Investment insights

Want to know the stories behind the numbers? We had Chris talk us through the latest market activity and what’s on the horizon:

With the Consumer Price Index (CPI) rising 1.8 percent in the June 2022 quarter, and 6.1 percent overall in the 12 months to the June 2022 quarter, inflation seems to be the word of 2022.

Inflation is defined by the Reserve Bank of Australia (RBA) as an increase in the level of prices of the goods and services that households buy, measured as the rate of change of those prices.

In a bid to counter this rising inflation, the RBA in its August 2022 Board meeting again made the decision to increase the official cash rate; the latest increase of 50 basis points has brought the cash rate up to 1.85 percent, a significant rise from the record low of 0.10 percent that it had sank to through the pandemic.

In announcing the decision, RBA Governor Dr Philip Lowe explained that inflation is expected to peak later this year before declining back towards the 2 to 3 percent range. He added, “The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”

Chris said the Investment team will be keeping a close eye on inflation and interest rate expectations and movements.

“Many of our credit investments are in floating private loans rather than traditional corporate bonds, so we’re thinking about whether there will be an opportunity to invest in more traditional fixed income and interest rates as bond yields rise,” Chris said.

“Qantas Super has always been opportunistic in terms of investing into private markets, we’ll be looking at whether there’s a way to recycle or sell certain assets and then re-invest that money as markets find their new equilibrium or path forward.”

While the headlines may seem gloomy, Chris said the underlying data on the economy still looks good: employment is strong, recent consumer spending figures continue to show healthy spending, while the health of the financial system – as shown by the position of the banks – is also strong.

“Our focus is to ensure the portfolio performs relatively well, based on the current market environment, however prepare for opportunities that might arise looking forward,” Chris said.

While the RBA has a significant role to play in tackling inflation through monetary policy, the Federal Government also has various levers it can pull to tackle immediate cost of living pressures.

With a new government now in office, all eyes will be on Federal Treasurer Jim Chalmers when he hands down his first Budget in October 2022.

There’s nothing the media loves more than an attention-grabbing headline, so it’s no surprise that the lead up to 30 June 2022 saw a flood of headlines warning Australians about how much they would lose in their super at the close of the financial year.

News.com.au, for example, warned of the “Shock $8k hit coming from Aussies at tax time”, with the ABC explaining that “[t]he only ones who will be spared are those with the foresight — or good luck — to switch to cash at the beginning of the year”.

As always, there’s a lot more nuance to the situation than the headlines and media reaction would suggest.

The first thing to remember – and you may have heard us say this once or twice before – is that super is a long-term investment, and volatility is a normal part of investing for the long-term.

In fact, we saw similar volatility in early 2020 as the COVID-19 pandemic began to spread around the world. While this short-term volatility resulted in many super funds delivering negative one-year returns for the 2019/20 financial year, markets quickly rebounded over 2020/21. This rebound then saw Qantas Super deliver record one-year returns for the 2020/21 financial year.

Of course, while past performance is not a guarantee of future performance, history shows that markets always recover over time.

It’s also important to remember that each of our investment options, except Cash, has an investment horizon of at least three years, which gives your super time to weather market fluctuations like this. Our Aggressive option, for example, has an investment horizon of 10 years.

This means that the $8,000 loss touted by the headlines would only become a loss if someone had cashed out their super balance by either withdrawing their super if they were eligible to, or if they had switched to a more conservative investment option, such as Cash, after the downturn had already begun.

By changing to a lower risk option in a downturn, you risk selling out at a time when prices are low, rather than taking advantage of these falls when financial markets recover. Let’s look at it in terms of buying and selling a house: if you bought a house for $1 million, and then house prices dropped and your home was valued at $750,000, you would only make a loss if you actually decided to sell it at this point.

As Chris reminded us, while this past financial year’s returns were down on the year before, returns are still healthy when averaged out over the long-term, with returns over 3, 5, and 7 years and beyond strong.