Quarterly investment market update for Spring 2013

Summary of key points

  • All of VicSuper's investment options achieved positive returns for the September quarter and the 12-month period to 30 September 2013*. Those options more heavily weighted to growth assets - Balanced, Growth, Equity Growth, Equity Growth Sustainability and Australian Shares - outperformed the options with less exposure to growth assets.
  • Australian Shares was the best performing option for the quarter ending 30 September 2013.
  • The investment options more weighted to defensive assets – Capital Secure and Capital Stable – underperformed relative to the options with a higher weighting to growth assets, reflecting weakness in Australian and international fixed interest markets.
  • The official Cash Rate was reduced by 0.25% during the quarter to end at 2.5%, with the Cash Option returns reflecting the monetary policy environment.
  • VicSuper’s Australian equities underperformed the benchmark over the last 12 months. This was due to both the underperformance of private equity and the underperformance of one of our satellite (active) Australian equity fund managers.
  • VicSuper’s international equities performed largely in line with their benchmark over the 12 months to 30 September 2013; however, the international equities asset class performance was reduced by emerging market equities underperforming both developed market equities and the MSCI Emerging Markets index (the sub-asset class benchmark). Further, international private equity underperformed both listed developed and emerging market equities, detracting from total asset class returns.
  • VicSuper’s international equities are hedged overall at 50%, where all private equity and emerging market equities are part of the unhedged proportion. The hedge level was reduced to 50% from 57.25% in June 2013. This reflects a more modest outlook for the future strength of the Australian dollar, which fell 10.2% over the 12 months to 30 September 2013 to finish at US$0.93. The Australian dollar continues to be supported by key commodity prices such as iron ore which has increased more than 30% in value over the 12 months to reach $133.80 per tonne.

*The Australian Shares investment option commenced in February 2013, therefore 12-month return figures are not available.

Investment option returns to 30 September 2013

VicSuper FutureSaver

Member investment option

3 months
%

12 months
%

3 years (pa)
%

Cash

0.60

2.61

3.57

Capital Secure

2.30

6.41

5.90

Capital Stable

3.59

10.14

7.14

Balanced

4.88

13.75

8.27

Growth

5.79 16.80

9.01

Equity Growth

7.35 21.96

10.44

Equity Growth Sustainability

7.17 23.24

10.17

Australian Shares#

9.33

N/A

N/A

#Australian Shares investment option commenced on 4 February 2013 for VicSuper Scheme and VicSuper Beneficiary Account.

Please note: Past performance is not a reliable indicator of future performance.

See the current Term Deposit rates.

VicSuper Pensions

Pension investment option

3 months
%

12 months
%

3 years (pa)
%

Cash

0.72

3.13

4.24

Capital Secure

2.44

6.98

6.78

Capital Stable

3.88

11.20

8.23

Balanced

5.28

15.35

9.54

Growth

6.23

18.72

10.41

Equity Growth

7.90

24.41

11.97

Equity Growth Sustainability

7.50

25.55

11.59

Australian Shares#

10.98

N/A

N/A

#Australian Shares investment option commenced on February 2013 for VicSuper Pensions.

Please note: Past performance is not a reliable indicator of future performance.

Markets summary

  • A strong quarter in international equity markets reflected confidence in the US economy despite fears over the US government shutdown and another looming debt ceiling deadline towards the end of September.
  • Chinese sharemarkets settled in the September quarter as the economy showed signs of stability. Iron ore prices continued to rise, helping to keep the Australian dollar historically high (US$0.93 at 30 September 2013). While India struggled with inflation pressures and interest rate rises during its slowest period of growth in over a decade, the devaluation of the Indian Rupee should make Indian exports more globally competitive.
  • The MSCI World excluding Australian Equities Index (unhedged) gained 34.0% over the 12 months ending 30 September 2013.
  • Australian sharemarkets also rallied over the 12 months to 30 September 2013, with the S&P/ASX 300 Accumulation Index gaining 23.6% over the period. This was on the back of optimism towards the US, though in the last trading day of September, with the US government’s shutdown on the brink, some of September’s gains reversed.
  • The Reserve Bank of Australia (RBA) continued its monetary policy easing cycle to stimulate growth and the official Cash Rate finished the quarter at 2.5%.

