Market watch

Anne Fuchs: Hello and welcome to Super Insider, a podcast on all things investing, superannuation and retirement proudly brought to you by Australian Retirement Trust. My name is Anne Fuchs, and today with me is our Chief Economist, Brian Parker, and our Senior Manager of Education, Joshua van Gestel.

Joshua van Gestel: Hello, Anne.

Anne: G'day, g'day. We are talking all things -- tariffs, elections, budgets, market volatility -- and what it means for you super. But, of course, before we do that, just remember -- and I know you know this -- that this is general advice, general information only, and you'll need to decide if it is right for you.

Anne: We're just having a very informal chat, as we do on Super Insider. We’ve had a budget handed down, and then an election called immediately after. That's kind of like Halley's comet. There's so much volatility, Brian, but how should our members, listeners, viewers think about market volatility in Australia?

Brian Parker: Australian elections and Australian budgets don't really make a lot of difference to the way superannuation is invested. That's fine because, again, superannuation is a very, very long-term investment. We're much more interested in the longer-term outlook for things like growth, inflation and interest rates.

Anne: What would feature, though, is the geopolitical risk. Brian, I've heard you say this quite a bit. Geopolitics has always been a factor of portfolio construction. But I guess the weighting now on it in terms of consideration has elevated quite a bit?

Brian: Yes, and again, I think it's worth reiterating that we can't design portfolios based on our ability or anybody's ability to forecast how the world might evolve in the short term, either in an economic sense, a market sense or how geopolitical developments are going to evolve in the short term, because no-one knows. Even when you talk to people who are seriously good at this, they don't talk in binary outcomes. They talk in scenarios, decision trees and probabilities. All we can really do is make sure that we're building portfolios that are very, very focused on the longer term, that are very well diversified across industries, regions, managers, asset classes, et cetera. But also, be prepared to take advantage of volatility. I know volatility is really unsettling. For many of our members, especially those members who are approaching retirement, they see market volatility, they see falling share prices, and they worry. A lot of the messages that we try to communicate to members are very much around, “volatility is inevitable”. It is part and parcel of any investment journey. What the world is going through right now is clearly a very heightened period of volatility. But that also provides opportunity.

Anne: Yes. I was just bragging that the first of my 3 finished school last year so I'm no longer paying school fees for one. And Frank, my husband, is salary sacrificing school fees into his account. He needs to catch up a bit, because he was the stay-at-home dad. At the moment, there would be people probably thinking, 'Oh, should I be putting more money in if it's so volatile?' But actually, it's like a sale?

Brian: It kind of is. Often when we see periods like this where share markets are down, our first thought is, 'Where's the opportunity and where can we put money to work?' We've not been selling equities into this. If anything, we've been looking for opportunities to buy. That's what we get paid to do, to take advantage of this kind of volatility. We don't know when markets will recover. We don't know when things will settle down. But at some point, the economy, business and markets adjust to a new reality and move on, and we need to be prepared for that. Before that event happens, if we see an opportunity to buy assets at a sale price, to use your phrase --

Anne: Yes, we all like a good sale.

Brian: Yes, that's the thing. If shares are on sale, it's our job to look for those sorts of bargains, and that's what we do.

Anne: Josh, from a contributions point of view, if you're speaking about salary sacrifice -- and you reflect back to COVID and people making investment decisions then -- what's the advice to listeners and viewers around this?

Joshua: My advice would be that these are times when people think about investing emotionally, and so they're feeling anxiety, they're feeling fear, and they're probably feeling obvious concern. But investment strategy, as Brian said -- this is when you take advantage. It's important to think about when you're contributing on a regular basis; you're going to be putting money into your super account at different times of the market. It's times like now where you've got contributions going in. They're effectively buying more because it's cheap. As we see markets recover, they're going to get a greater compound effect --

Anne: Return, yes.

Joshua: -- as a result of that. Brian and I are out talking to hundreds of members at the moment. We're seeing members can't get past that emotional investing element.

Anne: It's understandable. People haven't seen anything like this in their living memory. What's the advice on that one, Brian?

Brian: I think this is a key source of ongoing volatility.

Anne: It's not going to stop.

