Investment Returns
Year Ended 30 June 2009
The Fund’s deficit after tax for the year was $583.3 million. This represents a return of -16.8% on average net assets.
The after-tax return for the Fund in the year ended 30 June 2008 was -6.7%.
Table 1: Investment Performance 2009 vs 2008
| |
Year ended 30 June 2009 ($m) |
|
Year ended 30 June 2008 ($m) |
| Deficit pre-tax |
(672.7) |
(210.1) |
| Income tax |
89.4 |
(50.8) |
| Deficit after tax |
(583.3) |
(260.9) |
|
|
|
The investment performance of the Fund during the year was severely impacted by the global financial crisis which started in 2007, but deteriorated sharply in 2008. The flow-on effects from the United States sub-prime mortgage crisis dominated the year and led to the worst downturn in investment markets since the Great Depression.
The crisis resulted in the biggest fiscal and monetary policy intervention since World War II. Government actions were taken to avert a generalised banking collapse, ensure sufficient liquidity to support economic activity, and underwrite toxic assets.
This situation was extremely difficult to predict at the start of the financial year. In July 2008 the international credit crisis had yet to gather pace and Lehman Brothers was still a respected name on Wall Street.
The downturn impacted on all investment funds invested in growth assets such as equities and property. The Fund was no exception. Notwithstanding its recent diversification into absolute return strategies, commodities and global tactical asset allocation, the market downturn could not be avoided. Fortunately, there has been some recovery in markets and the global economy through 2009.
Returns from all asset classes were negative for the year except for fixed interest and global tactical asset allocation, and performance against benchmarks was mixed.
Overall, the returns demonstrate the benefits of having a diversified asset allocation for the Fund (see Table 2: Asset Class Returns 2009 vs 2008).
Table 2: Investment Returns by Asset Class (before tax) – 2009 vs 2008
| Asset Class |
Year ended 30 June 2009 (%) |
|
Year ended 30 June 2008 (%) |
| NZ Equities |
-9.2 |
-22.1 |
| International Equities |
-31.4 |
-12.3 |
| NZ Fixed Interest |
- |
9.5 |
| International Fixed Interest |
10.2 |
8.9 |
| Real Estate |
-40.6 |
-13.2 |
| Collateralised Commodity Futures |
-50.9 |
73.8 |
| Multi-asset* (part year) |
-8.0 |
-3.4 |
| Absolute Return (formerly Global Tactical Asset Allocation) (part year) |
9.1 |
5.1 |
|
*Multi-asset class is a diversified portfolio comprising listed equities, private equity, real estate 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: Asset Class Returns Compared to Benchmarks - YTD 30 September 2009).
Table 3a: Asset Class Returns Compared with Benchmarks - Last Financial Year
| Asset Class |
Year ended
30 June 2009
(Actual %)
|
|
Year ended
30 June 2009
(Benchmark %)
|
| NZ Equities |
-9.2 |
-11.1 |
| International Equities |
-31.4 |
-32.3 |
| International Fixed Interest |
10.2 |
11.6 |
| Real Estate |
-40.6 |
-36.5 |
| Collateralised Commodity Futures |
-50.9 |
-61.5 |
| Multi-asset* |
-8.0 |
-4.8 |
| Global Tactical Asset Allocation (part year) |
9.1 |
12.2 |
Table 3b: Asset Class Returns Compared with Benchmarks - YTD 30 September 2009
| Asset Class |
Year to Date
30 September 2009
(Actual %)
|
|
Year to Date
30 September 2009
(Benchmark %)
|
| NZ Equities |
15.8 |
13.5 |
| International Equities |
15.2 |
15.6 |
| International Fixed Interest |
4.9 |
3.7 |
| Real Estate |
19.8 |
23.1 |
| Collateralised Commodity Futures |
-0.1 |
4.3 |
| Multi-asset* |
-3.3 |
-1.9 |
| Global Tactical Asset Allocation (part year) |
12.0 |
2.1 |
“The Board takes a long-term view of its investment strategy.”
*Multi-asset class is a diversified portfolio comprising listed equities, private equity, real estate and hedge funds.
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
|
Year to Date
30 September 2009
($m) |
| Opening net asset value 1 July 2009 |
2,804 |
| Interest and Dividend income |
16 |
| Changes in Market Values |
|
| New Zealand Equities |
38 |
| International Equities (including currency hedging) |
182 |
| New Zealand Fixed Interest |
1 |
| International Fixed Interest (including currency hedging) |
20 |
| Real Estate (including currency hedging) |
34 |
| Collateralised Commodity Futures |
1 |
| Multi-asset and Global Tactical Asset Allocation |
9 |
Total |
285 |
| Income Tax (Expense) |
(97) |
| Net Membership Activities |
(35) |
| Closing Net Asset Value 30 September 2009 |
2,973 |
Net Assets
The net assets are those used in the financial statements for the year ended 30 June 2009 and for the quarter ended 20 September 2009.
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.