Asset class performance

VicSuper measures investment performance against benchmark indices. A benchmark index is a collection of securities grouped together. An example is the S&P/ASX 300 Index, which incorporates the top 300 companies by market capitalisation listed on the Australian Securities Exchange. The performance of the index provides a benchmark against which VicSuper can assess the performance of its fund managers.

 

As at
30 September 2013

Change over
3 months

Change over
12 months

S&P/ASX 300 Accumulation Index

42,652.29

10.3%

23.6%

MSCI World Ex-Australia Equities Index (unhedged)

4,278.62

5.8%

34.0%

MSCI Emerging Markets Equities Index (unhedged)

431.1

3.5%

12.3%

UBS Australian Composite Bond Index

7,571.59

1.1%

1.8%

Barclays Capital Global Aggregate Bond Index (hedged)

774.25

1.4%

3.2%

Australia 90-day Bank Bills

2.56%

-0.23%

-0.80%

RBA Official Cash Rate

2.50%

-0.25%

-1.00%

CPI Rate (End June 2013 quarter)

2.4%

 

 

AUD/USD

0.9326

2.1%

-10.2%

Source: Contango Indices September 2013, Australian Bureau of Statistics, Reserve Bank of Australia

Equities

Investment option

Capital
Secure

Capital
Stable

Balanced

Growth

Equity
Growth*

Strategic allocation

12.5%

32.5%

52.5%

67.5%

100%

*includes Equity Growth Sustainability and Australian Shares investment options.

Australian shares

In Australia, the S&P/ASX 300 Accumulation Index gained 10.3% for the quarter and finished up 23.61% over the 12 months to 30 September 2013. This was welcome after the June quarter’s loss of 2.8%. Australian sharemarkets were helped by rising commodity prices such as iron ore, growth in China stabilising and strong performance of the banks. Also, markets were reassured by the election outcome and by news that the US Federal Reserve may postpone its planned tapering of quantitative easing.

The strong performance of the S&P/ASX 300 over the quarter was set back by a fall of 1.6% on the final day of trading in September. This was due to fears of the US government missing its deadline to avoid a shutdown of non-essential government employees and an inability to gain House of Representatives agreement to raise the US government debt ceiling.

International developed markets

The MSCI World ex-Australia Index (unhedged) gained 5.8% over the quarter and 34.0% over the 12 months to 30 September 2013. Japan's Nikkei was the strongest performing market over the 12 months, gaining 63.0%. The Nikkei’s September quarter gain of 5.7% was relatively less impressive than the double digit gains over each of the preceding three quarters. In the US markets, the Dow Jones Industrial Index and S&P 500 Index posted gains of 12.6% and 16.7% over the 12 months to 30 September 2013 respectively, buoyed like Australian sharemarkets by the delay of quantitative easing tapering. The quarter ended with the looming prospect of a US government shutdown and an October debt ceiling deadline.

International emerging markets

The MSCI Emerging Markets Index gained 3.5% in the September quarter and 12.3% for the 12 months ending 30 September 2013. India and China went in opposite directions for the 12-month period, with India’s BSE 200 Index losing 1.1%, while China's Shanghai Composite Index gained 4.2%. India is troubled by inflation and its slowest pace of growth in over a decade. In September the Governor of the Reserve Bank of India raised the benchmark interest rate unexpectedly in an attempt to cool inflation. Meanwhile, China’s Purchasing Managers’ Index (PMI) finished higher indicating increased economic strength, partly accounting for its superior sharemarket performance.

Private equity

VicSuper's Australian and international private equity* assets underperformed over the 12 months to 30 September 2013, though returns were positive in absolute terms. Management is undertaking a strategic review of VicSuper’s private equity portfolio.

Real assets (includes property, infrastructure, timberland and agriculture)

Investment option

Capital Secure

Capital Stable

Balanced

Growth

Strategic allocation

15%

15%

15%

15%

'Real assets' includes property, infrastructure, timber (forestry plantations) and agricultural assets. The asset class returned 7.2% over the 12 months to 30 September 2013. Infrastructure, Property and Timber were all strong performers over the financial year, while Agriculture detracted from returns.

