In contrast, the past 6 weeks has been characterised by a market recovery almost as remarkable as the fall that preceded it. The ASX 200 has now rallied 21% (as at 15 May 2009) from its recent low (10 March 2009) while the S&P 500 (the US equity market) has recovered an amazing 34% from the depths it fell to on 6 March 2009.
Is this a ’bear market‘ rally – a market that rises in the short term only to be over-run by the pessimists who use the short-term optimism to sell and force the market to new lows? The general consensus appears to be not. Some analysts have compared recent market activity to that of the depression years of 1930–32. In that period there were six share market rallies before the bottom was reached and some doomsayers are speculating that we may be in for a similar experience. But it is worth highlighting that in the early 1930s the US Government exacerbated the existing problems, and indeed some argue, turned a recession into a depression. How so?
Conventional economic thinking of the day deemed balanced budgets to be the only responsible way to manage the finances of a country. Debt and leverage were seen to be two evils that had led the economy into such dire straits. Sound familiar? As a consequence, the US Government of the day did all they could to balance the budget, thus reducing lending and money supply. The exact opposite has occurred today with all governments and central banks injecting huge amounts of funds into economies in an attempt to underpin domestic demand and ensure economic activity does not stop. Hence the well-documented fiscal stimulus packages announced by the Australian Government late last year and earlier this year.
Also, in the early 1930s interest rates were increased (they only reduced rates in 1932 when it was too late) which had the effect of slowing consumer demand – with disastrous consequences on the economy. As part of the weaponry used in the current ’fight', interest rates were reduced worldwide very early in the process in another attempt to stimulate consumer demand. The impact of this policy move is shown very clearly through the impact on our mortgage rates and the flow-on effect this is having to the household budget.
As a result of this remedial action there is evidence, albeit very patchy, that the rate of economic slowdown has indeed declined and in fact stopped in some sectors. Equity markets have anticipated this turnaround and hence the rally over the past 6 weeks.
In times such as these it is good to be able to look through the turbulence and understand that it is not timing the markets that is important, as it is pretty conclusive that no one can, but time in the markets. This fact is driven home when we observe the market rally referred to above. If a member had taken any premature action and switched out of equities over the past few months, the 21% rally just witnessed would have been lost. So they would have suffered all the ’pain‘, but would not have had a chance to experience the ’gain‘.
Over time, the Board has established a set of objectives which have stood the test of time and remain as relevant today as they did in the ’good‘ times when markets were achieving unsustainably high returns. The objectives are:
1. Produce real capital growth over time
2. Provide a degree of downside protection
3. Produce a relatively less volatile return
4. Provide competitive returns
5. Provide excellent ‘return for risk’
6. Be cost-conscious
7. Manage liquidity
8. Be socially responsible
9. Be tax-effective.
To meet these objectives it is important to understand the principles that are followed to assist in their achievement. These are:
• Buy value
• Lock in ’known‘ returns
• Maintain liquidity
• Spread risk.
Of course investment performance is just one aspect of your super, but an important one when selecting a fund that will meet your expectations and provide a good income through your retirement years.
If you wish to discuss this article further or have a more general question about your superannuation, please call 1300 360 149. For more information about CareSuper’s investment policy, read the Investment Policy Statement
Greg Nolan, General Manager Investments
Disclaimer: CARE Super Pty Ltd and its directors, officers, employees and associates make no representation in respect of, and, to the extent permitted by law, exclude all warranties in relation to the accuracy, currency or completeness of the information provided. CARE Super Pty Ltd and its directors, officers, employees and associates accept no liability whatsoever (including by way of negligence) for any loss or damage, however caused, as a result of any person relying , in whole or in part, on any information provided. All information in the above article is current at the time of production and subject to change. You may wish to obtain professional advice before acting on any of the information contained in this document.
