The PSS (default) investment return for 2015-16 was 1.7% and its three year return was 8.3%.
CSC measures its fund performance on a three-year rolling return, and not annually. When looking at CSC's PSS (default) fund performance over the past three years to 30 June 2016 it returned 8.3% (after tax and fees), well above the target of 3.5% real (after inflation). The rolling five year return to 30 June 2016 for this fund was 8.2% (after tax and fees).
For a long term investment like superannuation short term measurements (i.e. annual) are not truly reflective of how a fund is performing. This is highlighted by the performance of the PSS (default) fund in 2014-15 when it delivered a return of 12.1%.
CSC's default fund in 2015-16 was positioned as follows:
- A defensive decision to increase cash holdings and lower equity exposure because of heightened levels of risk associated with political events in the UK and US; banking sector problems in Europe; rising debt levels in China; and fully-valued financial markets.
- CSC did not re-invest this cash in bond markets, which have continued to perform strongly over the past year, because the very low yield now available on bonds - indeed negative yield in some regions in the world - no longer compensates investors for the risk they take in holding these securities.
- Many of CSC's external fund managers have also reduced their exposure to bond-sensitive investments. This has also resulted in some underperformance versus their targeted objectives over this shorter horizon. However CSC expects their strategies to generate robust payoffs over the longer horizons targeted by our funds.
CSC increased its allocation to defensive assets within its Balanced (default) and Aggressive options in the middle of the 2015-16 financial year, in response to the ongoing challenges facing global policy makers and investment markets; specifically, lower levels of potential global economic growth, historically low interest rates, significant levels of debt, fully-valued asset prices and the potential for some market liquidity challenges. The defensive actions taken by CSC partially insulated its portfolios from the weakness in equity markets in the latter half of 2015-16 and, importantly, provided CSC with the opportunity to buy back into equity markets, at lower prices, in the wake of the "Brexit" event late in the financial year.
It is important to reinforce that CSC takes a long-term approach to investment, to match our superannuation customers' horizon. There will be periods – as we experienced in 2015-16 – where we take actions to limit the potential for capital loss, or where the returns available to prudent risk-taking mean that our investment performance is lower than we would expect over the long-term.