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Goal 3 - Investment excellence

WE INVEST FUNDS TRANSPARENTLY FOR LEVY STABILITY AND FUNDING ADEQUACY
Achieve investment performance objectives and maintain a Fund surplus.

Performance criterion 1 – Fund surplus: 115% (+/-5% tolerance)

Criterion source

2019–20 Corporate Plan (Performance section, page 24)

Results against performance criterion

The Fund remains in a strong position with the estimated surplus exceeding the target level of 115% (+/-5% tolerance).

Performance criterion 2 – Investment portfolio return: CPI + 3% over rolling 8-year period

Criterion source

2019–20 Corporate Plan (Performance section, page 24)

Results against performance criterion

The Fund satisfied the desired portfolio return for the year at 30 June 2020.

The portfolio returned an average annual return of 7.9% p.a. for the eight years ended 30 June 2020, which was 3% p.a. above the CPI plus 3% (4.9% p.a.) objective.

Analysis of performance

We achieved the desired objectives for our Investment Excellence goal in 2019–20 by delivering long-term, consistent, above-average investment performance despite the COVID-19 pandemic, and sustainably managing the Fund’s liabilities through clear focus on the Fund surplus.

The pandemic divided the year into two distinct periods.

From July 2019 to February 2020 returns on growth assets were strong as fear of recession faded, helped by central bank easing combined with easing in tensions between the US and China in the lead up to the signing of the first phase of a trade agreement.

In Australia, the economic outlook was weak following the bushfires and the impact of COVID-19 on China emerging in the late fourth quarter of 2019; nevertheless, the Australian share market reached a record high in the middle of February 2020.

In this environment of strong returns from all growth assets the portfolio was doing exceedingly well. The one-year rolling return topped 14.6% for the year ended January 2020.

From late February 2020, it all changed as the World Health Organization (WHO) declared COVID-19 a pandemic. As the world went into lockdown, share markets responded by falling by around 35% from 20 February to 23 March. This also saw the United States dollar surge and the Australian dollar fall sharply to around US$0.55.

Equity markets bottomed around 23 March then rebounded sharply due to substantial monetary and fiscal policy measures.

The portfolio proved resilient and generated a positive return of 0.7% for the year ended 30 June 2020.