Investment update: January to March 2022

Investment markets faced a challenging start but above median returns persist for more than 87% of our members over short and longer term.*

The first quarter of 2022 has been deeply challenging. Mercer Super is saddened by Russia’s invasion of Ukraine in February and the ensuing displacement of Ukrainian people. As a result, we intend to divest our remaining Russian assets. We've requested that our investment managers consider options to do so as market conditions allow.

The Russia-Ukraine crisis has had a knock-on effect of adding further pressures on already fast rising inflation and investment markets volatility, leading to significant declines in global equity and bond markets.

Super performance

The MySuper default option fund median^ was down 2.5% for the quarter, with Mercer SmartPath® experiencing similar falls.

All SmartPath® members experienced negative returns for the quarter, in a tight range of -2.4 to 2.6%. It’s important to note that despite this drop, more than 87% of our SmartPath® members still continue to enjoy returns comfortably above the industry median2 over the short and longer term, spanning 1, 3, 5 and 7 years.

For our Ready-Made choice options it was a similarly negative quarter, ranging -1.9 to 3.9%. This result was not wholly unexpected as the performance aligned with the exposure to risk. However, over the medium term, these options are also performing well across 3, 5 and 7 years.

The Sustainable Plus options had a challenging quarter due to the option’s lower exposure to carbon intensive energy and the materials sector, both of which rallied strongly on the back of soaring energy prices. Sustainable Plus losses ranged from -2.4 to -5.6% for the quarter.

Investment market update

Global investment markets incurred large falls over the quarter. Growing concerns over the impact of the Russia-Ukraine conflict on already slowing global economic growth and fast rising inflation introduced a new level of uncertainty into global markets. This led to heightened volatility and a further spike in commodity prices.

The Australian share market was a Q1 bright spot, providing a positive return amid a rally in commodities. The Australian resource sector benefitted from higher energy prices, contrasting against the technology-heavy U.S. share markets, which fell hard this year on higher bond yields impacting valuations of companies highly leveraged to growth.

This sharp increase in bond yields and shifting central bank monetary policy narratives made this quarter one of the worst on record for bonds, delivering negative returns across all fixed income assets.

The unwinding of the pandemic stimulus and high inflation is bringing forward expectations of monetary policy normalisation (i.e. higher interest rates). Inflation – a phenomena not seen meaningfully in developed markets for decades – is being fueled by global supply-chain issues, tightening labour markets and higher energy prices. The Russia-Ukraine geopolitical tension has further compounded these pressures and added to risk aversion by investors.

Even with the rare occurrence of both equity and bond markets delivering negative returns, the benefit of broader diversification into unlisted assets was evident in mitigating losses for Mercer Super members.

Whilst there is no ‘perfect hedge’ against inflation, in such a period of market volatility and economic uncertainty, it is important to note that diversification is key. Given that super is a long-term investment we recommend members look beyond short-term economic disruptions, and to remain focused on their long-term goals and objectives.

*Measured by the median of all default funds as reported in the SuperRatings Fund Crediting Rate Survey March 2022 - Default Options

^SuperRatings Fund Crediting Rate Survey March 2022 - Default Options

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