CSS fund performance for April 2009

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

ARIA’s primary responsibility is the management and investment of the CSS fund 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 CSS default fund earning rate as at end April 2009 (%)
CSS default fund earning rate for 1 month to end April 2009 1.605

 

Table 2: Monthly Allocated Earning Rates (%)
July 2008
%
Aug 2008
%
Sept 2008
%
Oct 2008
%
Nov 2008
%
Dec 2008
%
Jan 2009
%
Feb 2009
%
Mar 2009
%
April 2009
%

-0.649

1.434

-5.115

-7.683

-2.967

0.546

-3.882

-1.977

3.568

1.605

 

Table 3: Historical fund information (%)
Year
Fund rates (%) #
2003-04
13.9
2004-05
13.9
2005-06
13.1
2006-07 *
13.7
2007-08 *
-1.6

# All rates are after fees and tax.

*The 2006-07 rate is the annualised rate of return for the period 1 July 2003 to 30 June 2007, which was allocated to member accounts as of 1 July 2007.  Prior year rates are performance rates. Members who exited during the period 1 July 2003 to 30 June 2007 were paid the exit rate applicable on the day of exit being their share of the fund earnings for the relevant period. The 2007-08 rate is the performance of the default option which reflects the monthly allocated earning rates for the 12 months ending 30 June 2008.

Commentary

Fundamentals

Substantial fiscal stimulus is taking effect around the world, just as the sharp de-stocking cycle is nearing completion. As a result, further confirmation of a nascent recovery appeared through April. Lead indicators of manufacturing activity have improved sharply in the US and Europe, and most notably in China. Prices of base metals have firmed, while bulk commodity price negotiations are still incomplete.

Confidence in the stability of the financial system is also recovering. Measures of bank risk, such as money market spreads and equity volatility have improved substantially. Governments are keen to see a sustainable return to bank lending, and on this front, encouragement may be taken from a key survey which suggested that bank lending standards were being tightened less aggressively in April. Still, loan growth is weak and the process of debt paydown and reduced credit availability is likely to play out in terms of a weak recovery over the next few years. The US Treasury’s bank stress test and capital assistance program is aimed at encouraging banks to resume a more normal rate of lending.

The RBA, reflecting the improving outlook and the substantial stimulus delivered to date, reduced the cash rate by only 25bp to 3.0% at its April board meeting, and left the policy rate unchanged in May. In contrast, official policy rates in many developed countries have converged near zero, but banking sector difficulties have caused borrowing rates for households and business to remain elevated. 

Financial market performance in April

The rally in global equity markets carried through April, with strength rotating into Europe (+14%), the UK and Japan (+9%). The ASX300 returned almost 6%, while the S&P500 increased another 9% to be up 34% from the lows set in early-March. Developing markets continued to rally strongly, with the MSCI Emerging Market index returning 14% in March and 16% in April.

Offshore, the improving sentiment toward the banks saw the S&P500 financials index lift 22% in the month. Consumer names have also done well locally, with retail sales and consumer confidence benefiting from the recent cash stimulus payments.

Credit markets also joined in the rally in April, with high yield bonds returning 11%, and investment grade credit lifting 3%. Government bond returns were slightly negative, with yields edging up through the month. Inflation-linked bond returns were flat.

In line with the improvement in risk appetite, the Australian dollar extended its rally another 6% against the USD and 4% on a trade-weighted basis. Emerging market currencies have also recovered strongly, with the Korean Won and South African Rand in particular appreciating by 19% against the USD over the past two months.

 

Table 4: The CSS cash option earning rate as at end April 2009(%)
CSS cash investment option fund earning rate for 1 month to end April 2009 0.217

 

Table 5: Monthly allocated earning rates (%)
July 2008
%
Aug 2008
%
Sep 2008
%
Oct 2008
%
Nov 2008
%
Dec 2008
%
Jan 2009
%
Feb 2009
%
Mar 2009
%
April 2009
%

0.565

0.532

0.526

0.599

0.434

0.370

0.337

0.247

0.233

0.217

 

Table 6: Historical fund earning rates since inception (%)
Year
Earning rate #
2004-05 (7 months to June )
2.8
2005-06
4.8
2006-07
5.4
2007-08
6.1

# All earning rates are after fees and tax

The cash investment option continues to deliver returns in line with its objectives, once account is taken of fees and taxes.

Alison Tarditi
Chief Investment Officer
7 May 2009