ANNUAL REPORT 2016/17

Transcription

1 ANNUAL REPORT 2016/17

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10 Your investment performance - looking back at the 2016/17 year This investment commentary is issued by Mercer Investments (Australia) Limited ABN , Australian Financial Services Licence # You should remember that past performance should not be relied upon as an indicator of future performance. Share markets enjoyed very solid returns during the 2016/17 financial year, with overseas markets outperforming the Australian share market over the period. The major international share index returned 17.4% while emerging markets returned 20.1%. Emerging markets had a very good run benefitting from improved macro-economic conditions, a softer United States (US) dollar, and an expanding Chinese economy. Fixed income investors were less fortunate than share investors for the period, as returns for bond holders were limited due to rising global bond yields. Australia The broad Australian shares market returned 13.8% over the 2016/17 financial year, a strong result considering the Australian economy has been going through a slow growth phase following the conclusion of the mining boom. The Reserve Bank of Australia (RBA) decreased the cash rate by 0.25%, to a record low of 1.50% in August of 2016 and the rate remained at that level throughout the year. Australian labour force conditions remain mixed, but forward-looking indicators predict growth in employment over the long term. Oil and iron prices experienced a surge in the first half of the financial year, although there has been a sharp reversal of this growth in Q

11 Australian Share Market Movement 2016/17 ASX 300 Index Market recovers from Brexit selloff after the UK elected to leave EU on 23 June Donald Trump s surprise US Election win sparks markets to rally RBA cuts cash rate by 0.25% to a record low of 1.50% Concerns about passage of planned US tax reform causes market sell-off Iron Ore price reaches 2 ½ year high of $US94.50 Australian Government announces bank levy in the Australian Federal Budget Cyclone Debbie impacts global coal supply 100 point fall on last day of FY 16/ June 2016 July 2016 August 2016 September 2016 October 2016 November 2016 December 2016 January 2017 February 2017 March 2017 April 2017 May 2017 June 2017 China China experienced a steady year of economic growth and this provided a lot of confidence to the world economy. China has been a key driver of global economic growth over the period following concern 12 months ago that this would subside. Strong steel production and ongoing expansionary central bank policies contributed to growth momentum despite these concerns. Europe Europe showed a slight improvement in economic conditions over the year. However, the year was marked by important political outcomes, with the General Election in the United Kingdom (UK) and France being held. The UK election resulted in a hung parliament, forcing incumbent Prime Minister, Theresa May, to form a new government with the support of the Democratic Unionist party. In France, Emmanuel Macron s La Republique en Marche and his centrist ally Modem won a comprehensive majority in France s final round parliamentary elections. The political outlook appears steadier in Europe compared to 12 months ago. 9

12 USA The US economy continued to improve over the course of the year resulting in the Federal Reserve raising interest rates to a 1.0%-1.25% range. A gradual shrinking of its $4.5 trillion balance sheet is expected to begin before year-end. With inflation slipping below the Fed s 2.0% target, the speed of continued increase in interest rates has been thrown into question and the Fed was forced to temper its near-term forecasts for inflation. However, markets are still pricing a further 2017 hike in interest rates as a likely scenario. The official unemployment rate fell to 4.3% during May, a 16-year low, but closed 2016/17 at 4.4% - a drop from 4.9% at the beginning of the period. Despite fluctuations throughout the year, the participation rate began and ended the period at 62.8%. Asset Class Performance to 30 June 2017 Performances were mixed over the year, with strong returns for emerging markets (unhedged), overseas shares (hedged and unhedged) and overseas small caps (unhedged) while Australian REITs (Australian Property) and overseas fixed income (hedged) experienced negative returns. Australian shares experienced solid returns, but underperformed in comparison to overseas shares. Australian REITs were negatively impacted by increased uncertainty surrounding the possible housing market bubble in Sydney and Melbourne - which highlights the importance of a well-diversified portfolio; as equities and infrastructure, whilst volatile, performed strongly this past year. The Australian dollar went up over the year. Market volatility is expected to continue as US interest rate hikes continue and the geopolitical situation remains problematic. The following graph shows the asset class returns for the 2016/2017 financial year: Asset Class Returns - 30 June Australian Shares Australian Small Caps Overseas Shares (UH) Overseas Shares (H) Overseas Small Caps (UH) Return (%) Emerging Markets (UH) Direct Property Australian REITs (H) Global REITs (H) Global Listed Infrastructure (H) Australian Fixed Income Overseas Fixed Income (H) Cash 12 months to June 2017 (H) = Hedged in Australian dollars (UH) = Unhedged in Australian dollars Data source: Thomson Financial Datastream; MSCI. Data provided as is 10

