Please note: our clients at Wealth IQ Group Pty Ltd (SWM Finance Matters / JV Wealth), are NOT INVESTED in the Colonial First State Retail Employer Super Balanced fund.
Our clients are invested in Colonial First State Wholesale Personal Super / Pension funds with a tailored portfolio and asset allocation designed to match their individual risk profiles – they are not a generic balanced fund that is designed as a ‘one size fits all’.
There were a number of retail super funds that wound up outside of APRA’s top 10 funds for the 2nd year in a row. The penalty is huge – they can no longer accept new members. To this end we are already seeing mergers and acquisitions of super funds in an endeavour not to fail the test.
The APRA super / pension fund performance test will cause funds to do one of 2 things:
- Make shorter term, riskier investment decisions for short term gains (Warren Buffett the greatest investor in the world buys and holds for years to elicit the intrinsic value of an investment); OR
- Invest in unlisted assets that don’t get valued regularly ie. Private Equity loans and unlisted property – these assets disguise short term volatility.
Unfortunately, the real issue is that this year (like 1994) has been the perfect storm of circumstances that makes us question why we even bother to invest – and we human’s feel the pain of losses much greater than the joy of gains…
We’ve had the Russian invasion of the Ukraine that has caused a world-wide supply shortage. Economically restricted supply with the same demand (if not more due to Covid) causes prices of goods and services to increase.
China’s “Covid Zero” related lock downs in shipping ports caused nearly 40% of the World’ export containers (see image below for stationary vessels outside Shanghai) to be locked down from the beginning of April until the end of May causing extra pressure. (They are talking about locking down again in the latest news). The IMF have told the central banks that they are doing the right thing to continue fighting inflation with increasing interest rates, but it is making it very difficult for the rest of us:
Price increases have caused inflationary pressures as goods and utility costs have increased dramatically and added to the cost of living – inflation has gone through the roof around the world. The only weapon the Central Banks have to combat ‘rampant’ inflation is a blunt tool known as interest rates – these rates had fallen over the past 9 years to the lowest levels ever. My adult children had never seen an interest rate rise prior to this year.
Rising interest rates (particularly fast rising interest rates) cause short term instability in Fixed Interest funds. These funds are part of any diversified portfolio, but we don’t expect the level of volatility experienced this year.
We usually expect an average return from fixed interest funds of about 2.25%pa, with a variation in return in any given year of +/- 4%pa – which means in any given year we expect to receive somewhere between 6.25% or -1.75%.
This year has already turned in a -13%, 3 x the normal deviation or volatility. The only saviour in each asset class has been cash which has risen from the low of 0.1% to a current 2.6% . (The current official cash rate determined by the Reserve Bank of Australia (RBA) as at 4th October 2022 is 2.6%).
Colonial has been no orphan with the negative returns. Each fund has felt the brunt of this “perfect storm”. There has been nowhere to hide, no harbour in the tempest.
BUT … as we know with investment markets longer term they will recover…
From the point of view of your investments in this volatile time, we are not drawing on market affected assets, (investments that have lost value in the current climate). When we talk about our ‘bucket strategy’, we are referring to the strategy of drawing your pension payments / withdrawals from cash, not the assets described above.
Your cash holding is now starting to add more interest on a monthly basis to your portfolio – something that we couldn’t boast about at the beginning of the year. We have been actively reviewing your investments and where possible, switching to Term Deposits, (some are currently offering 4.0% for a 2 year period paying interest on a monthly basis – which has the added bonus of compounding). This will provide better stability and returns to your portfolio – with low to no variation to your investments face / principal value.
“What are my options for switching my investment to a better performing fund in this market?”
Each super platform (whether it be Colonial First State or another provider), is a concessionally taxed vehicle. The super fund provider’s administration platform is not the one providing the negative returns, the market and asset allocation that match your risk profile is.
Wading through this shorter term volatility means that we will preserve the ‘number of units’ in each of the investment funds that have been affected, regardless of their current value. In other words we can live to play another day with the same amount of units to recover in value over the next year or 2.
On the flipside, if we sell out of all the units within your investment portfolio that currently have a lesser unit value, we would crystalise a capital loss in your portfolio overall.
I hope that this helps put things into perspective in the current market, and please remember if you have any concerns regarding your investments, we are more than happy to arrange a phone call / in office meeting or simply return an email with answers to your questions.
Our office number is (08) 8271 5427 or please email Tony@wealth-iq.com.au
Take care out there.
Kindest Regards, Tony Skinner
Senior Wealth Strategist and Director
Wealth IQ Group Pty Ltd