Monthly investment performance update

PSSap Fund Performance for February 2006

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

The PSS Board's primary responsibility is the management and investment of the Fund in the equitable and best interests of all members. The Board approaches this task by setting investment objectives for the Fund's investment options that maximise the real investment returns earned subject to tolerable levels of short-term volatility for each option.  

Table 1: Asset allocations for pre-mixed investment options as at end February 2006 (% )

This table shows the actual asset allocations of the four pre-mixed investment options at the end of February 2006. The other seven options are essentially single strategy options - see our Product Disclosure Statement.

Table 2: Performance in 2005-06 as at end February 2006 (%)  

The figures in the table are after fees and taxes and show the return for a member who was invested for the whole month in each option.

Commentary:

Global equity markets paused for breath in February, following strong rises in the three previous months. The MSCI World (ex Australia) index advanced by just 0.3% in local currency terms in February, reflecting subdued gains in the US (up 0.3%), UK (up 0.8%), France (up 0.7%) and a decline of 2% in Japan. The largest gains were achieved in Europe, with Spain (up 6%), Italy (up 2.5%) and Germany (up 2%). The Australian equity market also consolidated recent gains, rising by 0.6%. In the eight months to the end of February, global equities rose by 15.9% in local currency terms. The largest advances were achieved by Japan (up 40%), Switzerland (up 26%) and Germany (up 26%). By way of contrast, the US market rose by only 9%. During the same period, the Australian market rose by 19%, buoyed by strong gains within the Materials (up 35%), Healthcare (up 27%) and Energy (up 21%) sectors.

US economic releases during February were mixed. Growth in the manufacturing and service sectors slowed, industrial production fell unexpectedly and durable goods orders recorded a significant decline. Offsetting this, the leading indicator index rose sharply and fourth-quarter GDP growth was revised upward, while core consumer and producer prices both rose, increasing the likelihood of further short-term interest rate hikes. In this environment, bond market returns were similar to those achieved by cash. In the eight months to the end of February, the Australian bond market outperformed its global counterparts, reflecting a smaller increase in local bond yields. However, during this period, both Australian and global bond markets recorded returns below those from cash.

Absolute performance of the four pre-mixed options in the eight months to February was positive, with the largest gains achieved by the options with the greatest exposure to equities. The return from Bonds / Fixed Interest, while low, was well within the expected range of outcomes for this option. Asset class performance relative to benchmark in the eight months to the end of February was strong in international equities and market neutral strategies, but less successful in alternative investments within Australian equities.

Andre Morony
Chief Investment Officer
7 April 2006