13 Investment market outlook Investor sentiment for 2017/2018 is best described as cautiously optimistic. We believe that returns for growth assets should continue to be positive in , although returns are expected to be slightly reduced in comparison to the financial year just gone. Increased volatility is expected in the year ahead as markets adjust to tighter monetary conditions. Increasing levels of inflation are anticipated, as well as higher bond yields. Geopolitical tension is also expected to rise and this is likely to lead to more market volatility. Currently, the moderate expansion in the global and Australian economies remain intact, with the global cycle increasingly supported by a welcome return of business investment in the major economies. China also appears well placed to manage the transition away from debt-fuelled investment. More central banks are preparing to remove excessive monetary accommodation, but the absence of material inflationary pressures (including in Australia) suggests this process will be slow and arduous. Although developed market equity valuations generally remain rich the upturn in the earnings cycle is poised to extend into 2017/18 and interest rates are not yet a major threat to equity markets. The Australian dollar remains overvalued on a wide range of fundamental criteria and the high exchange rate of approx USD makes us cautious of AUD in the short-term. Diversification across global markets and asset classes continues to be key in ensuring a robust investment strategy during times of economic uncertainty. Investors are reminded to maintain a long term focus, especially in the context of superannuation savings. 11

14 Your investment options Option Nationwide MySuper/Diversified^ *Inception 1987 (Super), 1 July 2011 (Pension)** The Diversified option is the default option in which your balance and contributions are invested where you have not made an investment choice. Aims to produce an investment return of at least 3% in excess of the average rate of inflation (measured by the Consumer Price Index for Australia) over a rolling 7 year period (as at 30 June). This objective is also considered appropriate over rolling 10 and 20 year periods. This option is designed for members who want a moderate level of return over the medium term. There will be some fluctuations of returns from year to year. The option provides balanced investment diversification by investing across a wide range of growth and defensive asset types, namely Australian and global shares, property, fixed income, infrastructure, alternative investments and cash. On average, this option may produce a negative return in 3.5 years over a 20 year period, making it a medium to high risk investment option. ^From 1 September 2013, this option became known as the NSF MySuper option for members in the Employer Sponsored Division only Historic crediting rate of earnings Earning rates (%) Year ended Super Pension Inflation (%) 30 June N/A June N/A June N/A June N/A June June June June June June

15 Compound average returns 15 Earning Rates (%) year year year year 7.91 Super Since Inception* Pension 1.84 Super Pension Inflation (%) Please remember that past performance is no indication of future performance. **Pension Division opened on 1 September Earnings rates for 2011/12 have been annualised from 1 July Asset allocation - Super Target (%) Actual (%) Asset class Range Target^ At 30 June 2016 At 30 June 2017 Australian shares Global shares Real assets Alternatives Growth fixed income Defensive fixed income Cash ^Changes were made to the target asset allocation in 2016/17, following a review to Nationwide Super s investment options. Asset allocation at 30 June Super Australian shares Global shares Real assets Alternatives 4.91 Growth fixed income 5.14 Defensive fixed income Cash

16 Asset allocation - Pension Target (%) Actual (%) Asset class Range Target^ At 30 June 2016 At 30 June 2017 Australian shares Global shares Real assets Alternatives Growth fixed income Defensive fixed income Cash ^Changes were made to the target asset allocation in 2016/17, following a review to Nationwide Super s investment options. Asset allocation at 30 June Pension Australian shares Global shares Real assets Alternatives 5.00 Growth fixed income 5.00 Defensive fixed income Cash

