A six per cent drop on the ASX within minutes of opening isn’t – thankfully – something that happens every day. But President Trump’s imposition of ‘reciprocal tariffs’ on 90 countries, and the prospect that they would trigger an escalating tit for tat trade war, saw a wave of selling on the local bourse that followed similar falls in the US overnight.
But it must be said that, however gut churning, the volatility of a few days, or even weeks, is of little concern to super funds with decades-long investment horizons.
The investment teams that Investment Magazine spoke with over the course of Monday said that it was easier to come to grips with tariffs and their potential impacts than the macroeconomic fog of war that settled over everything in the Covid years. Portfolio protections, where they were in place, were working as expected; funds had plenty of liquidity, were “leaning in” and rebalancing as normal to get back to their target equity allocations, and stress-testing scenarios like further falls in the value of the AUD. Markets were providing an opportunity, and some are looking to put on overweights if that opportunity hangs around. Some funds without boatloads of cash coming in from member contributions weren’t rebalancing, allowing their weighting to equities to decrease rather than trying to catch a falling knife, with an eye to buying back in later this week – or whenever the immediate pain seems to have stopped. Retirement balances will almost certainly go backwards, but that’s why they’re diversified across asset classes. And while there has been member switching and an increase in call centre activity, it’s (so far) less than that seen through the Covid volatility.
Of course, this is probably just the start. Prices will rise as a result of tariffs, and the likelihood of a damaging recession has increased. There will likely be more volatility, especially with Trump behind the Resolute Desk.
But for many members, volatility is a good thing; it allows younger people who have entered the workforce while markets have been at all-time highs to pick up quality assets at a low price. The same is less true for older members, who are rightly concerned about the impact that volatility could have on their super balance, and it’s imperative that funds engage with them to make sure they have the information they need.
For some investors, the sudden drop in prices on Monday morning seems to be cathartic. After years of warnings that prices were too high and that even US tech stocks can be effected by gravity, things are finally (probably) coming back down to Earth. For others, there seems to be appeal in the spectacle of it all. But describing what happened on the ASX on Monday morning as a “bloodbath” – as some corners of the media did – is not particularly helpful when it comes to members making informed choices about what to do with their superannuation. There could be worse to come, but incomplete narratives of stock market “wipeouts” and “violent” selloffs only encourage the crystallisation of losses.
What is important about Monday morning is what it says about the world super funds now operate in – one vastly different to that of the pre-Covid era where policy was loose, money was free and there were no barriers to global trade or the growth that it begets. This new world is one where there will be more volatility, more dispersion, more dislocation. All of those things can be opportunities, if they’re approached correctly. It’s for this world that big institutions like the Future Fund have changed the way they invest, with a focus on being both more nimble – i.e. more willing to make portfolio changes, quickly – and more active.
There are other areas where super funds will have to uplift their operating model. It’s fast being forgotten as retaliatory tariffs fly, but the end of last week was marked by revelations of a co-ordinated cyberattack against some of Australia’s biggest super funds – one where four AustralianSuper members lost a combined $500,000 to scammers that forced their way into accounts with stolen passwords.
The attack was pretty unsophisticated – the equivalent of trying a set of keys until you find one that fits in the lock – but ultimately effective. AustralianSuper said it couldn’t go into details about the security of its members’ accounts and whether the scam transactions would have triggered two-factor authentication, citing further security concerns.
But consumer advocates and regulators have long warned that super funds’ cybersecurity measures aren’t up to scratch – warnings that, in many cases, have fallen on deaf ears. In this respect, super funds seem ill-equipped for the world they exist in today, let alone one where sophisticated cyberattacks are levelled against financial institutions every day and Australia touts its circa $4 trillion superannuation pool as not just good for our own economy, but as a soft power tool and geopolitical bargaining chip.
The world is getting more complicated, not less. And super funds will have to adapt if they want to perform as well over the next decade as they did in the last, and retain the trust of members who are worried about losing their hard-earned retirement savings to cybercrime.