Fixed interest

Investment option

Capital Secure

Capital Stable

Balanced

Growth

Strategic allocation

36.5%

35%

27.5%

16.5%

The Australian fixed interest sub-asset class returned 2.0% for the 12 months ending 30 September 2013, while the international fixed interest sub-asset class returned 2.5% over the same period.

The US 10-year benchmark yield came within a whisker of closing above 3.0% in early September, as investors anticipated a scaling back of the US Federal Reserve’s quantitative easing program. Yields then fell back and kept falling after the Federal Open Market Committee (FOMC)* decided against tapering purchases, but the 10-year still rose over the quarter. Australian long rates followed a similar pattern, with local factors taking a backseat and in any case pulling in different directions. While unemployment increased to 5.8%, other indicators – such as consumer and business confidence – showed positive signs over the quarter.

*The FOMC is a committee within the Federal Reserve that oversees the Reserve’s buying and selling of US treasury securities.

Cash

Investment option

Cash

Capital Secure

Capital Stable

Balanced

Growth

Strategic allocation

100%

36%

17.5%

5%

1%

The official Cash Rate in Australia fell 1.0% over the 12 months to 30 September 2013 finishing at 2.50% at the end of September. Returns for the Cash Option reflect the Cash Rate.

Long-term investing

Investments with a higher allocation to shares are volatile by their nature, but this is the trade-off between risk and return. Those options with more exposure to growth assets experience greater volatility. That is, the lows are lower but the highs are higher. While negative investment returns feel uncomfortable, trying to time the market by switching in and out of investment options makes it difficult to recover any losses already incurred. The best option for many people is to remain in their current investment options and not change them for the wrong reasons. However, it is important that you feel comfortable with the investment option you have chosen.

Need help or advice?

You can call VicSuper's Member Centre on 1300 366 216 for general queries about VicSuper investment options or you can arrange to speak with one of our qualified financial planners to determine the best strategy for you and your circumstances.

Summary of key points

  • All of VicSuper's investment options achieved positive returns for the September quarter and the 12-month period to 30 September 2013*. Those options more heavily weighted to growth assets - Balanced, Growth, Equity Growth, Equity Growth Sustainability and Australian Shares - outperformed the options with less exposure to growth assets.
  • Australian Shares was the best performing option for the quarter ending 30 September 2013.
  • The investment options more weighted to defensive assets – Capital Secure and Capital Stable – underperformed relative to the options with a higher weighting to growth assets, reflecting weakness in Australian and international fixed interest markets.
  • The official Cash Rate was reduced by 0.25% during the quarter to end at 2.5%, with the Cash Option returns reflecting the monetary policy environment.
  • VicSuper’s Australian equities underperformed the benchmark over the last 12 months. This was due to both the underperformance of private equity and the underperformance of one of our satellite (active) Australian equity fund managers.
  • VicSuper’s international equities performed largely in line with their benchmark over the 12 months to 30 September 2013; however, the international equities asset class performance was reduced by emerging market equities underperforming both developed market equities and the MSCI Emerging Markets index (the sub-asset class benchmark). Further, international private equity underperformed both listed developed and emerging market equities, detracting from total asset class returns.
  • VicSuper’s international equities are hedged overall at 50%, where all private equity and emerging market equities are part of the unhedged proportion. The hedge level was reduced to 50% from 57.25% in June 2013. This reflects a more modest outlook for the future strength of the Australian dollar, which fell 10.2% over the 12 months to 30 September 2013 to finish at US$0.93. The Australian dollar continues to be supported by key commodity prices such as iron ore which has increased more than 30% in value over the 12 months to reach $133.80 per tonne.

*The Australian Shares investment option commenced in February 2013, therefore 12-month return figures are not available.

