Investment Returns
Year Ended 30 June 2011
The Fund’s surplus after tax for the year was $335.6 million. This represents a return of 11.6% on average net assets.
The after-tax return for the Fund in the year ended 30 June 2010 was 10.4%.
Table 1: Investment Performance 2011 vs 2010
| |
Year ended
30 June 2011
($m) |
|
Year ended
30 June 2010
($m) |
| Surplus/(Deficit) pre-tax |
419.8 |
383.3 |
| Income tax |
(84.2) |
(98.7) |
| Surplus/(Deficit) after tax |
335.6 |
284.6 |
|
|
|
Growth investments continued to recover strongly for the second year since the global financial crisis (GFC). International equity and commodity markets were up strongly and New Zealand equities returned 17.5%. These outcomes reflected low starting points and huge fiscal and monetary stimulus from governments trying to avert a global depression. Perhaps the most surprising feature was the big rise in the New Zealand dollar (NZD), 20% against the US dollar (USD) and 12% against the basket of currencies in which the Fund invests. The rises reflected New Zealand's peripheral position in the GFC and strong export commodity prices. To the extent that overseas assets were not hedged the NZD's rise eroded returns in NZD terms significantly.
Near the end of the financial year signs re-emerged that the massive debt over-hang, built up before the GFC, was not being addressed credibly by governments and central banks.
First, Europe managed to negotiate only interim measures to avoid possible defaults by peripheral Eurozone countries and major bank failures: secondly, in the United States, debt ceilings became political issues with the government unable to agree on credible debt reduction programmes. Debt reduction programmes are necessary but will mean slower growth in developed economies, possibly higher inflation and declines in living standards that will be hard to sustain politically. These risks haunted financial markets at the close of the financial year.
Returns from all asset classes were positive for the year except for insurance linked assets with performance exceeding benchmarks in most asset classes.
Overall, the returns demonstrate the benefits of having a diversified asset allocation for the Fund (see Table 2: Asset Class Returns 2011 vs 2010).
Table 2: Investment Returns by Asset Class (before tax) – 2011 vs 2010
| Asset Class |
Year ended
30 June 2011
(%) |
Year ended
30 June 2010
(%) |
| NZ Equities |
19.8 |
11.7 |
| International Equities |
9.8 |
8.3 |
| Global Fixed Interest |
6.0 |
10.2 |
| Global Property |
10.1 |
6.7 |
| Commodity Futures |
10.0 |
-3.8 |
| Multi-asset* (in USD) |
17.6 |
8.2 |
| Global Tactical Asset Allocation (in USD) |
12.4 |
8.4 |
| Insurance-Linked Assets (in USD) |
-5.3 |
n/a |
| Currency Overlay |
13.4 |
n/a |
*Multi-asset class is a diversified portfolio comprising listed equities, private equity, property and hedge funds.
Investment Returns
Below is a comparison of the returns from each asset class (before tax), for the last financial year, with the benchmark indices (see Table 3a: Asset Class Returns Compared with Benchmarks - Last Financial Year), and for the year to date (see Table 3b: Assest Class Returns Compared with Benchmarks - YTD 31 March 2012).
Table 3a: Asset Class Returns Compared with Benchmarks - Last Financial Year
| Asset Class |
Year ended
30 June 2011
(Actual %)
|
|
Year ended
30 June 2011
(Benchmark %)
|
| NZ Equities |
19.8 |
17.5 |
| International Equities |
9.8 |
8.4 |
| Global Fixed Interest |
6.0 |
3.5 |
| Global Property |
10.1 |
11.0 |
| Commodity Futures |
10.0 |
4.8 |
| Multi-asset* (in USD) |
17.6 |
21.8 |
| Global Tactical Asset Allocation (in USD) |
12.4 |
6.3 |
| Insurance-Linked Assets (in USD) |
-5.3 |
-0.9 |
| Currency Overlay |
13.4 |
18.3 |
Table 3b: Asset Class Returns Compared with Benchmarks - YTD 31 March 2012
| Asset Class |
YTD
31 March 2012
(Actual %)
|
|
YTD
31 March 2012
(Benchmark %)
|
| NZ Equities |
2.5 |
3.1 |
| International Equities |
-1.3 |
-0.2 |
| Global Fixed Interest |
8.3 |
7.3 |
| Global Property |
1.3 |
1.0 |
| Commodity Futures |
-7.9 |
-9.5 |
| Multi-asset* (in USD) |
1.9 |
1.9 |
| Global Tactical Asset Allocation (in USD) |
2.0 |
1.1 |
| Insurance-Linked Assets (in USD) |
5.0 |
5.6 |
| Currency Overlay |
-0.4 |
0.3 |
“The Board takes a long-term view of its investment strategy.”
*Multi-asset class is a diversified portfolio comprising listed equities, private equity, property and hedge funds.
**Investment in Insurance Linked assets was effective from early December 2010.
The Board takes a long-term view of its investment strategy. It remains confident that in the long term the objective of outperforming a portfolio, invested entirely in New Zealand Government Stock, will be achieved.
Change in Net Asset Value of the Fund
Set out below is a table showing the change in the net asset value of the Fund for the current financial year (see Table 4: Change in Net Asset Value).
Table 4: Change in Net Asset Value
|
YTD
31 March 2012
($m) |
| Opening net asset value 1 July 2011 |
3,159 |
| Interest and Dividend income |
67 |
| Changes in Market Values |
|
| New Zealand Equities |
-11 |
| International Equities (including currency hedging) |
-15 |
| Global Fixed Interest (including currency hedging) |
31 |
| Global Property (including currency hedging) |
1 |
| Commodity Futures |
-8 |
| Multi-asset and Global Tactical Asset Allocation |
-5 |
| Insurance-Linked assets |
9 |
Total |
2 |
| Income Tax (Expense) |
-33 |
| Net Membership Activities |
-99 |
| Closing Net Asset Value 31 March 2012 |
3,096 |
Net Assets
The net assets are those used in the financial statements for the year ended 30 June 2011 and for the quarter ended 31 March 2012.
Volatility
Changes in market values, especially those for equities, will vary significantly from the assumptions on changes in market values used to calculate the long term expected investment return.