The strong performance to the end of 2019 was challenged in March 2020 as markets fluctuated wildly due to the uncertainty about the economic impacts of COVID-19 (coronavirus). For more information on this historically eventful quarter please read the market and economic snapshot.
In a volatile environment during the March quarter (1 January 2020 to 31 March 2020) most investments were taken into negative performance territory. Before looking at the March quarter performance, it’s important to note that markets in most major economies have since clawed back a meaningful portion of their March losses during April so investment performance has improved as a result.
If we take the suite of Vanguard diversified funds available through OneAnswer as an example, we can see that performance held up over the 3-year and 5-year periods. However, returns ranged from -4.06% for the conservative fund to -14.78% for the high growth fund for the March quarter. The three-month return had a substantial impact on every performance period to that point.
Vanguard diversified funds demonstrate the impact of a volatile quarter*
* The performance information provided above is for OneAnswer Frontier Personal Super to 31 March 2020. Past performance is not indicative of future performance. The future value of investments may rise and fall with changes in the market. Returns quoted use the unit price which is calculated using the asset values for the relevant month end. Please note that all returns are after the deduction of management fees and expenses, and assume all distributions are re-invested.
The reason for the greater falls in the growth and high growth funds is that they have a larger allocation to ‘growth assets’, such as shares, so they have been hit hardest by the market downturn that resulted from the lockdown measures put in place to control the COVID-19 pandemic.
When markets fall growth assets tend to be worst hit. However, it’s also the case that growth assets have been the biggest beneficiaries of the significant market rally we’ve seen over the past decade. Over time, a higher allocation to growth assets tends to deliver higher returns.
The balanced and conservative index options have seen less impact to their performance from the COVID-19 pandemic as they have less exposure to growth assets.
Asset class performance to 31 March 2020
Source: JP Morgan and OnePath, 31 March 2020.
Indices: Australian shares: S&P/ASX 300 Accumulation, Global shares (hedged/unhedged): MSCI World ex Australia Net, Global listed property: FTSE EPRA/NAREIT Developed Rental Index ex Australia (hedged), Global fixed income: Barclays Global Aggregate Bond Index (hedged), Australian fixed income: Bloomberg AusBond Composite 0+ Yr Index, Cash: Bloomberg Bank Bill
Please note: Past performance is not indicative of future performance.
The degree and speed to which the COVID-19 crisis tore through markets has been rapid when compared to previous recession-making market falls. As can be seen in the chart above, the month of March (1-month return %) saw even the defensive asset class of fixed income (bonds) underperform cash. This explains why the performance of our diversified portfolios has been particularly challenged in this period. Since this time market sentiment has improved considerably as infection rates have stabilised and asset class performance has picked up as a result.
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