An update from our Chief Investment Officer24 Mar 2020 Ben Squires, Chief Investment Officer
What’s happening around the world?
Just as the current coronavirus pandemic is unprecedented in this generation, so too are the significant measures taken by governments, central banks and corporations globally to protect the health and wellbeing of individuals and economies. They should see us get through these difficult times with fewer economic casualties.
It’s unsurprising that investors are nervous as we witness continued volatility within share markets gripped by high emotional selling, and experience the personal impact of social distancing and workplace disruption. Governments around the world are attempting to achieve a dual objective — curtailing the spread of the coronavirus and minimising its impact on their economies. They are doing this by imposing stringent social distancing rules and providing financial support for those individuals and sectors worst affected by those same measures. Only time will tell whether this financial support will be enough to minimise the long-term damage caused to vulnerable industries. Those sectors that are directly affected by social distancing — such as restaurants and pubs — face the most difficult survivorship challenge, and unfortunately we expect that a number of these businesses will not make the distance.
What about NGS Super’s portfolio?
One of the benefits you have when investing in one of NGS Super’s options (with the exclusion of the Indexed Growth option which is invested 100% in the index) is that the best companies within each industry are selected, which should reduce the risk of a portfolio company becoming insolvent. By avoiding companies most at risk of failure, the portfolio should rebound strongly once conditions normalise. Although at these times staying the course feels uncomfortable, given the future uncertainty, you’re more likely to maximise your future retirement savings by doing so rather than trying to time market exit and entry points.
The portfolio is well diversified across asset types, countries and industries and is well positioned to take advantage of attractive opportunities that have arisen as a result of fear selling. The international share portfolio has benefited from holding more foreign denominated assets; as global markets have fallen, so has the Australian dollar, which has provided a significant benefit for the Fund.
Over the last few years, the Fund identified that a significant amount of complacency was building in share markets, and as a result we increased cash holdings and reduced exposure to higher risk areas such as high yield credit and bank loans. The portfolio has been skewed towards quality companies that are more defensive in nature such as consumer staples, healthcare and technology. For example, the latest infrastructure investments have been made within the renewable energy sector in the US, fibre network in Norway and Denmark, and day hospitals in Australia. These assets have less sensitivity to economic conditions and should provide good sources of returns over the medium term.
What lies ahead?
Interestingly, one of the Fund’s Chinese private equity managers recently announced that a portfolio company specialising in infectious disease treatments had become the first Chinese company to develop and commence human trials of a coronavirus vaccine in China. There are a number of companies around the globe racing to develop a vaccine and it is only a matter of time before these are commercialised. The speed at which these vaccines are developed will determine the duration and severity of the downturn.
The investment team and the Fund’s advisers are working around the clock to ensure that we protect members’ retirement savings and seek out opportunities that provide outsized risk-adjusted returns into the future. I strongly encourage you to speak with a financial planner or representative at the Fund before you make any decision to switch investment options.