignia Financial Group accept responsibility for any loss or liability incurred by you in respect of any error, omission or misrepresentation in the information in this communication.
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