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UNCERTAINTY IN INVESTMENT MARKETS |
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With much uncertainty already playing out on world markets last week, aggravated by Saturday morning's (Australian time) downgrading of the US credit rating from AAA to AA+, US and global markets have been experiencing severe downturns. Note that US treasury-bills have retained the highest rating for short-term debt of A-1+. Other ratings agencies have not downgraded US debt. Russell Investments, who manage most of the Aon Master Trust's active investments, is monitoring the situation and have provided a summary of key points and messages for investors. This 5 August article by Vanguard, our index funds manager, Buckle up for a bumpy US recovery ride, sheds light on the US situation. Dealing with a downturn Although ups and downs in investment markets are a normal part of market behaviour, they can be very unsettling - tempting investors to make snap decisions that are inappropriate for their long-term goals. If you decide to cut your losses and move your investment, you could miss out on opportunities when the market turns around. Super is long-term investment so you're likely to experience a number of peaks and troughs along the way. When the going gets difficult - as it inevitably will from time to time - it's important to:
History shows that holding on to your long-term plan is a better response than panicking and making inappropriate investment changes. If your time horizon and personal circumstances have not changed, there should generally be no need to change your investment strategy You should monitor and review your investment strategy periodically to ensure it's still right for you. It's important to have a portfolio that's appropriate for your circumstances and a risk/return profile you are comfortable with. What Russell is saying (Friday 5 August) A gloomy global economic outlook sent investors on a mass exodus out of risky markets Thursday and into the refuge of US government debt, sending yields to yet another round of new 2011 lows. The intense flight into safe-haven Treasury's forced a significant one-week drop in benchmark 10-year yields since last Friday. Investors across the globe have been buffeted by economic and political turmoil in recent days. A string of recent weaker than expected economic data have pointed to a possible slowing of the recovery. In Europe, leaders are still working through a longer term solution to the sovereign debt crisis impacting peripheral countries such as Greece, Portugal and Spain. Investors are increasingly nervous that troubles are spreading to Italy and Spain, driving down stocks across the region and sending borrowing costs of peripheral nations soaring. European stock markets plunged 3.4%, the largest one-day drop in more than a year, while US major indices continued the falls, ending down around 4.5%. Market moves It is helpful to put recent market movements in the context of key fundamentals:
Keep the headlines in perspective Whenever there are large market-driven movements, it is likely there will be continued volatility until things settle down. The key for investors is not to panic. While market conditions are expected to remain volatile over the rest of the year, now is not the time to make knee-jerk reactions and run to cash (as many did in the depths of the GFC - with terrible results in the ensuing recovery). Keep your head, stick to your long-term strategic plan, and look through the current noise to keep headlines in perspective (especially against the backdrop of market valuations and economic fundamentals). There is nothing in the past week or so that should change your medium to long-term investment strategy. Investing in the Aon Master Trust Our investment partners, Russell and Vanguard, are highly experienced managers and adhere to stringent processes to ensure quality decision making around investments. The Aon Master Trust's pre-mixed options have built-in shock absorbers. Asset allocations are rebalanced monthly which means that lower market prices provide an opportunity to buy at attractive prices to keep the portfolio aligned with its strategy. Also, Russell re-allocates to managers within each asset class to take advantage of opportunities that emerge from market dislocations (this is one of the reasons why we use a multi-manager approach as some managers are better able to exploit the current environment that others). Additionally, each of the active managers is making stock selections dynamically, selling stocks that pose risk under current conditions and buying securities that have been oversold during market turmoil. While market volatility can be unsettling for superannuation fund members, it can provide opportunities for portfolio managers to generate better long-term returns by purchasing good securities at a low price. With an investment menu of over 30 options, the Aon Master Trust offers members a wide range of choices and the flexibility to structure a portfolio to suit their personal investment style and goals. Investment resources:
Russell Investments is an independent, global financial services firm that provides strategic advice, investment solutions, implementation services and global performance benchmarks to institutional investors, financial advisors and individuals. Founded in 1936, Russell has pioneered innovations that have come to define many of the practices that are standard in the investment world today. As at 31 March 2011, Russell has about US$161 billion in assets under management and works with 2,300 institutional clients, 530 independent distribution partners and millions of individual investors globally. Since establishing the first indexed mutual fund in the US in 1976, the Vanguard Group has grown into one of the world's largest and most respected investment management companies. Vanguard now has global presence with offices in the US, Melbourne, Sydney, Brussels, Tokyo and Singapore and has been offering index funds in the Australian market for over 10 years. Need advice? Talking to a financial adviser can help you assess your options and make the right investment decisions - particularly if your time horizon or personal circumstances have changed. If you do not have an adviser but would like to be put in touch with one, call us on 1300 880 588.
This information is general in nature and should not be relied on as advice (personal or otherwise) as your personal needs, objectives and financial situation have not been considered. Before deciding whether a particular Aon Master Trust product is right for you, please consider the relevant Product Disclosure Statement or talk with your financial adviser. This document has been prepared by Aon Consulting Pty Limited (ABN 48 002 288 646, AFSL 236667) trading as Aon Hewitt a related body corporate of the trustee of the Aon Master Trust (ABN 68 964 712 340), Aon Superannuation Pty Limited (ABN 83 057 982 822, AFSL 237465). This is a relationship that might reasonably be expected to be capable of influencing Aon Hewitt when the company provides financial product advice to clients in respect of the Aon Master Trust. While every care has been taken in the production of this document and the information contained in it has been obtained from sources that Aon Hewitt believes to be reliable, Aon Hewitt does not make any representation as to the accuracy of this document and accepts no liability for any loss incurred by any person who may rely on it. In any case, any recipient shall be entirely responsible for their use of this document. © 2011 Aon Hewitt |
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