Growth Assets
Adding to its bad run, the Australian sharemarket experienced its fourth consecutive negative quarter, down 10.7%. On the back of concerns about global growth prospects, the Resources sector was particularly hard-hit, down 28.6%. This compared to Industrials which were down 0.7% over the quarter. As would generally be expected in a down market, smaller companies did worse than their larger peers, down 18.1% and 9.9% respectively. Among the worst performing companies over the quarter were Rio Tinto (down 37.2%), BHP (down 28.3%) and Macquarie Group (down 23.9%).Australian listed property trusts did better than the broader Australian sharemarket, but were still down another 1.7% over the quarter. While many property trusts continued to suffer, e.g. Centro Properties down 64.1%, Centro Retail Group down 63.5% and Valad Property Group down 56.0%, the overall result was cushioned by the likes of ING Office Fund (up 25.7%), CFS Retail Property (up 21.6%) and sector heavyweight Westfield Group (up 5.4%).
In local currency terms, the US was down 9.1% over the quarter, Europe (ex UK) was down 11.1% and the UK was down 11.8%. Japan did worse, down 17.5%.
The Australian dollar suffered a major slide as domestic interest rate expectations reduced and the US dollar rallied. Falling from 95.97 US cents at the start of the quarter to 78.88 US cents at the end, the Australian dollar was down 17.8%. It was also down against the Euro, Pound Sterling and Yen. The depreciation of the Australian dollar against the basket of currencies making up the MSCI World ex-Australia Index worked to substantially improve the returns for investors with an unhedged currency exposure to international shares. Breaking a run of four consecutive negative quarters, the unhedged Index posted a 3.6% return for the quarter. In contrast, the fully hedged Index was down 11.2%.
Like Australian listed property, international listed property did better than the broader sharemarkets. Greatly assisted by the depreciation of the Australian dollar, the unhedged Index was up 15.5% over the quarter, while the fully hedged Index was down 1.1%.
In the face of continuing weakness in the developed sharemarkets, the world's emerging sharemarkets again struggled. The MSCI Emerging Markets Index was down 11.2% (on an unhedged basis) over the quarter.
| Investment Sector | Index | 3 months (%) | 1 year (%) | 10 years p.a (%) | |||
| A$ | Local | A$ | Local | A$ | Local | ||
| Australian Shares | S&P/ASX 300 | -10.7 | -27.1 | 10.2 | |||
| Australian Listed Property | S&P/ASX 300 Property Trusts | -1.7 | -41.8 | 7.2 | |||
| International Shares | MSCI World ex-Australia | 3.6 | -16.7 | 0.7 | |||
| - US | MSCI US | 10.6 | -9.1 | -12.7 | -22.2 | -0.5 | 2.3 |
| - Europe | MSCI Europe ex-UK | -3.5 | -11.1 | -22.2 | -30.0 | 2.4 | 3.5 |
| - UK | MSCI UK | -3.9 | -11.8 | -23.2 | -21.7 | 0.5 | 2.9 |
| - Japan | MSCI Japan | 0.2 | -17.5 | -18.0 | -32.6 | 0.9 | 1.3 |
| International Shares Hedged | MSCI World ex-Australia (Hedged)* | -11.2 | -23.3 | 4.5 | |||
| International Property | UBS Global Investors ex-Australia | 15.5 | -13.4 | 9.7 | |||
| International Property Hedged | UBS Global Investors ex-Australia (Hedged) | -1.1 | -19.6 | 13.8 | |||
| Emerging Markets Shares | MSCI Emerging Markets** | -11.2 | -25.2 | 11.3 | |||
* As calculated by Vanguard using MSCI data and methodology.
** Adjusted to exclude Colombia and Pakistan (and Russia prior to 1 December 2003).
Sources: Bloomberg, MSCI & UBS
Performance as at 30 September 2008. Past performance is not an indicator of future performance. The above figures are index returns, not those of our funds.
Income assets
The US Federal Reserve continued its attempt to support the US banking system and credit markets. This included another 0.5% cut in the federal funds rate on 8 October to end the quarter at 1.5%. The US Treasury/Government also got involved with a major bank "bail-out" package. The Reserve Bank of Australia cut its target cash rate by 0.25% on 3 September to end the quarter at 7%. However, reflecting the severe global financial stress and the potential impact on the Australian economy, the RBA cut by another 1% on 8 October, the biggest single downward move in over 16 years.Against this backdrop of substantial uncertainty, Australian bonds had a very strong quarter, up 5.3%. Hedged international government bonds also did well, up 3.9%. However, hedged international investment-grade credit struggled, down 1.2%. Australian cash returned 1.9% for the quarter.
| Investment sector | Index | 3 months (%) | 1 year (%) | 10 years p.a (%) |
| Australian bonds | UBS Australian Composite Bond | 5.3 | 8.4 | 5.7 |
| International Government Bonds | Lehman Global Treasury (Hedged) | 3.9 | 9.2 | 6.8 |
| International Credit Securities | Lehman Global Aggregate Government-Related & Corporate (Hedged) | -1.2 | n/a | n/a |
| Australian Cash | UBS Australian Bank Bill | 1.9 | 7.7 | 5.7 |
Source: Bloomberg
Performance as at 30 September. Past performance is not an indicator of future performance. The above figures are index returns, not those of our funds.
