Friday 12 December - Investment market update
Another roller coaster ride on World Financial Markets with further economic data out of the US including a 26 year high in unemployment claims.
Australian equities are down 6.13% with emerging markets up 3.11% and International listed equities down 2.15% for December.
Cash returns for December to date are in positive territory at 0.17% with Australian fixed interest down 0.04% and International fixed interest up 0.30% for the month so far.
Note: crediting rates for the Fund’s investment options will differ from the benchmark returns described above due to the impact of fees and taxes.
Click to view interim crediting rates.
The Financial Crisis and MTAA Super's Investment Strategy
Extravagant and irresponsible lending practices in the US housing market triggered the financial crisis. The roots of the crisis, however, were more pervasive. Following the collapse of the dot.com bubble, the price of risk, as reflected in margins paid for more risky assets relative to those with government backing, fell to unsustainably low levels. During 2007 sentiment changed and risk premia skyrocketed. Market volatility also scaled new heights. This seismic shift started in the world's most powerful economy and has now engulfed all parts of the globe.
The financial crisis has precipitated an economic recession that is in its early stages in the US and Europe. Australia is not immune and the severity of our slowdown will depend very much on the extent to which China and India are affected. Equity markets are forward looking and falls in listed equity prices have been dramatic. The US S&P 500 index and the Australian ASX-200 index have both fallen by about 45% since their peaks around a year ago. Equity markets are pricing in a severe recession.
Financial crises are stress tests of investment strategies. MTAA Super is positioned relatively well in relation to these historic events. The Fund has long followed a strategy of investing a substantial proportion of members' funds in unlisted assets, such as direct property, infrastructure and private equity, which provide some degree of insulation from the panic that is gripping listed markets. This strategy has maintained the Fund's position among the leading funds during the crisis period and the Fund has consolidated its position as the top fund in Australia over three, five and longer time periods.
The severity of the crisis has generated an unprecedented response by governments around the world. Bank deposit guarantees have been put in place (including in Australia), governments are taking equity positions in banks and insurance companies, central banks are providing extraordinary levels and types of liquidity support, interest rates have been cut and governments are using their budgets to stimulate economic activity. Co-ordinated international action to stem the crisis is now under active consideration in international final circles.
It is impossible to foresee when these measures will have their intended effect. However, eventually conditions will return to normal. This is not a time for hasty decisions. MTAA Super's investment strategy is designed to achieve long term real growth balanced against an acceptable level of risk and the strategy has helped cushion members from the excesses of the financial crisis. Nevertheless MTAA Super acknowledges and appreciates that the current crisis presents very difficult and disturbing times for our members. MTAA Super continues to monitor the situation and its impact on the portfolio closely.
For further information on the current economic climate please click on the December investment market update.
Cash Investments and the Commonwealth Government Deposit and Wholesale Funding Guarantee
The bulk of MTAA Super's cash is invested in the Macquarie Treasury Fund (MTF) managed by Macquarie Funds Group. Macquarie has advised that 99% of the securities in the MTF are eligible for the government guarantee. It remains at the discretion of the underlying institutions as to whether they will apply for the guarantee. Further information on the MTF is available at the following link:
http://www.macquarie.com.au/retail/acrobat/mfg/MTF_QA_Oct08.pdf
A small residual cash component is on deposit with the National Australia Bank (NAB) for transactional purposes. This deposit is also eligible for the guarantee, however the guarantee has not been applied for at this point in time. This will be reviewed when the details of the scheme are finalised by the government.
30 October 2008
For a PDF version of The Financial Crisis and MTAA Super's Investment Strategy click here