A strong market recovery is a positive for super members

While COVID-19 initially saw a decline in consumer spending and sentiment, the end of FY21 saw positive signs of a steady economic recovery.

This is largely the result of the global easing of lockdown restrictions, record levels of government spending to stimulate production and to reduce unemployment rates, and the successful development and rollout of COVID-19 vaccines globally throughout the 2020/21 financial year (FY21). 

How did the financial year unfold around the globe?

United States

The US began FY21 recording its worst economic downturn ever, with Q2 2020 gross domestic product falling by an historic 31.4%. Despite this, the S&P 500 Index posted its best return in 35 years in August 2020.

Joe Biden’s presidential election win in November 2020 proved a further turning point, aiding overall business and consumer confidence. Under Biden’s leadership, the US has re-joined the World Health Organisation and the Paris Climate Agreement, announced a US$2 trillion infrastructure spend and seen the unemployment rate fall, providing hope for a strong improvement in the world’s largest economy. 

Asia

In Asia, China continued the trend of slow growth but by October 2020 their share market had erased almost all the losses seen since the start of the pandemic.

Japan too was heavily impacted by COVID-19 and at the end of 2020 their economy experienced its first contraction since 2009. Over the same period, Japan’s Nikkei index hit 30,000 for the first time since 1990.

Europe

In Europe, drawn out Brexit negotiations significantly impacted Eurozone markets, but after terms were agreed in December 2020, the region’s focus shifted to vaccine rollouts and economic recovery.

In the UK, house prices reached record highs, the Bank of England kept interest rates at a historic 0.10% low and as the UK began to exit lockdown in April 2021, it signalled a return in consumer confidence and an optimistic outlook ahead. 

Australia

Finally, in Australia, low consumer confidence and high unemployment made for a rocky start to FY21 as Australia fell into a recession for the first time in almost three decades.

The number of daily COVID-19 cases regularly exceeded 700 at the height of the pandemic, and much of the population found themselves in lockdown. But there was plenty of support with close to $300 billion spent on government programs like JobKeeper and JobSeeker, and the Reserve Bank slashed the cash rate to a record low of 0.10% in November 2020, which helped stabilise the Australian economy, pulled it out of recession, and improved consumer and business confidence. 

2020-21 financial year

 July 2020

Eligible super members able to access up to $10,000 of their super.1

 August    US S&P 500 Index sees its best August since 1986, up 7%.2
September Australia in first recession for nearly 30 years.3
October Australian consumer sentiment index jumps to highest reading since July 2018.4
November    RBA lowers cash rate to 0.1%5, and the Australian market posts best month in 2½ years.6
December    Australia no longer in a recession, although trade tensions increased with China over export tariffs.7
January 2021 Global COVID vaccine rollout continues and US President Joe Biden inaugurated.
February    One year since the first locally acquired COVID-19 cases outside China.
March    4% of the world’s population had at least one COVID-19 vaccination.8
April    Australian business conditions hit a record high despite the withdrawal of JobKeeper.9
May    Australian federal budget outlines how we’ll recover from the pandemic.
June    Global share markets finish the year at or near record highs, but challenges remain.

How did markets react?

Most major investment markets rose over FY21, with several hitting record levels as economies returned to pre-COVID levels of growth.

In particular, the Australian and US markets both experienced extraordinary rebounds. This is the benefit of having solid financial market systems in place when COVID-19 originally hit. It only took one year for the Australian S&P/ASX 200 to recover and surpass its pre-pandemic levels despite the historical market falls in March 2020. Compare this to the global financial crisis (GFC) when the Australian market took 10 years to fully recover, and the US S&P 500 took seven years.

The Australian share market took only one year to recover 

 Line chart showing how the S&P ASX 200 took 10 years to recover from the GFC and 1 year to recover from the initial COVID-19 outbreak in 2020.
Source: BT Investment Solutions, Factset

The combination of low interest rates and significant government spending saw all major growth asset classes like shares and property deliver strong returns. While cash rates globally have been very low since the start of the pandemic, cash and fixed interest still play an important defensive role in a diversified investment portfolio – cushioning it against any large market falls, such as those we experienced in March 2020.

Strong returns from growth assets in FY21

 Bar chart showing high 1 year returns for Australian equities, International Equties Hedged, Emerging Market Equities and Australian Listed Property.  Lower 1 year returns were recorded for Australian Bonds, International Bonds and Cash.
Source: Bloomberg

What does this mean for super fund returns?

