FROM THE CHIEF EXECUTIVE - 6 AUGUST 2009
Over 22 years the Westscheme Trustee’s Selection and its predecessors have produced an annualised net investment performance of 8.42%.
In 2008/09 the Trustee’s Selection, the investment option in which more than 95% of Westscheme members have their superannuation invested, produced a loss of -20.74%.
On 22 July 2009 the Trustee Board completed its regular 3-yearly review of the investment strategy for the Westscheme Trustee's Selection. It also looked at the reasons for the losses incurred and how to ensure that good returns are earned in the future.
The discussion concluded that there were two main reasons for the Trustee’s Selection’s poor performance in the last two years:
- It has not held Government bonds – which have delivered positive returns during this period.
- The Target Return Portfolio (TRP) which was held instead of bonds, which is a significant component of the Trustee’s Selection and had been expected to produce returns before tax and fees of around 12% per annum, behaved like listed shares and lost around 20% in 2008/09.
The TRP has been most affected by a massive shortage of commercial finance. Many of the investments in this portfolio are in companies that rely on shareholders and lenders to raise the money they need to run their operations. There are fewer investors and lenders around and if they are, they want higher returns. This reduces the value of existing investments even in profitable companies.
The discussion also concluded that the next three years will most likely be ones of gradual recovery from the Global Financial Crisis and consolidation rather than a surge. In such circumstances the significant devaluations of the TRP will be reversed as confidence grows and it will be likely to generate better investment performance than bonds.
Recognising that the world economy is likely to recover gradually within the next three years, the Westscheme Trustee’s Selection will be more defensive. Details of the Strategic Asset Allocation for the Trustee’s Selection over the three years ahead is provided in the 2009 Annual Report to Members.
The Trustee’s Selection uses a long-term investment strategy and losses like those incurred in 2007/08 and 2008/09 while disappointing, happen. Most Australians start building up their superannuation in their teens and use it in retirement – an involvement of 60 years or more. Most of Westscheme’s investments are made for the long-term and their value can fall in economic downturns. Despite the inevitable downturns, the Australian and developed economies have usually followed an upward trend. The graph below shows how the Australian stock market has moved over 100 years – and rewarded long-term investors.
Howard Rosario, Chief Executive
6 August 2009
Previous articles from the Chief Executive are available via the links below:
Developments in the Financial Markets - 25 November 2008
Developments in the Financial Markets - 29 October 2008
Developments in the Financial Markets - 14 October 2008
Developments in the Financial Markets - September 2008
Westscheme's "Cash" investment option
Westscheme's investment strategy July 2008
Westscheme's approach to valuing its investments
Risks in current investment markets
How has super performed over the long term
Positioning of Westscheme in meeting the challenges of market turmoil
Investment Volatility