• About us
  • Who looks after the PSSap
  • The ARIA team
  • What we provide
  • Governance
  • Responsibilities
  • Trust Deed, scheme rules and legislation
  • Contracts
  • Senate Order 8
  • Statements of expectation
  • Annual Reports
• Compare us
• Joining
  • How to join
  • Choose the options you want
  • Additional services
• Contributions
  • What your employer contributes
  • What you contribute
  • Other ways to build super
• Investments
  • Your investment options
  • Investment performance
  • Your choice your responsibility
  • Risk and return
  • Choose your investment strategy
  • Daily unit price
• Insurance
  • A quick overview
  • When to check your insurance
  • Change your insurance
  • Claim your insurance
  • Nominate your beneficiaries
• Withdrawing your super
• Learning centre
  • How superannuation works
  • At Work for You workshops
  • Lifestages
  • Advice and staying informed
  • Useful links
  • Glossary
• Fact sheets, forms and publications
  • Fact sheets
  • Forms
  • Publications

PSSap Fund Performance for December 2007

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: The PSSap Options Earning Rate for one month as at end December 2007 (%)

All Earning Rates are after fees and tax

Commentary:

December saw a continuation, and escalation, of the effects of the global liquidity crunch. This was particularly noticeable in inter-bank short-term liquidity with higher funding costs evident in all major markets (for example the Australian 3 month BBSW rates was at one stage some 75 bps above the RBA cash rate of 6.75%). Five central banks (the FED, Bank of England, ECB, Swiss National Bank and the Bank of Canada) announced mid month coordinated action to ease the constriction of liquidity. This action involved a range of measures including a temporary Term Auction Facility (TAF), increased repo funding and reciprocal swap lines. Despite these efforts liquidity was still scarce and costly at the end of December.  

Against this backdrop, December was a relatively flat month for global equity markets. Global equities hedged into Australian dollars fell by 0.7%. However, due to a continued decline in the Australian dollar, the unhedged return from global equities declined by 0.5%. In December, US stocks fell by around 1%. European stock faired better with EU and Germany up around 2.5% and UK flat. With the exclusion of China (up 8%) Asian markets fared the worst, with Japan and Hong Kong down 2.4% and 2.9% respectively. In the financial year to the end of December, global equities fell by almost 3.5% in hedged terms and declined by around than 3.7% in unhedged terms.

The Australian equity market fell by around 2.7% in December. The strongest sectors were Health Care (up 2.3%), Energy (up 1.6%), Telecoms (up 0.8%), AND Utilities (up 0.5%). All other sectors fell, with the largest declines recorded by Property Trusts (down 6.6%), Industrials (down 5.2%), Financials (down 3.5%) and Materials (down 3.5%). The decline in Property Trusts is due largely to higher funding costs as the global liquidity squeeze continues. This was most evident in the big profit downgrade in the Centro property group which saw its share price drop by around 80% in December. In the financial year to the end of December, the Australian equity market rose by around 3%.

December was a relatively flat month for government bond markets with bond yields relatively unchanged. In the US 10 year yields rose by around 0.1%, to a level of just over 4%. Japanese 10 year yields were relatively flat at around 1.5% whilst UK 10 year yields fell by around 0.15% to around 4.5%. Germany and Australia experienced raises in yields on their 10 year yields by 0.2% and 0.3% respectively. The relative underperformance of the Australian bond market compared to the US in December widened the Australia-US 10 year spread further to around 2.3% this is around the widest level it has been in the last decade. The continuation of this Australia-US spread widening is an indication that the market generally expects Australia to avoid the majority of the effects of the global liquidity shrinkage and economic problems in the US. As the performance of the Australian Property Trusts equity sector in November and December demonstrated, this may not be the actual case. 

The Australian dollar declined slightly in December on the back of USD strengthening due to better then expected manufacturing data in the US indicating that the US may avoid a recession. The largest fall was against the RMB (down 2.0%) and the USD (down 0.7%) whilst the AUD appreciated against the GBP by around 2.5%.

Alison Tarditi
Chief Investment Officer
6 January 2008