As of September 30, 2012, the combined value of savings held in the Silver Thatch Pension Plan stood at US$339.1 million.
The table below shows the rates of return as of September 30, 2012, for each of the investment portfolio options offered under the plan. Also shown (in blue) are the corresponding benchmarks. (A benchmark is the standard against which a fund’s performance is judged.)
1. Returns are expressed net of all investment management fees.
2. While the Income Portfolio is made available to members through additional voluntary contributions, sufficient contributions have not accumulated to date in order to implement the portfolio.
3. Each of the portfolios is managed against its own composite benchmark. These benchmarks are: cash: US$ 1-month LIBOR; bonds: Barclays Capital U.S. Treasury Index and Barclays Capital Eurodollar Index; equities: MSCI All Country World Index; alternative investments: HFRI Fund of Funds Composite Index.
Global and U.S. equity markets rebounded in the quarter ended September 30, mostly in response to policy announcements by global central bankers to support financial markets. At the same time, improving investor outlook for equities and rising inflation expectations eroded returns from government bonds. Strong demand for income in the low interest rate environment continued to drive healthy returns from corporate investment-grade bonds.
The emerging Asia equity market performed well in the more confident environment that followed central bank action. Within alternative asset classes, gold drove higher returns as further quantitative easing (printing money to buy bonds) in the U.S. pushed inflation expectations and weakened the long-term outlook for the U.S. dollar.
Markets have become overly reliant on central bankers to bail them out and, in the short run, are vulnerable to setbacks from event risks. Hopes for a resolution to the Eurozone debt crisis and avoiding the U.S. government funding crisis (referred to as the “fiscal cliff”) could suffer setbacks in the weeks ahead. Structural economic challenges in China also lie ahead with its leadership changes in the short term.
Recent U.S. economic data hasn’t been as bad as the overly pessimistic forecasts. This is fueling expectations of relatively consistent and stable returns in the U.S. market, and raises the risk that the next round of the Federal Reserve’s (the U.S. central bank) quantitative easing measures may come more slowly and less aggressively.
Economic conditions in Europe show continuing deterioration, and now the German economy is showing signs of slowing. The silver lining here is that there will be greater consensus for policy action by the European Central Bank.
The outlook is highest in emerging Asian markets, where central banks and policy makers have a greater scope to respond to any signs of weak growth. Expectations for Asian growth continue to be better than for the developed world. Despite fears of slowing growth in China, policy makers are likely to provide support and give a boost to Chinese equities through to year-end.
Based on this outlook, we still see equities as being attractively valued over the longer run, with a preference for companies and sectors with high dividend yields and other defensive qualities. Within fixed-income markets, the healthier balance sheets and higher yields of corporate bonds are favoured over government bonds. In alternative investments, gold is still a preferred hedge against weakness in major currencies, especially with growing risk of currency devaluations as a way for governments to manage default risk.