PSSap fund performance for August 2009

Welcome to the monthly update on your Fund's investment performance.

ARIA’s primary responsibility is the management and investment of the PSSap Funds in the equitable and best interests of all members. ARIA approaches this task by setting an investment objective to maximise the real returns earned on investments subject to a tolerable level of short-term volatility.

Table 1: PSSap option earning rates for periods ending August 2009
Option Earning rate *
  1 month (%)
Trustee choice 2.37
Conservative 1.54
Balanced 1.76
Aggressive 2.98
Cash 0.20
Government bonds 0.80
Australian shares 6.95
International shares (unhedged) 1.54
International shares 2.07
Property 0.49
Sustainable 6.83

* All earning rates are after fees and tax

Table 2: Historical fund earning rates (%)
Option 2005/06 2006/07 2007/08 2008/09 Financial
year to date (%)
Trustee choice 14.3 16.5 -2.0 -13.8 5.32
Conservative 7.7 9.1 0.8 -4.2 3.47
Balanced 10.2 12.2 0.6 -8.6 3.80
Aggressive 16.1 20.0 -5.2 -16.8 7.18
Cash 4.6 5.2 5.9 4.5 0.41
Government bonds 2.0 3.0 2.8 -2.2 1.59
Australian shares 22.3 25.8 -14.5 -14.6 15.39
International shares (unhedged) 17.8 11.4 -13.9 -19.5 6.48
International shares 15.5 21.5 -9.7 -30.5 7.82
Property 11.7 17.7 13.1 -1.8 -2.78
Sustainable 19.0 24.2 -12.1 -17.4 14.74

* All earning rates are after fees and tax

Commentary

Fundamentals

Global macro-economic data released through August has in most cases revealed continued improvement. Lead indicators of manufacturing have extended their recovery, and in the US are now decidedly above-trend. These are consistent with an inventory re-stocking cycle leading to a robust lift in global industrial production, from current depressed levels.

In the US, the Case-Shiller home price index has stabilised over the three months to June 2009, after falling by 32% from its peak in July 2006. Consumer confidence surveys have also stabilised though the labour market remains weak. GDP growth is expected to be positive through the second half of the year reflecting inventory liquidation and a bottoming out in housing activity.

Other developed economies have also shown relative improvements in economic activity, but the nature of recovery varies widely. The UK housing market has begun to improve, while in Japan, industrial production and export volumes have been the sources of positive economic momentum.  Europe appears to be lagging the global economy in pulling out of recession. Meanwhile, Chinese domestic activity measures remain exceptionally strong, with annual growth in retail sales and investment of over 15% and 30% respectively.

The resilience of the Australian economy has been further confirmed by the latest run of quarterly figures, owing to our differentiating trade linkages with China and relatively stronger housing sector fundamentals. Gross domestic product rose by 0.6% in both the June quarter and over the year. In addition, forward looking indicators of capital expenditure have held up much better than expected, and building approvals data suggest a housing recovery will build through late 2009 and into 2010.

Financial market performance in August

Equity markets have generally front run these improving economic statistics. The Australian and UK share markets were the best performing in August, rising by 5.6% and 6.5% respectively. The S&P500 finished up 3.4% over the month, while the MSCI World index gained 3.5%.

Emerging Asian markets, by comparison, remain caught between bubble-formation risk, as capital seeks exposure to the region’s higher growth profile, and price correction as policymakers intervene through liquidity management.  For example, the Chinese domestic equity markets have been selling off since 4 August, with the Shanghai A index down 23% from that point. This sentiment was expressed across most Asian markets, with the Hong Kong, Singapore and Taiwanese markets all down between 1 and 4%. By comparison, the Brazilian, Russian and South African markets all made robust gains of between 3 and 5% over August. 

G7 sovereign bond yields have declined over the recent period, most notably in the UK where the 30-year bond yield rallied by 38bp down to 4.15%.  While Australian long-bond yields were dragged down by the global movement, short rates continued to lift, reflecting higher cash rate expectations.

Corporate debt markets produced another strong monthly return as spreads continue to normalise from their dislocated peaks – in some cases to pre-Lehman’s crisis levels.

The Australian dollar has continued to appreciate and is currently trading around US85c, buoyed by the return of risk appetite and expectations of a V-shaped growth recovery. This appreciation has been relatively broad-based versus the US, the UK, and the Swiss Franc. 

Alison Tarditi
Chief Investment Officer
8 August 2009