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Monthly Newsletter - April 2009
by Andrew Newmanin Newsletter
30 Apr 2009 | 0 Comments
Editors Note
This edition includes an inspirational and funny quote, the main market index returns during March 2009, a market commentary and a feature story. I encourage you to make comments.
Inspirational Quote
People are always blaming their circumstances for what they are. I don't believe in circumstances. The people who get on in this world are the people who get up and look for the circumstances they want, and if they can't find them, make them - George Bernard Shaw.
Funny Quote
My husband said he needed more space. So I locked him outside - Roseanne.
Market Statistics
The table below shows the monthly returns for the main market indices during March 2009.
| Market Index | Mar 09 |
| S&P/ASX 200 Accum | 7.98% |
| Dow Jones | 7.73% |
| S&P 500 | 8.54% |
| Nikkei | 7.15% |
| AUD/USD | 8.18% |
| Oil | 10.95% |
| Gold (USD/oz) | -2.46% |
Market Commentary
In volatile and sentiment-driven conditions, world equity markets, as measured by the MSCI World Accumulation Index (AUD Hedged), posted a -10.1% return over the March quarter. After a very difficult first two months where deteriorating economic news overwhelmed markets and caused a fall below November 08 lows, markets rebounded very strongly early March. A series of good news was well received by investors including that the three largest lenders in the US (Citigroup, Bank of America and JPMorgan Chase &Co) said that they have become profitable. This was supported by Fed Chairman's comments that he expects the economic conditions to improve towards the end of the year and the Fed's plan to buy an additional $300 billion of government bonds and up to a $1 trillion of distressed assets to combat the financial crisis. US Treasury Secretary, Timothy Geithner's Public-Private Investment Programme purchase of toxic assets encouraged markets further and was considered by investors as a very positive move for credit markets.
Even though the IMF announced in March that it expects that the world economy will shrink in 2009 with a greater than expected economic contraction, markets focused more on recent economic news from the US which showed some signs that the pace of decline is slowing down. Reports showed that US consumer spending has stabilised and that manufacturing and housing conditions are improving. This had positive effects on markets as every major region in developed markets was up in March and stemmed the series of negative monthly returns. In local currency terms, the US market was down 10.5% for the quarter and Europe was down 11.4%. Similarly, the UK market ended the quarter with a -10.4% return, Japan -9.1% with Singapore -4.0% and Hong Kong -0.5%. On the back of the more positive news and a weaker US dollar, commodity prices rebounded and the oil price rose to near four-month highs as reflected in the solid gains made by ExxonMobil and Chevron.
With the exception of the IT sector, every sector posted negative returns for the quarter. Despite the Financials being the best performing sector in March, it ended the quarter down 20% followed by Industrials (-15.1%), Utilities (-14.9%), Telcos (-10.0%) and Consumer Staples (-9.9%). IT was up 2.35% followed by Materials (-0.7%), Consumer Discretionary (-4.8%), Energy (-7.2%) and Healthcare (-8.3%).
Australian stocks sank to more than a five-year low as they fell for a sixth consecutive quarter in the first three months of 2009 after the world's major economies confirmed they were in deep recessions and doubts persisted about the stability of the world's financial system. The benchmark S&P/ASX 300 Accumulation Index fell 1.9% in the quarter.
The Market Commentary has been sourced from Global Value Investors Ltd and Barclays Global Investors.
Feature Story - The alternatives
"Cash is safe but it isn't king." Sydney Morning Herald, October 26, 2008
What are the alternatives to riding out the current bear market? With the availability of a Government guarantee on many cash options is there any downside in a shift to cash? We look at the pros and cons of cashing out, and what sort of role cash can play in a balanced portfolio. Either way, we conclude with one question: "What are you investing for?"
Heading for the exit?
Cash can look very appealing in times of increased volatility. The Government guarantee does offer some opportunities on many cash deposits. You can now choose relatively high-yielding term deposits and cash accounts, while reducing your concerns about the institution offering the product.
While this safety net may relieve your anxiety and help you sleep better at night, it‘s important to remember that cash is best used as part of a bigger plan, rather than your whole investment strategy.
Cash: part of a portfolio, not a complete solution
Senior Investment Strategist at Advance Asset Management, Felix Stephen, says that cash is an integral component of every balanced portfolio. "Having a cash reserve means you have easy access to a portion of your money, gives you some security and is an ideal parking place while you assess other investment opportunities," he said. "It is also generally recommended that people who need access to cash in the short-term, such as retirees, should keep one to two years worth of income in cash because they don't have the time-frame to ride out any market bumps."
It's not about now
However, if you are investing with a focus on the future, rather than on short-term capital preservation, you need to consider a few things before you ‘cash out' or tilt your portfolio too heavily away from shares, property and alternative assets.
The chart on the left shows how different asset classes have performed over the past 20 years. Cash has only outperformed other asset classes twice during this period.
You should also keep in mind that:
cash investments don't offer the tax benefits of shares, which can offer capital gains tax discounting and dividend imputation. shares can also offer higher income levels than cash investments. Felix believes that "Shares now offer good value when you take into account their potential for growth," he said. "History shows that if you can hang on, you'll more than likely get the value of your investment back. By ‘cashing out' you turn your paper loss into a real loss. Markets often bounce after a crisis, quickly recouping a significant portion of the losses. By selling out you may miss this bounce." It is about diversification Diversification helps to spread the risk in a portfolio, so that if one sector takes a hit, it won't have a significant impact on the rest of your investments. For example, say you have a diversified portfolio which includes shares in both the hospitality and retail sectors, and an investment property. As a few economies head towards a recession, it follows that less people will be able to afford to go on a holiday, so the value of the hospitality shares may fall, and property values may also be subdued as demand drops. However everyone still needs to buy life's essentials, so the retail sector, especially the supermarket shares, will be more resilient to the downturn. At some point in the future, these dynamics will change - falling interest rates will stimulate the property market and economic security will support the tourism industry - and because you are diversified across several asset classes, sectors and companies, you will have benefited during both cycles. Comparison of Asset Sector Returns The chart below illustrates the potential returns available from the various asset classes. Whilst investing in shares (Red line) has the potential for higher investment returns, you will notice that these roads to fortune have experienced many more ups and downs compared with saving in a cash account (Black line). So, what are you investing for? How do you resist the urge to jump ship and direct your investments into an apparently safe harbour? The secret is to focus less on the market's short term waves and more on your long-term needs. If the recent falls means your portfolio is no longer able to meet your financial objectives - such as providing a retirement income or building wealth to pass onto your family - it makes sense to review your portfolio and look at ‘the alternatives' with your adviser. If, however, you have a long term time horizon, and can handle current levels of volatility or have additional cash to invest, now may well be the time to take advantage of cheap asset prices and invest more money! In the end, the choice of asset classes and the mix of investments within your portfolio is entirely personal and depends less on market movements and more on what you are aiming to achieve with your investment strategy.
This feature story was prepared by Securitor Financial Group Ltd, who is owned by Westpac Banking Corporation.
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Important Information
The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.
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