PSSap Fund Performance for February 2007

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

ARIA's primary responsibility is the management and investment of the Fund in the equitable and best interests of all members. ARIA 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 2007 (% )

This table below shows the actual asset allocations of the four pre-mixed investment options at the end of February 2007. The other seven options are essentially single strategy options - see our Product Disclosure Statement .

  
Table 2: Performance in 2006-07 as at end February 2007 (%)  

The figures in the following table are after tax and fees.  The first column shows performance for the 12 months ending June 2006.  The second column shows the return for each option for a member who was invested for the whole eight months of the current financial year until the end of February 2007.

Commentary:

Global financial markets experienced a sharp reversal towards the end of February, as concerns over the financial viability of some US mortgage lenders resulted in a general reassessment of investor risk appetite. This led to a sharp drop in equity prices, which unwound much of the gains achieved in the earlier part of the month. The Australian and Japanese markets shone, achieving increases of a little over 1%. However, other major markets fell, with the Swiss market down by almost 4% and the US and Hong Kong markets declining by more than 2%. Despite this setback, financial year to date performance by all major equity markets remains very strong. In the 8 months to the end of February, the Australian market rose by 18%, thereby matching the returns achieved in Germany and Hong Kong. During the same period, the US and Japanese markets advanced by around 12%.

The reassessment of risk at the end of February also had significant ramifications in fixed interest markets.  Although credit spreads widened, particularly for lower rated securities, there was a “flight to quality” which drove 10 year government bond yields down by 0.25% in both the US and Australia. As a result, fixed interest indices increased by more than 1% in February, easily surpassing the return from cash.  Despite the gains achieved in February, the return from Australian fixed interest in the 8 months to the end of February was below that of cash. By contrast, global fixed interest (hedged into Australian dollars) comfortably outperformed cash.  Currency movements were reasonably contained in February, although the Japanese Yen strengthened during the turbulence at month end. This financial year has seen the Australian dollar rise by 10% against the Yen, 6% against the US dollar and 2.5% against the Euro. The rise in our currency did not impact the Fund’s returns as all overseas investments are hedged into the Australian dollar.

Option returns in the first eight months of this financial year remain very strong, with investors rewarded for taking risk.  Options with a heavy equity emphasis, particularly Australian equities, achieved the highest returns. A rise in the value of the Australian Dollar eroded the returns from unhedged international equities.  The Bonds/fixed interest option has suffered from subdued returns in global fixed interest markets.

Steve Gibbs
CEO
19 March 2007