It is a mistake to panic in a crisis and sell everything. Markets always overshoot on the upside and the downside.
As financial adviser, Charlie Viola at Pitcher Partners, says, shares in quality companies that deliver profits through the business cycle regardless of market volatility will remain sound long-term investments.
About 60 per cent of the stocks in the portfolio have been there since inception in 2012 when the trustees decided to take control of their retirement savings and have greater flexibility in the transition to retirement phase.
The seed money for this self-managed super fund came from other funds, including Media Super, which had a return in its high growth option in the 2020 calendar year of 1.57 per cent.
For the time being your rooster is confident of keeping the wolf from the retirement savings door.
Some would argue it is unfair to compare the performance of the Chook Super Fund with its 72 per cent exposure to equities to a leading super fund growth option.
The argument being that the average growth fund has about 54 per cent of assets in equities and a much larger proportion of funds in fixed interest.
But a comparison does seem reasonable when you consider the asset allocation of the top performing Suncorp Multi-manager Growth super fund in the latest 2020 survey by ChantWest.
It has the following asset allocation: Australian shares 20.65 per cent, international shares 41.75 per cent, cash 14.13 per cent, property 5.65 per cent, fixed interest 17.81 per cent and alternatives zero.
The best-performing large-scale super fund, the AustralianSuper balanced option (9 per cent a year over the past decade), has an asset allocation of Australian shares 22 per cent, international shares 34 per cent, private equity 4 per cent, property 7 per cent, infrastructure 12 per cent, credit 4 per cent, fixed interest 8 per cent and cash 9 per cent.
Viola says the Chook Super Funds performance in 2020 was held back by a few factors, including the underweight position in banks and miners, and the strength of the Australian dollar against the US dollar.
The upward movement in the dollar wiped about 400 basis points off the performance of the fund. But the trustees and Viola stand by the decision to leave the fund’s international shares unhedged.
Viola said another factor that held back the fund’s return relative to the index was being underweight Commonwealth Bank of Australia, which has been an important driver of market returns.
Having about 14 per cent of the fund in alternatives was helpful. This exposure to a range of real property assets and credit and infrastructure funds provided capital preservation and supplied about 30 per cent of the funds total income for 2020.
The trustees were lucky enough to make some judicious stock picks both in Australia and overseas during 2020. On the home front the following stocks did well: Energy One, up 73.6 per cent; Xero, up 32 per cent; Macquarie Telecom, up 28 per cent; and NextDC, up 24 per cent.
It was pleasing that the performance of the funds Australian share portfolio would have ranked 26 out of the 79 Australian equity funds in the 2020 Mercer Investment Survey, which showed a median return of 1.6 per cent.
International shares purchased in 2020 that did well included Tesla, up 85 per cent, and Grayscale Bitcoin Trust, up 99 per cent.
The Tesla investment was sold after it doubled, which means a lot of money was left on the table given Tesla was up 600 per cent in 2020.
The Tesla sale provided cash that is sitting in the bank and ready for investment during the next correction. In the meantime the US dollar cash deposit is a drag on overall performance.
Over the past eight years, the fund has steadily increased the weighting of shares in the technology sector including software platforms, cloud computing and data centres. The tech weighting, including local and international shares, now stands at 27 per cent.
The fund has about 10 per cent exposure to healthcare through ResMed (up 25 per cent), CSL (up 3.7 per cent) and Cochlear (minus 8.5 per cent).
The funds longer-term strategy is to build higher levels of income which will involve rotation away from growth stocks. At the moment about 30 per cent of the income comes from 10 shares, managed funds and listed investment companies (not including alternatives).
During 2020 the really smart money in funds management shifted into cyclical stocks in March or April. The Chook Super Fund missed this boat.
But as the year drew to a close the fund’s exposure to the domestic housing market through REA Group and Domain Holdings provided a decent uplift with returns in the six months to December of 38 per cent and 34 per cent respectively.
The two biggest gainers in the second half of 2020 were Grayscale Bitcoin Trust and Apple. Grayscale is highly volatile but the original investment was only 1 per cent of the fund.
For the time being your rooster is confident of keeping the wolf from the retirement savings door.
