• About us
  • Who looks after the CSS
  • The ARIA team
  • What we provide
  • Governance
  • Responsibilities
  • Legislation
  • Contracts
  • Senate Order 8
  • Statements of expectations and intents
• About the CSS
  • How does the CSS work
  • Family law and your super
  • Additional services
• Contributions
  • Your contributions
  • Employer contributions
  • Super co-contribution
  • Transfers from other funds
  • Contributions while on leave
  • Full-time to part-time employment
• Investments
  • How does investment performance affect your benefit
  • How our investments work
  • Investment performance
  • Fund earning rates
  • Earning rate policy
  • Earning rates/crediting rates historical data
• Deferred benefit members
  • Returning to work
  • Withdrawing your benefit
• Withdrawing your super
  • What makes up your CSS benefit?
  • Productivity benefit
  • Resignation or dismissal
  • Age retirement
  • Retrenchment
  • Invalidity retirement
  • Death benefits
  • Early access
  • Transfer to an eligible super scheme
  • SIS upper limit
  • Preservation age
  • Superannuation contributions surcharge
  • Tax and your CSS benefit
• Pensioner services
  • Pension administration service
  • Pension services online
  • Pension update
  • Your pension
  • Family law
  • Forms and publications
• Learning centre
  • How superannuation works
  • At Work for You workshops
  • Lifestages
  • FAQs
  • Useful links
  • Glossary
• Fact sheets, forms and publications
  • Fact sheets
  • Forms
  • Publications
  • Online ordering

CSS fund performance for February 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 February 2009 (%)

Table 2: Monthly allocated earning rates (%)

Table 3: Historical fund information (%)

# 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

The 30-year expansion in financial leverage across the developed world has collapsed.  Global credit market contraction has lead to a synchronised contraction in economic activity. The credit-dependent developed market economies are disproportionately affected because their banking systems were over-extended. Emerging markets are hit by the resulting slump in global trade. 

Policymakers around the world have responded with unprecedented force because they recognise that global economic health now depends on their joint ability to underwrite the developed-world banking system and halt a private-sector deleveraging spiral. Trillions of dollars have been committed to support the credit, banking and housing sectors of the developed world.  This response is in stark contrast to the policy mistakes that characterized the 1930’s deleveraging crisis. 

Monetary policymakers across the globe, including Australia, have continued to cut interest rates, with the US now adopting a zero-percent interest-rate policy and announcing its intention to intervene directly in the treasury, mortgage and corporate credit markets, to provide support. 

Because many currencies in the emerging markets are still linked to the US dollar, the US central bank’s expansionary policies will provide support to the emerging markets as well.  Furthermore, Chinese monetary policymakers have initiated changes to their commercial banking system that free up their institutions to lend more freely (relaxing of reserve requirements that commercial banks had to deposit with the People’s Bank of China and cuts to lending rates are amongst these). 

The new Obama administration and the Chinese government have announced that they will commit fiscal resources of 7% and 5% of GDP, respectively, over the next two years.  The governments of Europe, Japan and Australia are also all expanding fiscal policy. 

In broad terms, the US Treasury Financial Stability Plan will involve a stress test of major banks’ balance sheets, with government capital available to ensure they are positioned to withstand a severe recession, a public/private investment fund to purchase toxic assets, and a new Federal Reserve lending program to provide credit to households and small businesses.

The Australian Government’s stimulus package is expected to contribute around ½ a percentage point to growth in 2008-09 and ¾-1 percentage point to growth in 2009-10.

The UK Treasury has provided extraordinary guarantees to several high-street banks that absolve them of the majority of ongoing losses on their current asset holdings. Central and Eastern European banks were extended a rescue package from a consortium of international development
agencies, including the World Bank, and Japan finalised a US$100bn loan to the IMF.

Real economic activity

Global growth continues to be revised down.

US real GDP for the December quarter of 2008 has yet to be released.  But estimates this month suggest that it is on track to record a fall of more than 6% (annualised rate) over that period, its sharpest fall in recent history.  Euro area economic activity also collapsed in the final quarter of last year, as exports were hit by contracting demand in the US, Asia and Russia.  The UK economy, highly dependent on financial services, is recording one of the largest real economy fallouts.  Japan’s economy is also contracting.  China is going through a slowdown, but continues to deliver positive growth.  China has a greater capacity to deal with the current challenges as its government has a large surplus to spend on infrastructure projects and its domestic banking sector is not overleveraged. 

Financial market performance in February

Reacting to the recently released economic data from last year and still digesting the details of the most recent global rescue packages, international equity markets fell further in February.  Developed-world markets fell by between 8% and 11% over the month, while most Asian markets, including Australia, were down by between 4% and 5% over the same period.  The Chinese market was the only market to buck the trend, rising 5% in February. And Australian resource stocks held their ground over the month (+0.3%). 

Credit markets were stable in February, but remain at very depressed price levels.  This reflects: (i) the market’s expectations of material corporate default rates through this cycle;  (ii) the imbalance between weak investor demand and a large supply of these types of assets; and (iii) a lack of transparency as to the time profile for policy intervention to restore global banking sector stability and, thereby, the re-extension of credit to households and businesses. 

The Australian financial sector has remained robust:  (i) the major Australian banks remain well-capitalised; and (ii) the Australian Government’s guarantee program has continued to underwrite the banks’ access to international funding markets. Financial stocks (-3.1%) significantly outperformed their global peers in February.

By comparison, Australian industrial companies (-20.6%), property trusts (-16.4%) and utilities (-10.5%) all continued to experience price falls over the month of February.  But leading indicators of the Australian economy are beginning to show a response to policy stimulus.  For example, housing sector affordability measures and consumers’ indications of whether this was a ‘good time to buy a house’ improved sharply in the month, while housing finance commitments also inflecting up. 

The Australian cash rate is now at 3.25% following a 1% reduction in the policy rate by the Reserve Bank of Australia in February. 

The Australian dollar held steady against the US dollar in February, and recovered a little over 2%, on average, against our trading partners.

Table 4: The CSS cash option earning rate as at end February 2009 (%)

Table 5: Monthly allocated earning rates (%)

Table 6: Historical fund earning rates since inception (%)

# 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
27 March 2009