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Winter 2002

What goes up…….Can come down

Super funds are this year expecting their first negative returns since the 1981-82 financial year – something that might come as a shock to members who’ve been enjoying substantial returns for some time. Fiona Trafford-Walker, Managing Director of Frontier Investment Consulting and investment adviser to HESTA, the national super fund for health and community services, answers some questions about the causes of low and negative returns and what impact they may have on your super.

What's causing low returns?

According to Fiona, investment returns across all markets this year are expected to be the worst for some time. However, investment markets have always experienced up and down periods and the current low returns reflect a swing from an up period to a down period.

Although the events of September 11 have been widely blamed for causing the market downturn, Fiona believes that world markets were on their way down for at least six months before September.

"Generally 50% of the international share market is in the US, so returns for overseas shares investments are largely dictated by what happens there," says Fiona.

"Any weakness in the US flows on to everything else."
This helps to explain why HESTA members who have their super in Core Pool, HESTA's most popular investment option, may see better returns than those who have chosen to invest in the Overseas Share Pool, for example. Core Pool is a diversified fund (meaning it has a balanced mix of investments including fixed interest, property, international shares and Australian shares), so it doesn't invest as heavily in US shares as the Overseas Share Pool
does.

How will low returns affect my super balance?

"Remember that super is a long term investment," Fiona says. "In a long term strategy, one year, or even two or three years of low returns, is generally not going to make all that much difference to your overall super balance if you have a long time until retirement."

Fiona warns that what may affect your final super balance is a knee-jerk reaction to low returns that causes you to change your investment strategy without considering what impact it may have on your super.

The key to choosing an investment strategy, regardless of what returns you are expecting, is deciding how comfortable you are with investment risk - the chance that the actual investment return will be different from the expected return.

Generally, investors seeking high returns over the long term should expect to receive negative returns in some years.

HESTA members should also remember that market fluctuations frequently occur. By the time members receive their statements to June 30, the market situation may well have changed. Make sure you have up to date information and consider seeking financial advice before making any decisions about your super. HESTA members have access to low cost, independent financial planning through Industry Fund Services. Call 1800 813 327 for more information.