17 Option High Growth *Inception 1 July 2003 (Super), 1 July 2011 (Pension)** Aims to produce an investment return of at least 4% in excess of the average rate of inflation (measured by the Consumer Price Index for Australia) over a rolling 10 year period (as at 30 June). This option provides investment diversification by investing across a wide range of growth assets including Australian and global shares, property, fixed income, infrastructure and alternatives. On average, this option may produce a negative return in 4.2 years over a 20 year period, making it a high risk investment option. Historic crediting rate of earnings Earning rates (%) Year ended Super Pension Inflation (%) 30 June N/A June N/A June N/A June N/A June June June June June June Compound average returns Earning Rates (%) year year year year 7.07 Super Since Inception* Pension 1.84 Super Pension Inflation (%) Please remember that past performance is no indication of future performance. **Pension Division opened on 1 September Earnings rates for 2011/12 have been annualised from 1 July

18 Asset allocation Target (%) Actual (%) Asset class Range Target At 30 June 2016 At 30 June 2017 Australian shares Global shares Real assets Growth fixed income Alternatives Asset allocation at 30 June 2017 Australian shares Global shares Real assets Growth fixed income 6.00 Alternatives

19 Option SRI/Ethical *Inception 1 May 2005 (Super), 1 July 2011 (Pension)** Aims to produce an investment return of at least 3% in excess of the average rate of inflation (measured by the Consumer Price Index for Australia) over a rolling 7 year period (as at 30 June). This option provides investment diversification by investing across a wide range of growth and defensive asset types, namely Australian and global shares, property, fixed income, infrastructure, alternative investments and cash. This option includes investments in share funds which are designated as Socially Responsible Investments (SRI). Labour standards, environmental, social and ethical issues are taken into account (in addition to the usual investment criteria). On average, this option may produce a negative return in 3.5 years over a 20 year period, making it a medium to high risk investment option. Historic crediting rate of earnings Earning rates (%) Year ended Super Pension Inflation (%) 30 June N/A June N/A June N/A June N/A June June June June June June Compound average returns 15 Earning Rates (%) year year year year Super Pension Since Inception* Super Pension Inflation (%) Please remember that past performance is no indication of future performance. **Pension Division opened on 1 September Earnings rates for 2011/12 have been annualised from 1 July

20 Asset allocation Target (%) Actual (%) Asset class Range Target^ At 30 June 2016 At 30 June 2017 Australian shares Global shares Real assets Alternatives Growth fixed income Defensive fixed income Cash ^Changes were made to the target asset allocation in 2016/17, following a review to Nationwide Super s investment options. Asset allocation at 30 June 2017 Australian shares Global shares Real assets Alternatives 5.02 Growth fixed income 5.02 Defensive fixed income Cash

21 Option Prudent *Inception 1 July 2003, 1 July 2011 (Pension)** Aims to produce an investment return of at least 2% in excess of the average rate of inflation (measured by the Consumer Price Index for Australia) over a rolling 5 year period (as at 30 June). This option provides less volatile investment diversification by investing across a wide range of defensive asset types, namely Australian and global shares, property, fixed income, infrastructure, alternatives and cash. On average, this option may produce a negative return in 1.6 years over a 20 year period, making it a medium risk investment option. Historic crediting rate of earnings Earning rates (%) Year ended Super Pension Inflation (%) 30 June N/A June N/A June N/A June N/A June June June June June June Compound average returns Earning Rates (%) year year year year 4.42 Super Pension 1.84 Since Inception* Super Pension Inflation (%) Please remember that past performance is no indication of future performance. **Pension Division opened on 1 September Earnings rates for 2011/12 have been annualised from 1 July

22 Asset allocation Target (%) Actual (%) Asset class Range Target At 30 June 2016 At 30 June 2017 Australian shares Global shares Real assets Alternatives Growth fixed income Defensive fixed income Cash Asset allocation at 30 June 2017 Australian shares Global shares Real assets 6.00 Alternatives 3.00 Growth fixed income 3.00 Defensive fixed income Cash

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24 Asset allocation Target (%) Actual (%) Asset class Range Target At 30 June 2016 At 30 June 2017 Cash N/A Asset allocation at 30 June 2017 Cash

