There was no shortage of political risks to spook investor confidence in 2016/17; Britain’s formal withdrawal from the EU, the surprise rise of US President Donald Trump, a messy Australian federal election and a raft of “populist” polls across Europe to name a few. Equity markets also shrugged off the impact of three interest rate rises by the Federal Reserve.
Yet global markets have remained firmly unmoved, delivering healthy end of financial year returns for well diversified investors. In fact the CBOE Volatility Index shows share markets have had their smoothest ride in 16 years. So it’s no surprise that shares continued to be the main driver of fund performance and helped deliver positive returns for the eighth consecutive financial year.
International shares posted the strongest results, ending the financial year up 20.5% on a hedged basis. Unhedged returns were lower due to the Australian Dollar strengthening against most other major currencies, but still healthy, at 14.7%*. Australian shares were not far behind; despite a poor final quarter the ASX200 still finished the financial year up 13.8%. Mercer’s diversified investment options performed well with Mercer Growth delivering returns of 9.3% for the year to 1 July and the largest Mercer SmartPath option (1969-73) earning 10.9%. Our High Growth option did even better with total returns of 11.1% for the financial year and Mercer Diversified Shares produced 14% returns^.
“As the past year demonstrated there is always a case for caution – in the form of diversified investments – and the best thing for most investors to do is to take a long view, ignore the noise and avoid making decisions based on daily headlines.”
As the past year demonstrated there is always a case for caution – in the form of diversified investments – and the best thing for most investors to do is to take a long view, ignore the noise and avoid making decisions based on daily headlines. Geopolitical issues create noise but they don’t necessarily result in a big negative effect on financial markets; even very significant global events over the past year had negligible or, at worst, short lived market impact. It’s a great example of why investors should stay calm and not to overreact either in advance or in the aftermath of political events. Instead, you should seek to ensure your investments are consistent with your specific objectives and risk tolerance.
*MSCI World ex Australia NDR index
^These returns are net of all investment fees and taxes.
The Mercer Growth Investment Option outperformed its peers – beating SuperRatings' master trust survey median by 0.80%. Throughout the year we assessed our Dynamic Asset Allocation adjusting it in anticipation of market developments. Early in 2015, we reduced our exposure to equity markets, which gave us a better chance of weathering the increasing global market volatility that became a feature of the latter half of 2015.
How SmartPath works: When you're younger, your super is invested to target growth assets, like shares. As you approach retirement, your strategy is adjusted to increase protection from market volatility and defend your super by investing in more defensive assets, like cash and term deposits.
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