PSSap Fund Performance for July 2006

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 July 2006 (% )

This table below shows the actual asset allocations of the four pre-mixed investment options at the end of July 2006. The other seven options are essentially single strategy options - see our product disclosure statement .

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

The figures in the table are after taxes and fees. The first column shows performance for the 12 months ending June 2006. The second column shows the return in each option for a member who was invested for the whole month of July 2006.

Commentary:

Equity markets rose only modestly in July, with the best gains achieved in parts of Europe, particularly Switzerland up 3.8% and the Netherlands up 2.9%. The US market rose by 0.6% and the UK by 1.3%. Going against this trend, the Japanese market fell by 0.9% and the Australian market (ex LPTs) declined by 2.1%. Heightened conflict in the Middle East and signs of a slowdown in the US economy constrained global equity market returns, while higher than expected inflation figures in Australia helped to push the domestic market lower. This was compounded by weakness in Material stocks, due to disappointing production reports from Rio Tinto and BHP. Investor focus moved to defensive stocks, with Utilities the best performing sector.

Global fixed interest markets achieved strong gains in July as evidence of an easing in the US economy increased the likelihood that the long episode of short-term interest rate increases in the US was near an end. By way of contrast, the Australian fixed income market rose by only 0.1%, due to strong inflation numbers and expectations of further rises in short-term interest rates. The latter influence helped the Australian Dollar rise by over 3% against the US Dollar, Yen and Euro.

After strong returns in 2005-06, the new financial year got off to a sluggish start, with negative returns recorded for those options with a significant exposure to equity markets. The Property option achieved a strong return in July, due to positive revaluations that flowed through from the end of June. The Fund's active managers generally struggled in the month of July, with below benchmark performance recorded in international equities, international fixed income and market neutral funds. The Australian equity sector achieved an above benchmark return once account is taken of the sector's strongly performing alternative investments.

Andre Morony
CIO
29 August 2006