Investment update for December 2011

Data and sentiment over the month was mixed but global markets finished the month slightly up. At the positive end of things, US jobless benefit claims fell to a three year low, Spanish Treasury bond sales were above target and at lower yields, and the European Central Bank made an injection of half a trillion Euros of three-year funds. At the other end of the spectrum, Fitch lowered its outlook on France’s AAA credit rating from “stable” to “negative” and placed six other euro-zone nations, including Spain and Italy, on ratings watch. Metals and energy prices also tumbled over the month. Despite this, the VIX (a measure of equity volatility) fell to its lowest level since the US debt ceiling debacle at the end of July 2011, perhaps indicating improving sentiment.

Australian equities finished the month down, affected by continuing negative consumer sentiment, retail downgrades and slow trading leading up to Christmas. Not surprisingly, Energy, Materials and Consumer Discretionary sectors were weak, and Metals and Energy prices were generally down for the month. Financials (ex-Property Trusts), Health Care, Telecoms and Utilities fared best. Small companies underperformed large companies due to the underperformance of small Resources stocks.

Global equities were slightly up on a hedged basis, and with the $A strengthening on a trade weighted basis, hedged returns (in $A) were were marginally stronger for December. Emerging markets underperformed Global equities on an unhedged bass. There was a wide performance disparity between countries in local currency terms. Germany, Italy and Greece dragged down the European performance and Japan was flat while the US and Asia ex-Japan performed relatively strongly.

Globally, Consumer Staples, Financials, Health Care, and Industrials posted strong relative returns while Consumer Discretionary, Energy, IT, and Materials struggled. Telecoms and Utilities were flat for the month.

The RBA announced a second interest rate cut. Longer term Australian Government inflation linked bonds were again the standout performer for the month. Global credit as measured by the Barclay’s Global Credit Index had a strong month in hedged $A terms. The 10-year yields of Australian, Euro area, UK and US government bonds remain low, having declined since 30 June 2011, reflecting the decline in sentiment towards risk assets as investors moved to the safe haven of developed market government bonds.

Looking ahead

Investment markets are expected to remain volatile for the time being as market sentiment proves to be closely aligned to political and policy announcements.

Broad stock market performance – December 2011

Performance (income and capital gain or loss) %
Australian Shares (S&P/ASX 300 Accumulation) -1.4
International Shares (MSCI AC World ex-Aust) hedged 1.1
Global Bonds (Barclays Global Aggregate (Hedged)) 1.9
Cash (UBS Bank Bills) 0.4
Unlisted property 0.5
Appreciation of $A against $US -0.2
Check out AvSuper’s weekly returns and quarterly performance results Please note that past performance is not always a reliable indicator of future performance.

 Source – JANA, FactSet, S&P, MSCI, Mercer, UBS, Barclays

We trust you find this information useful in understanding how your AvSuper investment is performing and welcome your feedback on how we can improve the information we provide to you.

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