25 Australian shares Acadian Asset Management Ausbil Dexia BT Investment Management Fidelity Investments Greencape Capital JCP Investment Partners Macquarie Investment Management Perpetual Investment Management Plato Investment Management State Street Global Advisors Vinva Investment Management WaveStone Capital Yarra Capital Management Global fixed income AXA Investment Managers Challenger Colchester Global Investors Colonial First State Global Asset Management Franklin Templeton Investments H2O Asset Management Kapstream Capital Wellington Management Alternatives Acadian Asset Management AQR Capital Management Cantab Capital Partners Cumulus Elementum Advisors GAM GMO GSA H20 Asset Management MKP Capital Management QCAM Currency Asset Management Taconic Investment Partners Tiger Eye Capital Real assets Charter Hall Colonial First State Global Asset Management Dexus Goodman Funds Management IFM Investors Investa Property Group Kohlberg Kravis Roberts & Co (KKR) Lend Lease Investment Management Macquarie Global shares Acadian Asset Management Allianz Global Investors Arrowstreet Capital Fidelity Worldwide Investment Macquarie Investment Management State Street Global Advisors Australian fixed income BT Investment Management Challenger Macquarie Investment Management ME Portfolio Management Cash & term deposits Blackrock Challenger (managing term deposits held with banks and financial institutions) National Australia Bank (operating accounts)

26 Investment State Street Global Advisors (under Australian Equities and Overseas Equities mandates from Mercer) Percentage of assets 26.70% Kapstream 7.00% Franklin Templeton 5.10% Company name Industry Percentage of Australian shares portfolio Commonwealth Bank of Australia Financials 8.71% Westpac Banking Corporation Financials 6.94% National Australia Bank Financials 5.28% Australia and New Zealand Banking Group Financials 5.10% BHP Billiton Limited Materials 4.77% CSL Limited Health Care 4.04% Telstra Corporation Limited Telecommunication Services 2.42% Macquarie Group Limited Financials 2.20% Woolworths Limited Consumer Staples 2.08% Wesfarmers Limited Consumer Staples 1.96% Company name Country Industry Percentage of global shares portfolio Apple Inc USA Information Technology 1.49% Alphabet Inc USA Information Technology 1.10% Microsoft Corporation USA Information Technology 1.00% Samsung Electronics Company Limited South Korea Information Technology 0.80% Tencent Holdings Limited China Information Technology 0.80% Amazon.com Inc USA Consumer Discretionary 0.77% Johnson & Johnson USA Health Care 0.71% Facebook Incorporated USA Information Technology 0.70% Taiwan Semiconductor Manufacturing Company Limited Taiwan Information Technology 0.66% Exxon Mobil Corporation USA Energy 0.66%

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30 Director and Management remuneration for 2016/17 Remuneration band ^ Directors & Key Management personnel $30,001 - $40,000 1 $40,001 - $50,000 1 $50,001 - $60,000 3 $70,001 - $80,000 1 $170,001 - $180,000 1 $210,001 - $220,000 1 Role Base fee (covers attendance at Board meetings and a minimum of 30 hours training) Fees $38,700 per annum Additional fees Investment committee membership Claims committee membership Chairman fee Other approved activities $3,100 per annum $12,910 per annum $18,610 per annum $295 per hour

31 Board committees Audit, Risk and Compliance Committee Investment Committee Administration Committee Claims and Insurance Policy Committee Business Development Committee Remuneration and HR Committee Considers matters relating to the financial and statutory compliance obligations of Nationwide Super, including external audit, risk and legal compliance. Oversees the investment arrangements of Nationwide Super. In particular, works closely with the investment consultant to undertake strategic investment monitoring and decision making. Makes recommendations to the Board to improve efficiencies of fund administration and quality of service to members and employer sponsors. Considers and determines claims lodged for Death, Disablement and Terminal Illness. Recommends to the Board any changes necessary to Nationwide Super s insurance policies. Develops and recommends Nationwide Super s strategic direction to the Board. Oversees the appointment, removal, evaluation and remuneration of Board members and NSF Management Team. Members Helen Imienionek (Chair) Matthew Kerr John Lynch Kim McHugh Timothy Edmonstone (Chair) Matthew Burgess Helen Imienionek Kim McHugh Matthew Kerr (Chair) Helen Imienionek John Lynch Kim McHugh Matthew Burgess (Chair) John Lynch Kim McHugh Timothy Edmonstone (Alternate member) John Lynch (Chair) Matthew Burgess Matthew Kerr Helen Imienionek (Chair) Matthew Burgess Timothy Edmonstone Matthew Kerr John Lynch Kim McHugh

