Monthly Newsletter - April 2011

Editors Note

This edition includes an inspirational quote, a funny picture, a market commentary with the main index returns during March 2011 and a feature article. I encourage you to make comments.

During March Global Equity market returns were negative whilst Australian Equities finished the month marginally higher.

Inspirational Quote

The true measure of a man's wealth is in the things he can afford not to buy.

Ralph Waldo Emerson (American lecturer and philosopher)

Funny Picture

There is a contest in the US to find the most ridiculous warning labels. Although hard to belieive, the "Do not hold the wrong end of a chainsaw" label shown below is displayed on many chainsaws.

Market Commentary  

March was a volatile month for Global Equity markets with the Japanese earthquake and geopolitical unrest in the Middle East and North Africa denting investors’ confidence. Global Equity returns were negative whilst Australian Equities finished the month marginally higher. Global and Domestic Bonds posted positive returns. 

Performance scorecard to 31 March 2011  

Indexes used: Cash: UBS Australian Bank Bill Index, Diversified fixed interest: UBS Australian Composite Bond Index, Australian shares: S&P/ASX 300 Accumulation Index, Property: UBS Global Real Estate Investors Index (hedged in Australian dollars), International shares (hedged): MSCI World Accumulation Index (hedged in Australian dollars) and International shares: MSCI World ex Australia Accumulation Index.

Significant developments over the month were: 

• Domestic economic data highlights: Q4 GDP grew 0.7% qoq and 2.7% yoy. In March the RBA left official interest rates on hold at 4.75%, describing the current stance as “mildly restrictive.” Retail sales rose +0.5% for the month of February, the best monthly result since July 2010. Annual retail sales remain below trend level.

• US economic data was mixed. Housing data continued to disappoint, with housing starts (-22.5% month), new home sales (-16.9% month) and existing home sales (-9.6% month) all recording very weak numbers. Employment data continued to show improvement, in March 216,000 jobs were added. The unemployment rate is now 8.8%.

• The Bank of Japan injected extra funds into the Japanese financial system to limit volatility and to ensure the smooth functioning of markets.

• The European Financial Stability Fund (EFSF) will be upgraded to €440bn from €250bn.

• Political tensions in the Middle East lead to a sharp 10.0% gain in the oil price to US$106.72/bbl.

Australian Shares

The month of March was a tale of 2 halves for Australian Equities. The market fell by nearly 6% in the first half of the month after the earthquake in Japan. However, despite continued uncertainty in the Middle East and North Africa and the fear of nuclear fallout in Japan, the local market rebounded strongly in the second half of the month to post a positive return. The S&P/ASX 300 index returned +0.7% for the month, to finish the quarter +3.1%.

Large cap stocks (+0.8%) outperformed their Mid cap (+0.2%) and Small cap (-0.3%) counterparts for the 3 month in succession. Unsurprisingly, given the rise in the oil price, Energy (+3.3%) stocks made a strong positive contribution. Conversely, Property Trusts (-2.0%) stocks made the strongest negative contribution.

Strong sector performance saw a number of resource companies dominate the positive contributors list, headed by Woodside Petroleum (+10.2%) and BHP (+1.2%). Wesfarmers (-3.7%) was again the largest negative contributor over the month due to sluggish retail sales.

Overseas Shares

In local currency terms, the MSCI World ex Aus index returned -1.4%. Due to the appreciation of the A$, the return for unhedged Australian investors was eroded to - 2.6%. The month of March saw Growth stocks (-2.0%) outperform Value stocks (-2.6%) in A$ terms, based on the S&P Developed ex-Australia Large Medium Cap Value and Growth indices.

In the US, the S&P 500 Composite Index returned 0.0%, the Dow Jones Industrial Index +0.9% and the NASDAQ Composite Index 0.0%, in local currency terms.

In Europe, the FTSE 100 (UK) returned -0.9%, the DAX 30 (Germany) -3.2% and the CAC 40 (France) -3.0% in local currency terms. In Asia, the Chinese Shanghai Composite Index returned +0.8%, Hong Kong’s Hang Seng +1.1%, India’s BSE 100 Index +9.0% and the TOPIX (Japan) -7.6% again in local currency terms.

Emerging markets returned +4.3% over the month in A$ terms.

Property

Domestic listed property trusts (A-REITs) returned -1.9% for the month. Global Listed Property (FTSE EPRA/NAREIT Global Hedged Index) returned -1.0% during March.

Fixed Interest

The UBS Australia Composite Bond Index returned +0.7% for the month. The Citigroup World Government Bond (ex-Australia) and the Barclays Capital Global Aggregate Bond Index returned +0.2% and +0.5%, over the month respectively.

Currency

The A$ appreciated against all currencies (except the Euro) over March. The local currency rose 1.6% against the US Dollar, 2.7% against the Yen, 3.1% against the Pound Sterling and depreciated 1.2% against the Euro. The A$ rose 1.1% on a trade-weighted basis.  

The Market Commentary has been sourced from Mercer (Australia) Pty Ltd.

Feature Article - Reduce insurance premiums with a longer waiting period

If you have an Income Protection policy you can save on insurance premiums if you choose a longer waiting period.

Income Protection insurance premiums reduce with longer waiting periods. So if you are suffering from financial strain and are considering cancelling your Income Protection cover, then consider increasing the waiting period so you have more cash in your pocket.

Case study

Robert and Sandra want to start a family and are restructuring their budgets. They need to save a lot more and are thinking of reducing their levels of Income Protection insurance. They currently have a 30-day waiting period on both policies.

When they spoke to their financial adviser, he suggested increasing their waiting periods since both had adequate levels of accrued sick and annual leave with their respective employers.

To illustrate the savings, their financial adviser put together the following monthly premium comparison:

Did you know?

Most insurance companies allow you to choose from 14, 30, 60, 90, 180, 365 and 730 days waiting periods. But before changing to a longer waiting period, ensure that you have adequate sick and annual leave to cover you for that extended period. 

The above information has been sourced from Norwich Union Life Australia Limited.

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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.