Despite a high level of investor pessimism going into 2012, it turned out to be a very strong year for investment markets and your Fund. The Australian share market had a strong rally, returning 19.7%, while global shares returned 14.9% for Australian investores. Like many other periods, 2012 was a year with two halves.
World markets during 2012
The first three months saw markets perform well. The US economy got things off to a strong start, as was reflected in generally positive economic data – also reflected the US recovery story. In addition, the European Central Bank’s second round of its long term refinancing program (LTRO) soothed market concerns regarding Eurozone risks. From April the outlook deteriorated rapidly. In Europe, elections in Greece led to a stalemate as the parties were unable to agree upon the formation of a government, requiring a further round of elections. The French presidential race saw Sarkozy ousted by Hollande, leaving Merkel and the Germans seemingly isolated in the pro strict austerity camp. These ructions contributed to ongoing concerns about the stability of the European Union (EU) as a whole and the potential for adverse impacts on European banks, particularly in peripheral countries. As a result risky assets such as shares declined rapidly to close off a dismal FY2012.
Apart from the US ‘fiscal cliff’ (mandatory government spending cuts) discussions, the second half of 2012 was an excellent period for growth assets due to a range of positive developments. In the US, economic growth was revised up due to stronger demand, jobless claims continued to trend down, retail sales data strengthened and housing related indicators continued to show improvement. In Europe, the European Central Bank’s (ECB) bond buying operation has, for the time being, prevented the Eurozone crisis from escalating. In China, the appointment of Xi Jinping as General Secretary appears to have been conducted smoothly and was followed by a positive Chinese manufacturing report, which has led to optimism that China will avoid an economic ‘hard landing’. Meanwhile, in Australia the Government dropped its commitment to a budget surplus (thereby negating further tightening activity) and the RBA began cutting interest rates. All of these developments generally supported a rally in growth assets over the period to cap off a solid 2012.
In 2012 NESS Super has been positioning member funds in a prudent manner and guided by longer term investment objectives. Instead of adding to shares in the recent environment, NESS Super has been diversifying exposure towards alternative investments such as unlisted property, listed infrastructure, and debt securities (such as bank loans to medium sized corporations). This is to minimise the volatility of returns experienced by members. In addition, we believe that government bonds at current low yields (in some countries it has never been lower!) do not offer adequate returns and we have reduced NESS Super’s exposure. At the margin we have also increased the NESS Super’s exposure to foreign currency by taking advantage of the high Australian dollar to buy overseas asset more cheaply.
Looking forward to 2013
Looking out for the rest of 2013, we retain a cautious view but are mindful that the amount of government support globally is very supportive of markets. Debt levels remain high globally and we are still going through a period where households and governments need to reduce debt. NESS Super continues to invest member funds with the long term in mind in order to deliver on our objective of providing sound retirement benefits.
You can view the NESS Super and NESS Pension 2011/2012 Crediting Rates, as well as the estimated returns for the current financial year here.
All investment information in this article was provided by JANA Investment Advisers Pty Ltd.