The good news is that the economic recovery from the Global Financial Crisis is well and truly underway.

This means amongst other things, that companies are making profits, the value of company shares are rising and investment returns are again positive.

International sharemarkets which bottomed out in March 2009 increased in value from the low point (on 9 March 2009) to the end of the calendar year, by 62.4% (hedged) recording a V shaped recovery in prices which can be seen in the graph below.

(click the image to enlarge)

 

The Australian sharemarket produced a similar result.

VicSuper’s investment options with higher allocations to equities (the Balanced, Growth, Equity Growth and Equity Growth Sustainability options) are all doing well for the financial year to date.

After the gloom of sharemarkets in 2008 and in early 2009, members in investment options with high allocations to growth assets can now look forward with some confidence to positive returns at the end of the current financial year.

Sticking with your long-term investment strategy

When the Australian and international share markets rapidly declined in value in late 2008 and early 2009 some members switched into the Cash Option.

Members were hoping to time their switch out of the higher growth options before they lost too much value and to time the switch back into one or more of the high growth options after they showed the first sign of sustained recovery.

To be successful with this strategy a member has to get two decisions right. First, when to switch out of an investment option with higher allocations to growth assets and second, when to switch back.

Some members were successful with their timing but unfortunately many were not.

Therefore, switching investment options may ultimately be detrimental to your super in the long run.

VicSuper continues to invest for the long term

Superannuation is a long term investment even after you have retired from the workforce and enjoying all those things that you always wanted to do but never had the time to do.

Like all large super funds, VicSuper invests in a broad range of securities including companies, property trusts, infrastructure assets such as ports, water and energy utilities, and fixed interest investments.

Our research and experience with investing your superannuation savings is showing us that the managers of companies and other securities that integrate environmental, social and governance strategies into their policies and operations are better positioned to enhance returns.

To date VicSuper has invested 10% of VicSuper Fund’s Australian listed equities and private equity and 20% of international listed equities and private equity in companies selected on sustainability criteria.

These are companies that are gearing their strategies and management to harness the market’s potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks.

This approach to investing makes sense and is delivering desired outcomes as seen by the performance of the Fund’s Equity Growth Sustainability Option which has outperformed the Equity Growth Option over the five years to 30 June 2009. The Equity Growth Option has part of its portfolio of equities invested in leading sustainability-focussed companies, compared to the Equity Growth Sustainability Option, which is 100% invested in companies rated as sustainability leaders.

During the first eight months of the current financial year the Equity Growth Sustainability Option is continuing its good performance with a leading net earning rate of 16.12% for members in VicSuper Scheme and VicSuper Beneficiary Account and 18.34% for members in VicSuper Pensions.

What’s happened and what’s in store for 2010 and beyond

In the long run the prevailing economic conditions and the underlying business fundamentals in the nations in which we invest will largely determine the actual investment returns we receive on behalf of our members.

In the short to medium term the speculative returns from investments in equities and property will also influence the total investment returns we receive.

In the last decade, the rapid economic development of the new Asian economies and other emerging markets produced excess savings which were invested in US treasuries and other industrialised world economies.

This abundance of funds enabled interest rates to stay low and encouraged higher levels of indebtedness by the developed nations and the businesses within them. In turn these businesses were encouraged to borrow more by innovation in credit markets.

Boom times followed and laid the foundation for a financial crisis which eventually engulfed the world including the emerging economies in 2008 and prompted intervention by governments with massive fiscal and monetary stimulus to their economies.

The stimulus packages have worked, with developed and developing economies alike now emerging from recession or near recession. There remains risks however to the economic recovery. First, the tightening of credit in China aimed at slowing the rapid economic growth in that economy spurred by a massive injection of funds by the Chinese government in infrastructure; and second, the difficulties being experienced by a number of countries in financing their budget deficits with new borrowings.

These risks may impact market sentiment in the short term but are unlikely to unsettle the longer term trend of economic recovery, profit growth and further gains in share valuations in the year ahead.

Bob Welsh, VicSuper Chief Executive