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CIO's catch up 

This is a special edition of our investment report to let you know about our 2009/10 performance.

This newsletter covers what’s happened over the past year in the Australian and global economies and how the PSSap performed during this time.

All investment options delivered positive returns over the past year, partly supported by a recovery in equity markets. The bounceback in risk assets reflected perceptions of a stabilisation in the global growth outlook and in the global financial system.

PSSap turns five!

1 July 2010 marked a special occasion for the PSSap – being operational for five years. In celebrating this milestone, we can reflect on the past five eventful years. From an investment performance perspective, we've seen structural influences continue to influence investment returns. These influences include the growing prominence of emerging markets, the developed world's reliance on debt, the aging population impact on asset demand and a policy focus on supporting growth.

We work with our investment managers to focus on investments that will be supported by these structural influences. We believe that this will help to contribute to strong long-term investment performance for our members.

Chief Investment Officer

2009/10 PSSap performance

The PSSap Trustee choice option performed better than the median super fund (based on SuperRatings performance data) in both the last three years and since its inception in July 2005.

After a very negative 2008/09, financial markets rebounded strongly in the first nine months of the 2009/10 financial year. Some of these gains were given back in the June quarter, due to fears that economic growth in a number of large developed nations would be hurt by the huge sovereign debt build-up in some of the smaller European nations, such as Greece.

2009/10 PSSap performance

Remember past performance is no indication of future performance.

Over the financial year to 30 June 2010, the PSSap default option (Trustee choice) rose by 8.9%. This reflected a robust bounce back in domestic and international equity market prices as well as strong outperformance of the index benchmarks by our active managers in Australian shares, International shares, investment-grade credit, hedge funds and our high-quality core unlisted property portfolio.

The Australian shares option achieved the highest return in the financial year to 30 June 2010, while double digit performance was also recorded by the Sustainable, International shares (hedged) and Aggressive options. Despite challenging market conditions, our property portfolio has performed very well, both in absolute and relative terms, because of our high-quality core property holdings.

Since its inception in July 2005, the Trustee choice option has returned 4.1% per annum. This performance is below our long term expectations but places the PSSap's performance well above the median super fund across all time periods (see the chart below).
 

How we stack up
The PSSap Trustee choice option performed better than the median super fund (based on SuperRatings performance data) in both the last three years and since its inception in July 2005. This is highlighted in the following chart.

PSSap's comparison to SuperRatings all-fund median
The rate of return is annualised, both for the three years ending
May 2010 and also from PSSap's inception in 2005 to May 2010.
 

Market report for 2009/10
The aftermath of the global debt crisis has involved a transfer of debt from the private sector (households and the financial sector) to the balance sheets of many developed-world governments. This has resulted in a differentiation between those countries able to service that debt (for example core Europe and the US) and those less able (for example peripheral European countries, such as Greece). It has also reinforced the increasing dependence of global growth on the emerging regions, most prominently China.

Financial markets rebounded in the first nine months of the 2009/10 financial year, as policy initiatives stabilised global economic growth and the financial system, which reduced the risk of depression. Over the financial year to 30 June 2010, the Australian listed equity market rose around 13.1%, after its 20% decline in 2008/09. Global equity markets rose by 11.5% (compared to the previous year, when they fell by a little more than our domestic index).

However, a rise in the value of the Australian dollar eroded some of these offshore gains for investors who did not hedge their foreign currency exposure. Commodity markets also performed strongly over the period, achieving double-digit returns. Metals rose by around 20%, with copper prices rising by almost 30%. The price of gold rose by 35%, as it is generally perceived to be a hedge against deflation risk and/or a collapse in fiat currencies. Oil prices, by comparison, increased by a more modest 8%.

A lack of global inflationary pressures and stimulatory monetary policy created a generally favourable environment for government bonds. The Australian dollar moved broadly in line with the equity markets, rising in the first nine months of the year before declining in the June quarter. For the year as a whole, the Australian Dollar rose by 20% against a weak Euro and 5% against a stronger US dollar.

The volatility of financial market price movements remains elevated, reflecting a generally higher level of uncertainty about the outlook. Investors remain sensitive to economic growth news, which is unusually dependent on the success of policy and the less-transparent emerging economies. They are also responsive to any news that indicates the potential impact of structural factors (for example sovereign debt burdens) on the inflation outlook.