Quarterly Investment Commentary - December 2011

ESSSuper’s investment option performance

Positive returns in equity markets (across the board) has contributed to the positive performance of all ESSSuper Accumulation Plan, Income Streams and Beneficiary Account growth based investment options (Growth, High Growth, Balanced and Shares only) over the quarter. The more defensively positioned Conservative Option also delivered a positive return, whilst the Cash and Defensive options performed in line with expectations.

Our relative performance against peers for the short term and longer term remains strong (in terms of SuperRatings surveys). The table below illustrates the performance against our peers for the Accumulation Plan’s investment options for the 1, 3, 5 & 10 years to 31 December 2012.

As illustrated, we achieved top quartile for five of the six options for the 12 month period (including top ranking for three of the options) and top quartile for four of the six options for the three years to 31 December 2012.

Investment Option	1 Year	3 Year	5 Year	10 Year
Shares Only	3 of 68	9 of 64	19 of 60	7 of 26
High Growth	1 of 68	15 of 64	-	-
Growth	1 of 82	19 of 77	2 of 69	2 of 35
Balanced	1 of 115	21 of 105	3 of 98	-
Conservative	14 of 107	54 of 100	18 of 94	-
Cash	44 of 77	48 of 67	-	-

The December quarter was a turbulent but overall positive one for investors.

Whilst globally the economic situation was sluggish, the consumer and corporate sectors are beginning to recover confidence, primarily in the US. Precious metals declined slightly (although from high levels), but Oil prices spiked as the possibility for a conflict in the Arabian Gulf saw a risk premium re-established. US government bonds rallied as investors found these a "safe haven" compared to European bonds. Equity markets were generally positive; the Australian Index (S&P200 Accumulation Index) was up by 2%, US (as measured by the S&P500) was up by 11%, UK by 9%, and Germany and France by 7% and 6% respectively. Japan and emerging markets went against the trend, with the Japanese market declining by 3% and China by 7%.

The Australian dollar continued its climb against the weakening US dollar, Yen and Euro. Global markets returned positive rates of return for Australian investors on both a Hedged (8%) and Unhedged (2%) basis.

The Reserve Bank of Australia cut interest rates in November and December to close at 4.25% p.a. Both short and long term interest rates in Australia have fallen but continue to be higher than most other developed market economies.

Looking ahead, stock markets continue to appear somewhat undervalued, corporate balance sheets are relatively healthy and the outlook for earnings particularly if the economies do not deteriorate significantly should be conducive to equity investments. However risks do remain and market volatility will continue for some time.

Our investment options are devised with capital protection in mind, and our diversification has somewhat mitigated market falls. We closely monitor world markets and have a structured approach to risk management. We have maintained a disciplined approach to rebalancing and cashflow management; our approach to diversification continues, with commitments being made over the quarter to a number of alternative strategies expected to take advantage of the current and expected structural imbalances occurring in offshore markets – Infrastructure and Private Equity; further investments were made in several non traditional strategies, which have performed strongly.

We continue to review our currency exposure, and as previously advised to members, have been managing the Fund’s exposure in a systematic manner. As at the end of quarter, we remain 30% hedged (against the US dollar and the Pound versus our neutral hedging position of 50%). We are closely monitoring our currency position in these volatile markets, and have in place a structured approach to managing our exposures.

Our Listed Equity portfolios continue to be biased towards managers that have a strong capital preservation bias, reflecting our philosophy and helping returns to the Fund and our members.