INVESTMENTS REVIEW OF THE YEAR
During the financial year economies and financial markets continued to recover from the financial crisis of 2008 and 2009. The effects of that period on the developed economies remained evident, however. High levels of unemployment, large government budget deficits, and low levels of inflation and interest rates persisted. Central banks and governments typically pursued pro-growth anti- deflationary policies in an effort to replace private sector lending which continued to decline as banks attempted to repair their balance sheets. The developing economies of Asia and Latin America, on the other hand, recovered more quickly from the (mostly Western) financial crisis and their authorities began to tighten policies to rein in growth and dampen increasing inflationary pressures.
There were a number of economic events during the year which caused uncertainty and volatility in financial markets. These included civil unrest in North Africa, the rise in both hard and soft commodity prices and the prospect of sovereign default in Europe. To date the effect of each of these has not been lasting but could, if they got worse, have quite an impact on financial markets in the future.
Over the financial year, all major asset classes produced a positive return in US dollar terms. Shorter term treasuries returned 1.57 per cent compared to 10 years and over treasury returns of 6.30 per cent. This disguises a strong bull market in bonds in the first half of the year followed by a sell off in the second half as growth strengthened and headline inflation rose. The strength of corporate balance sheets and improving earnings and cash flows saw healthy returns from corporate bonds and equities. The similarity of equity returns around the world during the financial year was striking with the MSCI World Index appreciating by 23.15 per cent compared to the S&P 500 rising 23.50 per cent, the UK FTSE 100 by 23.19 per cent, Japan’s TOPIX 23.21 per cent and Emerging
Markets by 23.16 per cent. The fastest growing major economy in the world, China, once again proved that there is little relationship between economic growth and equity market returns as the Shanghai composite $ index fell 0.26 per cent during the financial year. Hedge fund of funds had a good year returning approximately 6.20 per cent.
Equities Fixed Interest
Absolute Return Funds 7.80% Cash
Total
PORTFOLIO POSITIONING Feb 2011 Feb 2010 17.32% 14.90% 54.39% 50.45% 9.14%
20.49% 25.51% 100.00
100.00
There were no significant changes to the portfolio weightings during the year. The main theme was to reduce the level of cash given its low returns but not to increase the risk of the portfolio significantly. This was done with the selective purchases of corporate bonds and an increased equity weighting, mostly by way of exchange traded funds.
PERFORMANCE
The investment portfolio returned 6.2 per cent during the year, adding $69.5 million to the Club’s assets. This performance outstripped the benchmark performance agreed with the board. Within the portfolio the fixed interest and absolute return fund elements performed well against their respective benchmarks, with equities lagging slightly.
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