Superannuation market update

For the period 1 July 2012 to 30 June 2013.

A resurgence of strength in Australian and International Shares and in the Listed Property sector during 2012-13 produced the best returns in six years, boosting results for Australian super investors and enabling a recovery of ground lost during the global financial crisis.

A rewarding year ended on a flatter note, however, as a cut in official interest rates by the Reserve Bank of Australia in May signalled a weaker economic outlook and prompted selling by overseas investors. This resulted in a weaker sharemarket performance in the closing months of the financial year.

Investors in Australian and International Shares enjoyed total returns (including dividends) of more than 20%5. International Shares returned a stellar 30%5 driven in part by the weakening Australian dollar. Within the Australian sharemarket, larger companies, especially banks, healthcare companies and telcos, provided the best returns, with the top 50 outperforming the broader market.

Smaller companies, most notably small mining and mining services companies, disappointed, reflecting a resource sector running out of puff because of lower growth fears in China and consequent declines in commodity prices.

The Listed Property Market regained significant ground, slightly outperforming the Australian sharemarket over the year as increased distributions wooed back investors seeking higher yields.

Despite only slow improvement in world economic conditions, International Shares turned in a robust performance, led by the key US market - which is approximately half of the International Shares index - and also renewed interest in Japanese Equities.

The closing months of the financial year took the sheen off an otherwise exuberant 12 months as concerns grew over a shift away from monetary stimulus in the US - a positive signal for the economy but unwelcome news for some investors who fear the impact of rising interest rates on their portfolios. A banking crisis in Cyprus revived the spectre of problems in the Eurozone which had overall seen a strengthening in performance as fears of government defaults receded. Smaller European countries, however, continued to struggle and emerging markets such as Brazil, Russia, India and China, failed to match the performance of larger, developed markets.

Historically low interest rates and uncertain economic prospects took their toll on Cash and Fixed Income investments during 2012-13, resulting in no more than modest returns. Interest rates globally hit their lowest levels in decades, reflecting efforts by central banks to stimulate sluggish economies. As confidence resumed mid-year that brighter global growth lay ahead and equity markets surged, the relatively low returns from Bonds - traditionally sought for income, diversification and stability - left them trailing. Total returns for Australian Bonds were broadly in line with other Cash investments, around 3%5 for the year.

Internationally, total returns on Fixed Income investments were around 4.5%5 over the year but performance turned negative in the final months of 2012-13 when Fixed Income markets were impacted by the same global economic conditions that weakened sharemarkets. But remember, past performance is not a reliable indicator of future performance.

5This material was provided by State Street Global Advisors, Australia.