Recent market falls
Share markets fell last week with the Australian market
experiencing one of its worst weeks since August 2011
(when people thought the EU would break up).

Negative returns in any given period can happen in the share
market with this week standing out for its severity. However, we
also see historically shares have lost value in approximately 22
weeks out every 52 weeks since 1980. It is not a rare thing to see
in the share market.

Shares lost money because a rise in Covid-19 (a.k.a. coronavirus)
cases outside of China saw investors sell out of shares and look
to safer assets such as bonds or gold. This is because efforts to
combat the virus will likely see travel, trade and business activity
either slow or shut down temporarily. That would see weaker
demand for goods and services, so business profits and wages
are likelier to struggle in the short term.

Major movers in Global Markets (1 Jan – 28 Feb 2020)
Shares were not the only victims. The Australian dollar also
continued to fall, down ~5.3% for the year against our major
trading partners. Oil was another victim with an expected
weaker economy meaning oil for planes and other transport
e.g. trucks will attract less demand. As a result, we have seen oil
prices fall substantially, year to date.

Implications for your investments?
• You will be invested according to your risk profile and
strategic asset allocation (SAA).
• That means you and your adviser will have worked together
to see how you should be invested to meet your goals while
also allowing for your ability to handle risk.
• Your portfolio has exposure to unhedged global shares.
This means you are protected more when the Australian
dollar falls as it has done this year.
• Your portfolio will also have exposure to property and bonds.
These are more defensive assets and as the below table
shows they have offered relative protection so far this month.

Asset class                                  1 month                       1 year
Australian shares                              -7.7%                           8.6%
Global shares                                     -4.9%                          15.6%
Global shares (Hedged)                   -8.5%                          4.4%
Australian Listed Property             -4.9%                          11.8%
Australian bonds                               2.3%                            9.1%
International bonds                          1.2%                            9.3%
Cash                                                     0.1%                             1.4%

Speaking with your adviser
Periods of market volatility are normal and as the table of returns
illustrates, you should still be in positive territory over the last
year, even after including this month’s negative returns. If these
periods cause undue stress and you have specific questions,
we encourage you to reach out to your adviser. Longer-term we
expect that your investments invested along the lines of the SAA
should work to achieve your financial goals.

Ongoing monitoring and action
The IOOF Research Team continues to monitor global and
domestic markets. Key risk indicators such as volatility and
credit spreads have shown mixed results. They are suggestive
of business weakness in areas dependent on energy prices for
example where some businesses will be facing difficult times.

One measure of risk for Australian equities is volatility. This
tracks how much shares move around their average return.
It tends to spike higher in periods of market stress such as
this past month. Currently it is tracking at around 14.9%. For
context we expect Australian shares to track at a higher level of
18.9% per our latest SAA review. This level is also below historic
averages of around 16% i.e. you should not be surprised to
experience periods like this from time to time.

IOOF will also inform advisers if we consider it prudent to lower risk exposure to
support a smoother ride in investment returns going forward.

If you have any concerns regarding your investments/superannuation/pension or would like to discuss further with Bruce, please contact our office to discuss