Brian: It's not going to stop in the short term. But at some point, the policy changes get put in place. It either becomes clear that they're not going away, that this is the new reality, and businesses, the economy and markets adjust to that reality. In the meantime, there is disruption, change and uncertainty. But at the end of the day, as I often say in sessions when we're talking to members, there is always a light at the end of the tunnel. It's not a train. It's the end of the tunnel. I don't think this is going to be any different. But in the short term it is clearly very worrying for people.

Joshua: We do have 2 really clear examples of that in a lot of people's recent history, which is COVID, as you've already talked about, but then we saw the GFC as well. We saw almost this new normal come into it, but this very long period of growth that came after those periods.

Anne: Listeners and viewers, if you are sitting there thinking about your ability to recover -- and Brian and I speak about this often -- you need to go and get some financial advice. You wouldn't sell your house at the bottom of a property market slump unless you really had to. When you move to cash, you're locking in losses, effectively.

Brian: That's right.

Anne: If you don't need to do that, you wouldn't do that. That's why financial advice is really important.

Joshua: I think especially now, Anne, where people are investing emotionally and they're making investment decisions based on how they're feeling. Advice is from someone who's removed from that, who can help you actually think what you should be doing.

Brian: I think the interesting thing for me was during COVID, where we saw a relatively small number of our members move a relatively large amount of money out of balanced and growth options into cash. Those members tended to have 2 things in common, or at least one of these things in common. One is they weren't getting advice. Our advised members were much, much less likely to do something unfortunate at that time. The second thing is that our members who are in the default option, the lifecycle option, were much less likely to do something ...

Anne: That's an important call-out. The default option is there to invest for the long term based on your age and the right sort of mix of growth/defensive assets.

Brian: Correct.

Anne: And to be utterly dispassionate about the noise and actually make mathematical, considered risk-based decisions to meet the investment.

Brian: That's it. Again, as members approach and enter retirement, the system is gradually reducing your risk and gradually reducing your exposure to these kinds of heightened periods of volatility. In many ways, the default option is doing perhaps what advisors would recommend people do.

Anne: Yes, that's true.

Brian: Again, I think it means that our default option has been very well designed. Those members have tended to have that retirement journey very much managed for them and managed in a very personalised way. We don't have age-based cohorts. You're a cohort of one if you're an ART member. When you turn 50, happy birthday from ART; we will start gradually derisking you in monthly steps up until the age of 65. We're taking the risk off the table for you while still ensuring that you've got enough exposure to risk so that you get the long-term returns you need.

Anne: I think the message overall with elections, budgets, Trump and tariffs and all of these things is that finding a super fund that has the track record, that has the governance, the ability to deploy capital and access to the best of breed investment partners in the world, is paramount. I think of some of our investments that we have -- student accommodation in Norway, aged care, Robina Town Centre on the Goldie. These things just carry on.

Brian: I think that's the thing. Having roughly 30 per cent of the fund invested in a range of private assets, which by their very nature are just not as exposed to what's happening in share markets. A lot of these assets deliver returns that are not really dependent on those markets and, in some cases, not even that dependent on the economy per se. Aged care is a classic example. In Australia we either have under construction or in operation about 13 aged care centres. We have another batch of aged care facilities in the UK. Those residents are going to keep on paying their rent regardless of what happens in the stock market today, tomorrow or what happens to tariffs the other day or in the future. Having that reliable source of return does provide our members with a decent amount of protection during really volatile times.

Anne: Any final reflections as we clock off from another episode of Super Insider in these exciting times we live in?

Brian: I think my message has always been to members that every crisis, every downturn, every market correction, every recession comes to an end.

Anne: We've got to buy you a shirt that says that. I swear. We've got to buy him a shirt, JvG, that says that.

Joshua: And with a train on it.

Anne: And it's got that train. That still reminds me of Sesame Street, and it used to scare me! But, anyway, that's trauma I'll hold onto.

Brian: Also, if you are uncertain, if you are worried, please get on the phone and talk to us and get some advice.

Joshua: That's what I was going to say. For me, it's that sleep at night test. If you're not sleeping well, if you are concerned, that's what we're here for. We're here to actually help you with that.

Anne: Yes, good one. Listeners and viewers, we hope that this has helped you. You know where to find us. Jump online, pick up the phone and tell your family and friends and subscribe to Super Insider and give us a top rating. Thank you.

This transcript has been edited for length and clarity.