Dealing with market volatility in the face of pandemic risk

We are actively managing the potential risks arising from the COVID-19 pandemic, and are taking the current global context seriously.

02 Mar 2020

Given the genuine uncertainty around the extent of the COVID-19 threat, the economic consequences of the current pandemic risk are unknowable.

We do know that markets hate uncertainty, and we remain vigilant to changes in the environment. We are in constant communication with our global investment partners, assessing the evolving nature of the current situation, and managing the risks implied for economic growth and financial market sentiment.

Robust risk management

We have invested significantly into our risk management over the last decade, because investment is all about dealing with uncertainty. Our investment risk function is embedded within our investment team and is central to all decision-making—it’s part of our DNA. We were the first Australian superannuation fund to implement a detailed bottom up security level risk system in 2009 that is fully integrated and flexible. This allows us to have a very good handle on where the most significant risks are across the whole of portfolio at any point in time, especially during market disruptions like the current situation.

Historically, pandemic scares have been opportunities to buy risk assets at prices below fundamentals (as we saw in the case of SARS in 2003). This may ultimately once again prove true in this particular case, but markets could go either way from here and predicting that is impossible. We will continue to be fully engaged with the latest developments, proactively focusing on preserving our ability to achieve member outcomes. 

Keeping the long term retirement goal in mind

CSC’s investment strategy is customer-focused, not peer-focused. Our primary goal is to ensure our customers reach their retirement goal, rather than trying to outperform league tables at ‘fixed horizons’ e.g.  1, 3, 5 years. We concentrate on growing customer savings with higher-quality net returns that are derived from skilled operation and management of assets, not from taking on additional risks which may or may not be compensated over our customers’ investment horizon. Putting our customers’ interests first means in times of market uncertainty such as this, we focus on the preservation of our customers’ savings.

We continually seek to refine and better tailor our investment strategy to reduce the risk of not achieving our customers’ retirement goals given their specific needs and circumstances. Compared with other super funds, this means that we generally suffer fewer or smaller losses when markets are falling, but still capture a large proportion of the gains when markets are rising strongly. Over the long-term horizon for customers in our balanced option, we expect to deliver competitive returns with greater certainty of achieving sufficient income at retirement.

Portfolio resilience to market shocks

Our objective is to build portfolios that are sufficiently resilient to unexpected shocks, so that such events do not materially compromise our customer’s retirement incomes. We exist solely to grow superannuation savings of our customers, and our measure of success is to achieve the ASFA ‘comfortable’ retirement standard for all our customers, while minimising the uncertainty (risk) about what that future amount will be. Our primary goal is to build, support and protect better retirement outcomes for all our customers, and their families.

We will stick to our disciplines and our investment philosophy to navigate robustly through the ripple-effects of the COVID-19, and remain agile to developments, news, and changes in sentiment.

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