How did TelstraSuper’s investments perform in the 2017 financial year?

We started the year with many unknowns – a new US president, instability in the European Union following the Brexit vote, and uncertainty about the policy direction of central banks. Geopolitical risks were elevated and debt levels were continuing to increase across the world. On the other hand, economic activity appeared to be picking up in many areas, spurred on by low interest rates, low inflation and high levels of employment.

Against this backdrop, TelstraSuper’s investment team developed a central scenario for economies and investment markets that predicted an uptick in global growth, led by the United States and the gradual emergence of inflation. So TelstraSuper positioned its portfolios to capitalise upon this expected growth. At the start of the year we increased our exposure to equities and began to slowly reduce our exposure to property.

In fact, economic conditions did turn out to be favourable in 2017. All the world’s major economies grew, unemployment fell to multi-decade lows and investor confidence surged. Global sharemarkets responded favourably to this environment, with the US and several European markets hitting record highs. Real assets such as property and infrastructure similarly delivered solid returns to investors.

This translated into strong returns for our members – with our Growth option returning about 12.5% for the year. Our Balanced option returned approximately 10.5% for the period and the Conservative option almost 7%. For our RetireAccess members, the results were about 1% higher reflecting the fact that investment earnings for RetireAccess members are not taxed. 

What is the outlook for 2018?

Looking forward to 2018, our central scenario for economies remains largely unchanged – we believe that economies will continue to grow, unemployment will remain low and US interest rates will only rise gradually. We also believe that tax cuts in the US will give a boost to economic activity.

However despite this favourable backdrop, we have become somewhat more cautious about the investment outlook, mainly because most assets now appear to be somewhat expensive relative to history. This shows that asset prices have already built in the market confidence that there will be a continuation of current favourable economic conditions. We therefore believe that investment returns in 2018 are likely to be lower than 2017, and we have made moderate reductions to our equity and property exposures as the year has progressed. 

What are the key risks you're monitoring?

The key long term risk to economic stability is the continuing build-up of debt across the world. In most countries, it is the level of government debt that is most concerning but in Australia the main issue is the record level of household debt. In the shorter term, geopolitical tensions will always present a risk that is difficult to plan for.

At TelstraSuper we aim to build well-diversified portfolios for our members. Our investments draw their returns from many different types of assets, in many different countries, and are managed by multiple investment teams. We aim for our portfolios to be resilient in a variety of investment environments, and to maximise long-term returns for the risk profiles chosen by our members.

It’s a privilege to be entrusted with the management of your superannuation and retirement savings. As always we will continue to manage your investments in a prudent and proactive manner – remaining vigilant to identify both risks and opportunities as they emerge.