Market volatility – it’s part of the market cycle

Published and current at: 19 December 2018

Share market wobbles always cause concern for some investors. Our Investment Team answers some common questions members have had over the recent share market volatility.

What happened and why?

For the most part, 2018 has seen extended periods of calm punctuated by sudden and sharp bursts of volatility.

The year started off well with most major share markets posting very strong gains as the global economy got a boost from the Trump tax-cuts.

This was followed by a short, but very sharp sell-off in February as investors started to question whether the impact from these tax-cuts would cause the economy to overheat, and the announcement of tariffs on Chinese imports into the United States.

Markets then stabilised, posting steady gains from April to September as global growth strengthened, company profitability continued to improve, and talk of tariffs stabilised.

October then saw another bout of volatility on concerns over proposed interest rate increases in the United States and a hardening in US-China relations. Markets are yet to stabilise post this latest downturn.

While some of this volatility can be attributed to economic events, unfortunately we have also seen a lot of volatility generated from the political environment.

This political interference is often much harder to factor into investment decisions, and so has led to a more complicated investment environment.

Unfortunately, the political environment doesn’t look like improving any time soon.

How does this situation affect my super?

As with any investment, your super will be exposed to many market cycles. How the market volatility affects your superannuation largely depends on which investments or options you are exposed to, and when you intend to access your super.

Super is by nature a long-term investment that’s designed to withstand short-term volatility. It’s not meant to react to endless share market ups and downs.

Energy Super’s investment options are currently relatively defensively placed (in comparison to their long term asset allocations) with regard to equities in our diversified investment options such as the Balanced option.

If you’re in a single asset class option like Australian Shares or International Shares, it’s important to remember that Energy Super works closely with specialist investment managers. They’re reviewing the opportunities and risks in the markets all the time.

How does Energy Super manage its investments?

Our Investment Committee meets monthly to review the latest data and receives advice from both its investment consultant external managers and internal investment team, making adjustments to assets the Fund is invested in, including asset allocation (i.e. shares versus cash) and investment manager changes where required.

The Committee operates under strong governance principles that are based on expected long and shorter term risk and returns. Its aim is to get the most from your investment over the long term, and it’s this long-term focus that provides the discipline for investing during volatile times like we’re experiencing now.

I’m still worried about volatility, what should I do?

We understand that when share markets fall, it’s only natural to want to do something to protect your investment.

If you don’t intend to access your super any time soon, there should be no need to react. Knee-jerk reactions can lead to poorer results.

Perhaps it’s helpful to think about it another way: would you sell your home if the property prices suddenly dropped? While it can be difficult, you need to remember to take a longer-term view.

Ultimately, you need to be comfortable with your level of risk. If you’re in a diversified investment option (which invests in many different asset classes) like Balanced or My Super, the effect will be lessened.

That’s why we have diversified options, so that poor performance in one asset class doesn’t affect your entire investment. Because while share markets are experiencing some falls now, you still have your super in other assets that are performing well.

Want to talk about it?

If you’re not comfortable with your level of risk or you’re close to retirement, it might be a good idea to speak with one of our financial advisers. They can speak to you about the appropriateness of your investment strategy and may help you feel more comfortable with the current situation.

To talk to an adviser about your Energy Super investment strategy and whether it’s still right for you, contact us.