Investment Performance
The table below shows the performance of our investment options this year and over 3, 5 and 7 years where applicable.
The actual returns credited to your account balance will be influenced by the timing of payments into and out of your acount, allowing for contributions, taxes, fees and switches between investment options.
Returns for Allocated Pension members may be different to those shown below due to alternative taxation requirements. Please refer to your annual Member Statement for details.
After four years of very strong economic and market performance and exceptionally strong super fund returns, the Australian economy and financial markets entered the 2008 financial year with a full head of steam, backed by the extraordinary growth of the Chinese economy and its almost insatiable demand for our mineral exports.
However, despite taking our economic lead from China, and despite a tripling of the coking coal price and a doubling of the prices of iron ore and steaming coal, our financial markets took their lead from the increasingly shell-shocked United States markets. As a consequence, our financial markets had their worst year for well over twenty years. Against such a weak market backdrop, our portfolios gave back a small amount of the gains of recent years, although our medium term returns still remain well above both our long term average and the averages of other similar funds.
The proximate cause of these poor short term returns was the practice that had emerged in the US of mortgage brokers selling loans to people that they knew could not pay them back, based on the premise that house prices always went up so there was no real risk to the lender. This was facilitated by the fact that in many states in the US borrowers can just walk away from their loan without the lender having any recourse to their other assets or income.
However, these euphemistically called sub-prime loans were just a symptom of a wider set of problems that had been brewing in the US. These include: interest rates being held too low for too long, a very laissez faire approach to regulation; very poor governance structures in US financial institutions, severe conflicts of interest on behalf of the ratings agencies and the emergence of a host of extremely complex financial instruments that that pretended to turn very risky investments into AAA-rated certainties.
Catholic Super had no investment in these securities, however no one was immune from the cascading crisis of confidence in the financial markets as things started to go wrong. While this was initially a problem of the fixed interest markets, it rapidly spread to the equity markets and particularly to highly leveraged sectors such as listed property and listed infrastructure.
With the global banking system also seeking to operate, debt finance was not available at almost any cost to many borrowers. This was particularly the case in the United States and Europe and had a marked adverse impact on direct property, direct infrastructure and private equity investments in those regions. However, this was generally not the case in Australia where direct property and infrastructure investments continued to record good positive returns.
Catholic Super’s diversified portfolios had significant weightings in domestic property and infrastructure and this helped cushion the severe adverse impacts of the sub-prime crisis on the listed equity components of the portfolios.
Events since the end of the financial year have demonstrated the true depth of this financial crisis with the US Government having to spend hundreds of billions of taxpayer funds to try to rescue its banking and insurance industries. Ultimately these efforts will be successful, but there is still much to be done before that end is reached and the world will come out of this crisis with a very different financial sector.
Looking further ahead, the falls in asset prices over the past year, and for shares in particular, provide an opportunity to buy some very good quality assets at attractive prices and we have been seeking to top up portfolios when possible. At the same time, we are concerned that the prices of those assets that have not experienced declines to date are vulnerable to the new tighter credit environment. This is particularly so for unlisted property investments. While very illiquid, we have sought to lighten the Fund’s holdings of these assets where possible.
There can be no doubt that we are now navigating through very uncertain times and that further negative shocks are likely. Nevertheless, those who are willing to look forward three to five years, particularly from the Australian perspective, should be able to see many opportunities.
Our economy is almost uniquely placed amongst those in the developed world as being directly linked to the massive long term growth occurring in China. Not only has this created enormous profit opportunities for our resources sector but it has also contributed enormously to Australia’s outstanding budgetary position.
As a Fund we have invested considerable time in researching China and other emerging markets and we have significantly increased the Fund’s investments in both listed and unlisted companies in these economies over the past year. While it is all too easy to focus on the short term turmoil around us and as disappointing as the losses of the past year have been, the long term outlook remains a very good one and our focus remains firmly on finding strong long term returns for members.
Your superannuation is a long-term investment, so it is generally more important to consider long-term performance over five years or more, rather than any one year.
Past performance is not a reliable predictor of future performance, but longer-term historical data can be useful in assessing the relevance of current year returns to your retirement savings goals.
