Coronavirus (COVID-19) - what it means for markets and our portfolio

27 Feb 2020 Ben Squires, Chief Investment Officer

Update from our CIO and CEO on 17 March 2020 here.

The coronavirus (now referred to as COVID-19) continues to spread. Share markets reacted negatively to the recent outbreaks in Italy and South Korea, with the vast majority of global shares experiencing sizable falls over the last several days. Before the announcement of the outbreak, share market prices and sentiment were at extreme levels — as result, NGS Super’s expectation was that share markets were vulnerable to a correction and the portfolio was positioned accordingly. The more recent correction would suggest that investors are potentially re-rating the breadth of the future impact across markets and economies and have less conviction in the green shoots seen in economic growth at the end of 2019.

As the epicentre of the outbreak and the worst affected country to date, China has been turning all taps to support their economy. The number of new cases of COVID-19 has fallen over successive days, which is positive. At the time of drafting this note, the World Health Organisation is yet to call the outbreak a pandemic, and the hope is that the development of a vaccine and quarantine activity can curb future outbreaks.

Impact on portfolio

From a portfolio perspective, the negative impact is largely contained to the investment options with a greater exposure to share markets. The diversification across the investment options provides some immunisation and therefore lessens the impact of negative share markets. The investment options have a good amount of exposure to bonds, infrastructure, property and other defensive alternatives, which continue to perform well as share markets fall. In addition, our share portfolio is more defensively positioned and our expectation is that the NGS Super share portfolio will outperform the market.

What action are we taking?

We continue to monitor our portfolio and markets closely, assessing the need to either provide more protection or alternatively take advantage of attractive prices across various asset classes. Given the diversification benefits received from the alternative assets held in the investment options, we continue to maintain our current asset allocation. In addition to the diversification benefits, the breadth of support provided by central banks and governments globally is likely to support economic growth. Our expectations are that share markets are more likely to recover over the medium term and any further falls in share markets will provide attractive buying opportunities. We will continue to provide updates on portfolio performance as we gather more information and insights on opportunities and threats across the investment portfolios.

While we take an active approach to monitoring the markets as they react to events like these, it’s also important to remember that superannuation is a long-term investment. Markets cyclically rise and fall, and our portfolio is designed with the aim to level out fluctuations in order to achieve the long-term retirement goals of our members.

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