PSS Fund Performance for January 2007

• PSS default Fund
• PSS Cash Investment Option

Welcome to the monthly update on your Fund's investment performance.

The impact of investment performance on your final benefit varies from minimal if you are a contributing member to significant if you are a preserved benefit member or if you have transferred amounts from other funds. However, all members may find it useful to understand how your fund performs.

ARIA’s primary responsibility is the management and investment of the PSS Fund in the equitable and best interests of all members. ARIA approaches this task by setting an investment objective to maximise the real returns earned on investments subject to a tolerable level of short-term volatility.

PSS default Fund

Table 1: Asset Allocation as at end January 2007 (%)

Table 2: The PSS in 2006-07 as at end January 2007 (%)

The return numbers in the table below are after fees and before tax, except for the Total Fund return number which is after both fees and taxes. Benchmark numbers are before fees and taxes.

The asset class sector benchmark return numbers show the market performance of the sector while the fund return numbers show what your Fund's performance was in that sector.

Table 3: Historical Fund Returns over the last 5 years (% p.a.)

Commentary:

Global equity markets began 2007 in the same vein as they ended 2006, with solid rises achieved in most countries. Equity market performance continues to benefit from robust investor risk appetite, expectations that US short term interest rates have peaked, a decline in the oil price, continued strong corporate profit growth and heightened takeover activity. In the month of January, the US economy displayed further signs of economic strength with the housing market appearing to stabilise, December quarter real GDP growth revised up and the labour market exhibiting on-going strength. The Australian equity market matched the return of its global counterparts in January, thereby ensuring its modest outperformance in the first seven months of this financial year. However, a rise in the Australian dollar during this period meant that the relative underperformance of unhedged global equities was larger.

Global fixed interest markets were again weak in January, with returns only marginally positive and well below those from cash. This reflected stronger economic growth numbers in the US, which led to a small rise in long-term bond yields in a number of countries. In the first seven months of this financial year, Australian bonds significantly underperformed their global counterparts. During this period, Australian 10 year bond yields rose by 0.15%, while US 10 year yields declined by around 0.3%. This financial year has also seen the Australian dollar rise modestly against most currencies and by a more significant 10% against the Japanese Yen. The weakness in the Yen has been due to a slower than expected pick-up in Japanese economic growth. The rise in our currency did not impact the Fund’s returns as all overseas investments are hedged into the Australian dollar.

The Fund’s after tax and fees return for the seven months ending January was 9.5%. While strong in an absolute sense, the return was below benchmark, due mainly to the benchmark being a before tax number, and partly to underperformance from a number of our active managers.

PSS Cash Investment Option  

Table 4: The PSS Cash Investment Option in 2006/2007 as at end January 2007 (%)  

 Table 5: Historical Fund Returns (%)  

Commentary:

The Cash Investment Option continues to deliver returns in line with the benchmark return, once account is taken of fees and taxes.

Steve Gibbs
CEO
2 March 2007