Strong returns from growth assets in FY21 delivered great results for members invested in funds with a higher allocation to shares and property assets. Members invested in funds with more defensive assets (cash and fixed interest) would receive more moderate returns.

Read more about your FY21 super performance:

While it's wise to assume the investment returns we’ve seen in FY21 won’t necessarily be repeated in the coming 12 months, it’s worth recognising that the median diversified return for accumulation super funds is around 7% per annum over the last 20 years.10

“This is a remarkable achievement considering this period included the COVID-induced market correction in 2020, the GFC in 2008/09 and the residual impact of the ‘Tech Wreck’ in 2000/01,” explains Corrin Collocott, BT's Chief Investment Officer.

Generally, over the long term, shares and property continue to provide an opportunity to build long-term wealth, particularly when we‘re experiencing relatively low returns from cash and fixed interest investments. Maintaining good diversification across different asset classes leaves you less exposed to a single economic or market event. And by avoiding panic, and staying invested for the long term, you’ll make the most of rebounding markets like we’ve had over FY21.

“Managing members’ retirement savings is a responsibility we take seriously”, says Corrin. “Our team of investment specialists uses research, skill and insight to identify opportunities that can create sustainable, long-term returns while also managing risk appropriately for our members.”

"The BT Investment Solutions team is focused on delivering outcomes to support our members prepare for their best financial future in retirement.” 

You might also be interested in

Hear from Corrin Collocott, our Chief Investment Officer, and Melinda Howes, Managing Director of BT Super about what happened in investment markets and what this meant for your super returns.

YouTube video

Hear from Corrin Collocott, our Chief Investment Officer, for insight into the experience and investment approach of BT Investment Solutions.

YouTube video
FY21 has seen a rebound of markets and a return to calmer conditions – with BT super members receiving some of the highest returns seen in years.
The design of your underlying super product, and how it helps your investment performance.

When it comes to reaping the rewards of super, it is time in the market, not timing the market. In other words, to make money, stay invested for as long as you can, and try not to worry about knowing when the 'best' time is to invest.

We know that not everyone is the same. With this in mind, BT has a range of investment options, offering you flexibility and choice when personalising your super investment mix.

References

1 “Early access to your super” Australian Taxation Office (ATO).
2 “Monthly Commentary – August 2020” BT Investment Solutions.
3 “Australia in first recession for nearly 30 years” BBC News.
4 “Australia October consumer sentiment surges to two-year high in "extraordinary" result” Reuters.
5 “Statement by Philip Lowe, Governor: Monetary Policy Decision – 20 November 2020” Reserve Bank of Australia.
6 “ASX thumps global peers in best November in 30 years” The Australian Financial Review.
7 6 things to watch for as Australia crawls out of recession” The Conversation.
8 BT Investment Solutions Monthly Commentary – March 2021
9 BT Investment Solutions Monthly Commentary – April 2021
10 Mercer Investment Performance Survey of Employer Super Balanced Growth (60–80)

The information is prepared by BT Funds Management Limited ABN 63 002 916 458 (BTFM) the trustee of the following products:

(a) BT Super for Life, BT Super for Life Westpac Group Plan and BT Super part of the superannuation fund Retirement Wrap ABN 39 827 542 991; and
(b) Asgard Employee Super Account part of the superannuation fund the Asgard Independence Plan Division Two ABN 90 194 410 365. 

This information has been prepared as general advice only and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to your personal objectives, financial situation and needs before acting on it. Read the Product Disclosure Statement (PDS) to see if these products are right for you by visiting bt.com.au or asgard.com.au. Past performance is not a reliable indication of future performance. All examples are illustrative only. Your portfolio value and performance will depend on the investment options you have selected and the time over which they are invested. 

Investment returns are historical. Investment returns can move up or down and past performance is not necessarily indicative of future performance. Future performance is not guaranteed. Performance differences between the investment options and respective underlying funds exist due to factors such as valuation timing differences, differences in fees and charges, distributions (as cash may be retained for liquidity purposes) and higher cash holdings. More information on the asset allocation and risk exposures of each fund can be found in the PDS.

BTFM is a member of the Westpac Banking Corporation ABN 33 007 457 141 (Westpac) group of companies. An investment in these products is not an investment in, deposit with or any other liability of Westpac, any division of Westpac or any other company in the Westpac Group. Westpac and its related entities do not stand behind or otherwise guarantee the capital value or investment performance of the products or any related assets of the products.