Investment option returns to 30 September 2013

VicSuper FutureSaver

Member investment option

3 months
%

12 months
%

3 years (pa)
%

Cash

0.60

2.61

3.57

Capital Secure

2.30

6.41

5.90

Capital Stable

3.59

10.14

7.14

Balanced

4.88

13.75

8.27

Growth

5.79 16.80

9.01

Equity Growth

7.35 21.96

10.44

Equity Growth Sustainability

7.17 23.24

10.17

Australian Shares#

9.33

N/A

N/A

#Australian Shares investment option commenced on 4 February 2013 for VicSuper Scheme and VicSuper Beneficiary Account.

Please note: Past performance is not a reliable indicator of future performance.

See the current Term Deposit rates.

VicSuper Pensions

Pension investment option

3 months
%

12 months
%

3 years (pa)
%

Cash

0.72

3.13

4.24

Capital Secure

2.44

6.98

6.78

Capital Stable

3.88

11.20

8.23

Balanced

5.28

15.35

9.54

Growth

6.23

18.72

10.41

Equity Growth

7.90

24.41

11.97

Equity Growth Sustainability

7.50

25.55

11.59

Australian Shares#

10.98

N/A

N/A

#Australian Shares investment option commenced on February 2013 for VicSuper Pensions.

Please note: Past performance is not a reliable indicator of future performance.

Markets summary

  • A strong quarter in international equity markets reflected confidence in the US economy despite fears over the US government shutdown and another looming debt ceiling deadline towards the end of September.
  • Chinese sharemarkets settled in the September quarter as the economy showed signs of stability. Iron ore prices continued to rise, helping to keep the Australian dollar historically high (US$0.93 at 30 September 2013). While India struggled with inflation pressures and interest rate rises during its slowest period of growth in over a decade, the devaluation of the Indian Rupee should make Indian exports more globally competitive.
  • The MSCI World excluding Australian Equities Index (unhedged) gained 34.0% over the 12 months ending 30 September 2013.
  • Australian sharemarkets also rallied over the 12 months to 30 September 2013, with the S&P/ASX 300 Accumulation Index gaining 23.6% over the period. This was on the back of optimism towards the US, though in the last trading day of September, with the US government’s shutdown on the brink, some of September’s gains reversed.
  • The Reserve Bank of Australia (RBA) continued its monetary policy easing cycle to stimulate growth and the official Cash Rate finished the quarter at 2.5%.

Asset class performance

VicSuper measures investment performance against benchmark indices. A benchmark index is a collection of securities grouped together. An example is the S&P/ASX 300 Index, which incorporates the top 300 companies by market capitalisation listed on the Australian Securities Exchange. The performance of the index provides a benchmark against which VicSuper can assess the performance of its fund managers.

 

As at
30 September 2013

Change over
3 months

Change over
12 months

S&P/ASX 300 Accumulation Index

42,652.29

10.3%

23.6%

MSCI World Ex-Australia Equities Index (unhedged)

4,278.62

5.8%

34.0%

MSCI Emerging Markets Equities Index (unhedged)

431.1

3.5%

12.3%

UBS Australian Composite Bond Index

7,571.59

1.1%

1.8%

Barclays Capital Global Aggregate Bond Index (hedged)

774.25

1.4%

3.2%

Australia 90-day Bank Bills

2.56%

-0.23%

-0.80%

RBA Official Cash Rate

2.50%

-0.25%

-1.00%

CPI Rate (End June 2013 quarter)

2.4%

 

 

AUD/USD

0.9326

2.1%

-10.2%

Source: Contango Indices September 2013, Australian Bureau of Statistics, Reserve Bank of Australia

Equities

Investment option

Capital
Secure

Capital
Stable

Balanced

Growth

Equity
Growth*

Strategic allocation

12.5%

32.5%

52.5%

67.5%

100%

*includes Equity Growth Sustainability and Australian Shares investment options.

Australian shares

In Australia, the S&P/ASX 300 Accumulation Index gained 10.3% for the quarter and finished up 23.61% over the 12 months to 30 September 2013. This was welcome after the June quarter’s loss of 2.8%. Australian sharemarkets were helped by rising commodity prices such as iron ore, growth in China stabilising and strong performance of the banks. Also, markets were reassured by the election outcome and by news that the US Federal Reserve may postpone its planned tapering of quantitative easing.

