Investment market update

The Australian sharemarket has recently been impacted by issues in both local and global economies and uncertainties surrounding European and US Government debt.

August 4 saw stock markets across Europe fall by 3% and the USA and Australia by just over 4%. A similar fall also happened on August 8.

This has been due to a number of factors including:

• Reduced confidence in the US Government
• Ongoing issues with government debt in developed economies (e.g. Italy, Spain and Greece)
• Slowing economic growth for most of the developed world, including Australia
• Declining consumption leading to unemployment and/or lower job creation both locally and globally.

LUCRF Super’s main objective is to maximise returns for members and has a strategy to ensure your superannuation investments perform well over the long-term. The current strategy has been to invest a higher proportion in defensive assets (those that are more stable and secure) than would normally be the case. This allows us to lessen our exposure to the sudden market drops that are occurring at the moment.

Why is this affecting Australia?

The Australian stock market has a high level of foreign investors. These investors are impacted by global conditions and market perception, which affects their commitment to remain invested.

Consumption and economic growth in the developed world are expected to be weak in the near future, and this affects all economies. If growth in Europe, Japan, UK and the US declines then this flows through to growth in China. If Chinese investment slows, then demand for Australia’s major exports will also decline, leading to lower profits which ultimately mean lower returns from the Australian investment markets.

The high Australian dollar also affects Australian businesses as our exports are more expensive to buy while imports become cheaper. This means Australian produced goods and services become less competitive which negatively affects the local economy. It also becomes more expensive for tourists to travel to Australia. There are also signs of slowing consumption (people are spending less) in the domestic economy. All of these factors (and many more) lead to lower or negative investment returns in the short-term.

What is LUCRF Super doing?

LUCRF Super has made a number of changes over the last financial year, some as a result of lessons learnt from the Global Financial Crisis (GFC), others as part of either improving returns or reducing risk. Some specific examples include:

• Our Balanced (default) investment option currently has a higher allocation to defensive assets than normal to minimise the exposure to market downturns. This is the investment option the majority of our members are invested in.
• LUCRF Super has been increasing the amount invested in cash, which is a more secure asset.
• Our current investment focus of investing in companies which provide goods and services to the growing middle classes of the emerging world (India, China, Brazil and Russia).
• LUCRF Super closely monitors the performance of our investment managers.

Summary

Whilst the financial markets are down, LUCRF has a strategy to minimise the impact on members.

It is also important to remember that super should be viewed as a long-term investment. LUCRF’s long-term return for our Balanced option has produced an average rate of 10.02% since inception (1978 – 2011).

If you have any questions or would like to discuss your investments with a financial adviser, please call us on 1300 130 780.