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33 For the year ended 30 June Operational Risk Financial Reserve account Opening balance $1,779,760 $1,517,625 $724,496 Movement $174,549 $262,135 $793,129 Closing balance $1,954,309 $1,779,760 $1,517,625 For the year ended 30 June Capital Expenditure Reserve account Opening balance $136,622 $30,337 $15,441 Movement -$136,622 $106,285 $14,896 Closing balance $0 $136,622 $30,337 For the year ended 30 June General Reserve account Opening balance $1,574,267 $1,731,973 $2,884,171 Movement -$402,117 -$157,706 -$1,152,198 Closing balance $1,172,150 $1,574,267 $1,731,973

34 Administrator and Consultant Asset Consultant General Advice Licensee Personal Advice Provider Auditor Internal Auditor Custodian PSI Superannuation Management Pty Limited Mercer Investments (Australia) Ltd Link Advice Pty Ltd Link Advice Pty Ltd PricewaterhouseCoopers (PwC) Ernst & Young NAB Asset Servicing Group Insurer MetLife Insurance Limited (until 30 June 2017) (CommInsure appointed 1 July 2017) Legal Advisers Actuarial Services Mullane & Lindsay Solicitors Thomson Geer Lawyers Moray and Agnew Mercer Consulting (Australia) Pty Ltd Rice Warner Pty Ltd

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36 ASSETS $ $ Cash and cash equivalents 6,759,449 7,891,825 Receivables 290, ,512 Investments Cash and short term deposits 8,720,285 6,992,105 Diversified fixed interest 123,710, ,678,837 Australian equities 169,619, ,906,009 International equities 174,681, ,300,009 Alternative investments infrastructure 42,896,953 37,970,965 Property 62,207,180 56,687,323 Total assets 588,884, ,605,585 LIABILITIES Payables (1,275,118) (1,122,105) Income tax payable (381,729) (298,274) Deferred tax liabilities (3,751,238) (2,026,888) Total liabilities excluding member benefits (5,408,085) (3,447,267) Net assets available for member benefits 583,476, ,158,318 Member benefits Allocated to members 580,209, ,352,446 Unallocated to members 7,896 33,950 Total member liabilities 580,217, ,386,396 Net assets 3,259,622 3,771,922 Equity Other reserves 1,305,313 1,992,162 Operational risk financial reserve 1,954,309 1,779,760 Total equity 3,259,622 3,771,922

37 Income Statement For the year ended 30 June $ $ Superannuation activities Interest 221, ,782 Distributions from unit trusts 32,013,979 36,845,518 Changes in assets measured at fair value 26,734,887 (20,303,487) Other investment income 1,238,527 5,730,861 Other income 8,979 (3,448) Total superannuation activities income 60,217,896 22,512,226 Investment expenses (617,719) (390,472) Administration expenses (5,093,507) (5,519,882) Operating expenses (3,108,846) (2,295,526) Total expenses (8,820,072) (8,205,880) Result from superannuation activities before income tax expense 51,397,824 14,306,346 Income tax expense/(benefit) (1,423,001) 333,982 Result from superannuation activities after income tax expense 49,974,823 14,640,328 Less: Net benefits allocated to members accounts (50,487,123) (15,318,165) Profit after income tax (512,300) (677,837) Accounts for the Year Ended 30 June 2017 This summary has been prepared from the unaudited financial accounts of Nationwide Superannuation Fund for the year ended 30 June The audit of the financial statements is expected to be completed in September A full copy of the audited accounts and auditor s report will be available after this time by contacting Nationwide Super. 1 35

38 242 Pacific Highway l PO Box 42 Charlestown NSW 2290 P E enquiries@nationwidesuper.com.au W nationwidesuper.com.au Issued by NSF Nominees Pty Limited ABN AFSL RSE Licence No L Trustee of Nationwide Superannuation Fund ABN RSE Registration No R /17