CSS fund performance for May 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 May 2009 (%)

CSS default fund earning rate for 1 month to end May 2009

0.093

 

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 %	May 2009 %
-0.649	1.434	-5.115	-7.683	-2.967	0.546	-3.882	-1.977	3.568	1.605	0.093

 

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

With aggressive policy having stabilised consumer spending and, to a lesser-degree, business investment, the focus of markets has turned to the nature of the economic recovery. In particular, the combination of open capital markets, enormous fiscal deficits and monetary easing in the US and UK has undermined confidence in those governments’ long-term sovereign liabilities.

To the extent that inflation remains within or below target ranges, central banks may choose to support the bond market and government spending by buying-back sovereign debt. But if financial markets are not in need of the additional US dollars or British pounds that are created by these purchases, they will risk putting downward pressure on exchange rates.

In comparison, the large budget deficits forecast for Australia come at a time of fiscal strength, with no net public debt outstanding as of June 2008. Similarly, while the RBA has eased monetary policy aggressively, it has done so from a restrictive stance that was adopted preceding the financial crisis. As such, scope remains for further action on both of these fronts, should that be required.

Financial market performance in May

The rally in global equity markets extended further through May, with extraordinary returns in emerging market indices. The Indian Sensex is now up almost 80% from its mid-February levels, and returns across the broad MSCI Emerging Market index have increased by 15% per month for the past 3 months.

Developed equity markets also performed well, with the MSCI World index lifting 5%, driven by a 5% and 8% gain in the S&P500 and Nikkei respectively. The ASX300 rose a more modest 1.1%, weighed down by extensive capital raisings.

Nominal government bonds produced a slight loss over the month, as yields rose. Meanwhile, inflation-linked government bonds made a positive contribution as expected inflation rates also increased. Credit markets continued their solid rally, with investment grade and high yield spreads tightening over the month.

And as highlighted, foreign exchange markets were the main focus through May. The US dollar fell broadly, with the A$/US$ exchange rate lifting by 10% over the month to finish above 80 cents. The trade-weighted Australian dollar is now 24% higher than the low reached in the illiquid conditions of October 2008.

 

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

CSS cash investment option fund earning rate for 1 month to end May 2009

0.189

 

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 %	May 2009 %
0.565	0.532	0.526	0.599	0.434	0.370	0.337	0.247	0.233	0.217	0.189

 

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
10 May 2009