2021–22 Investment Performance Review
Your super is in good hands.
Our goal is your comfortable retirement
At CSC, everything we do, from how we invest to who we invest in, is done with your future in mind. We are focused on achieving a sustainable financial outcome for you and do this by investing in high quality businesses and considering long-term risks holistically. For more insights on our investment philosophy and how we manage risk, see:Our investment philosophy
Our investment performance
2021–22 Financial Year
Global share and bond markets have experienced negative returns for the 2021–22 Financial Year.
We appreciate these one year results may be concerning to you, but they must be considered in context. We have been planning for this, and working quietly in the background to build resilient and diversified portfolios with quality assets for you.
You can find further details of our 2021–22 Financial Year investment performance at How We Perform1.
Why is this year different?
Following years of record low interest rates, inflation, and atypical sharemarket returns, markets have been experiencing significant corrections towards more sustainable levels since the beginning of the 2022 calendar year.
Geopolitical, economic and market conditions have led to negative returns from both global share and bond markets.
The short-term impact on superannuation balances will depend on a funds’ investment strategy, including the extent of genuine diversification. The longer-term impact will depend on the quality of assets in customer portfolios.
There may be a downturn, but we are prepared
We thoroughly and proactively consider a wide range of potential scenarios that can occur, and the likelihood of them occurring. As part of this planning, we have been preparing customer portfolios to weather higher inflation and lower asset values as central banks respond. This was mentioned by our CIO in customer newsletters in 2021 (e.g. Have things become more expensive? Is it just temporary?), and also discussed by her at the 2021 Annual Member Meeting.
We have been planning proactively to take advantage of opportunities as markets fluctuate and prices of inflation hedged and high quality assets become more reasonable. Here are some examples:
Sourcing the types of investments that build more inflation-hedging into your savings.
One example of this is our purchase of an interest in Amplitel, an Australian wireless tower infrastructure asset (co-owned with Telstra). This is a high quality asset that offers returns linked to inflation, and less correlated with the economic and market cycle.
We increased our cash holdings through the latter half of 2021.
We did this to prepare for potential deflation in asset prices—this cash will be used to buy into high quality assets as their prices fall.
We retained high quality active managers
We retained high quality active managers in our portfolio because of their capacity to identify and invest in companies and assets with strong balance sheets, high free cash flows, and undervalued business models. These traits were not fashionable through the speculative 2020–21 period, but their value is visible in your portfolios now2. Read more about our investment managers.
“Our investment in Amplitel, an Australian wireless tower infrastructure asset (co-owned with Telstra) enables us to provide our customers with high-quality, inflation-linked cash flows and capital growth generated through the provision of essential infrastructure to an increasingly digital economy. These assets complement our existing digital infrastructure investments, including Australian data centres, as CSC was an early mover into opportunities to provide the infrastructure of the future”
Alison Tarditi, Chief Investment Officer, CSC
Built to manage market fluctuations
We have built resilient and diversified portfolios3. We deliberately chose not to only invest in sharemarkets or government bonds, because these momentum-driven markets are vulnerable to events that make people recognise changes in the fundamental drivers of growth and inflation. Over the past 12 months, these events have included:
- Policy responses to the pandemic. In 2020, we took the time to understand the longer-term implications of these responses.
- Rising competition and associated geopolitical risks. These are currently manifesting in outright conflict by Russia in the Ukraine.
These events have unearthed, and in some cases accelerated, existing supply constraints and subsequent price pressures in energy, commodity, food and goods supply chains.
In response to this, we diversified our exposures into select real assets such as infrastructure and regional economies less vulnerable to inflation risks. These are risks we identified last year, that are now very visible across the developed world.
Trust our track record
Our primary aim is for your savings to be secure as well as grow. Our investment strategy has been carefully designed to capture most of the gains as markets rise, but avoid more of the losses, on average, when markets fall compared to our peers4. This is a distinguishing characteristic of our approach, versus our peers, because we understand that it isn’t the ups and downs in returns that you experience along the journey, but the wealth you are able to accumulate and sustain in retirement to support your spending then, that matters.