The strong performance of the S&P/ASX 300 over the quarter was set back by a fall of 1.6% on the final day of trading in September. This was due to fears of the US government missing its deadline to avoid a shutdown of non-essential government employees and an inability to gain House of Representatives agreement to raise the US government debt ceiling.

International developed markets

The MSCI World ex-Australia Index (unhedged) gained 5.8% over the quarter and 34.0% over the 12 months to 30 September 2013. Japan's Nikkei was the strongest performing market over the 12 months, gaining 63.0%. The Nikkei’s September quarter gain of 5.7% was relatively less impressive than the double digit gains over each of the preceding three quarters. In the US markets, the Dow Jones Industrial Index and S&P 500 Index posted gains of 12.6% and 16.7% over the 12 months to 30 September 2013 respectively, buoyed like Australian sharemarkets by the delay of quantitative easing tapering. The quarter ended with the looming prospect of a US government shutdown and an October debt ceiling deadline.

International emerging markets

The MSCI Emerging Markets Index gained 3.5% in the September quarter and 12.3% for the 12 months ending 30 September 2013. India and China went in opposite directions for the 12-month period, with India’s BSE 200 Index losing 1.1%, while China's Shanghai Composite Index gained 4.2%. India is troubled by inflation and its slowest pace of growth in over a decade. In September the Governor of the Reserve Bank of India raised the benchmark interest rate unexpectedly in an attempt to cool inflation. Meanwhile, China’s Purchasing Managers’ Index (PMI) finished higher indicating increased economic strength, partly accounting for its superior sharemarket performance.

Private equity

VicSuper's Australian and international private equity* assets underperformed over the 12 months to 30 September 2013, though returns were positive in absolute terms. Management is undertaking a strategic review of VicSuper’s private equity portfolio.

Real assets (includes property, infrastructure, timberland and agriculture)

Investment option

Capital Secure

Capital Stable

Balanced

Growth

Strategic allocation

15%

15%

15%

15%

'Real assets' includes property, infrastructure, timber (forestry plantations) and agricultural assets. The asset class returned 7.2% over the 12 months to 30 September 2013. Infrastructure, Property and Timber were all strong performers over the financial year, while Agriculture detracted from returns.

Fixed interest

Investment option

Capital Secure

Capital Stable

Balanced

Growth

Strategic allocation

36.5%

35%

27.5%

16.5%

The Australian fixed interest sub-asset class returned 2.0% for the 12 months ending 30 September 2013, while the international fixed interest sub-asset class returned 2.5% over the same period.

The US 10-year benchmark yield came within a whisker of closing above 3.0% in early September, as investors anticipated a scaling back of the US Federal Reserve’s quantitative easing program. Yields then fell back and kept falling after the Federal Open Market Committee (FOMC)* decided against tapering purchases, but the 10-year still rose over the quarter. Australian long rates followed a similar pattern, with local factors taking a backseat and in any case pulling in different directions. While unemployment increased to 5.8%, other indicators – such as consumer and business confidence – showed positive signs over the quarter.

*The FOMC is a committee within the Federal Reserve that oversees the Reserve’s buying and selling of US treasury securities.

Cash

Investment option

Cash

Capital Secure

Capital Stable

Balanced

Growth

Strategic allocation

100%

36%

17.5%

5%

1%

The official Cash Rate in Australia fell 1.0% over the 12 months to 30 September 2013 finishing at 2.50% at the end of September. Returns for the Cash Option reflect the Cash Rate.

Long-term investing

Investments with a higher allocation to shares are volatile by their nature, but this is the trade-off between risk and return. Those options with more exposure to growth assets experience greater volatility. That is, the lows are lower but the highs are higher. While negative investment returns feel uncomfortable, trying to time the market by switching in and out of investment options makes it difficult to recover any losses already incurred. The best option for many people is to remain in their current investment options and not change them for the wrong reasons. However, it is important that you feel comfortable with the investment option you have chosen.

Need help or advice?

You can call VicSuper's Member Centre on 1300 366 216 for general queries about VicSuper investment options or you can arrange to speak with one of our qualified financial planners to determine the best strategy for you and your circumstances.