It is possible that markets will continue to face headwinds over the coming year or two. This means that investment returns may not be as strong, on average, as those experienced over the past couple of years. This is because asset values will be surfaced as prices adjust to underlying fundamentals.
Our focus on downside protection and high quality assets means that these price variations do not erode the underlying value of your investments. Rather, they remain temporary fluctuations not permanent impairments to your savings—as demonstrated in our history5.
We continue to measurably outperform our regulated portfolios across all options, which the regulator monitors to assess the quality of superannuation fund investment capability6.
How do we aim to keep protecting your assets?
We will continue to focus on your long-term retirement outcomes and invest in assets that can be depended on to provide sustainable income, ahead of inflation, when you retire.
We have technically referred to this as maximising returns net of fees, adjusted for risk. In practice, this means we proactively invest in assets that are resilient to adverse market environments, but can grow when conditions are strong. For example, the last three financial years have seen significant fluctuations, year-to-year7:
Investment performance is subject to market volatilities and past performance is not an indicator of future performance.
Our investment strategy has been carefully designed to capture most of the gains as markets rise, but avoid more of the losses when markets fall compared to our peers8.
Why do we focus on downside avoidance? We manage the fluctuations to reduce downside, because losses require more than proportional gains to get back to square one. The smaller the losses, the greater the share of future returns that can go to actually growing your savings rather than just restoring them to their pre-event level.
Focusing on downside avoidance is important because of the asymmetric impact of losses compared to gains on longer term wealth creation. For example, if markets fell by 20%, a portfolio of $100 will fall to $80 and markets would need to rise by 25% to restore the portfolio to its original value of $100. The larger the losses, the greater the subsequent gains required to restore value. A 30% loss will require a 43% gain.
In it for the long haul
It’s important to remember the long term role of superannuation. Your lifetime is the relevant investment horizon, not arbitrary reporting periods or timelines chosen to compare funds. If you have 15 years to retirement, comparing peer performance one, five or 10 years to 30 June, 2022, is less relevant than how much income you’ll have per year after you retire in 2037. This is why we seek to build resilient investment portfolios using high quality assets, so that whenever you choose to retire, you are able to do so regardless of the strength of the current markets.
If you are close to retirement or your financial situation has changed significantly, please seek personal financial advice9.
1 We have adopted a conservative policy to valuing private assets by aligning valuations to listed markets—our aim is to achieve equitable member outcomes over volatile markets.
2 E.g. Strong businesses that face short term cashflow challenges, intrinsically profitable companies impacted by indiscriminate sharemarket selling.
3 As explained in detail in our Product Disclosure Statement, to manage and minimise risk we:
- make it our job to understand any inherent risks a particular type of investment may be exposed to;
- diversify investments across asset classes, individual assets, investment styles and investment managers;
- continuously monitor market performance, investment manager performance and relevant legislation;
- run systematic compliance and fraud control programs; and
- run a continuous program of research and analysis, including environmental, social and governance (ESG) analysis.
4 In the last 10 years to 31 May 2022, CSC’s PSSap MySuper Balanced option captured 90% of market gains and avoided 34% of market losses compared to SuperRatings SR50 Balanced peers.
5 We measure our fitness or ability to recover from adverse events and not incur writedowns (permanent loss of capital), e.g. in the GFC, we had no CDOs in our portfolio; no adverse liquidity events in any of our hedge fund managers; no material increase in private equity bankruptcy rates. For more details, see Awards and Innovation
6 APRA annual performance test for MySuper Balanced, Income-focused and Aggressive options for 7 years to 30 June 2021. The 2022 results will be published in August 2022 at apra.gov.au. Investment performance is subject to market volatilities and past performance is not an indicator of future performance.
7 PSSap MySuper Balanced option post tax, post fees.
8 See footnote 4
9 The information provided in this article is general advice only and has been prepared without taking account of your personal objectives, financial situation or needs. Before acting on any such general advice, you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. You may wish to consult a licensed financial advisor. Before making any decision in relation to a scheme or product referred to in this document, you should obtain a copy of the Product Disclosure Statement (PDS) for that scheme or product.