In Australia, the ASX300 stock market index rose strongly, up 10% for the quarter. The increase was driven mostly by the Reserve Bank of Australia somewhat unexpectedly (and we believe reluctantly) cutting the cash rate in February to just 2.25%. This was the first cut in 18 months and drove the latest instalment of the “search for yield” brigade to buy stocks once again. Predictably, banks, utilities and retailers were outperformers, while resources stocks once again lagged.
International stocks again performed relatively well for the quarter, (as measured by the MSCI World ex Australia Accumulation index) up 5.2%. This return increased to 9.5% for investments that were not currency hedged, benefiting from the Australian dollar’s continued fall against the US dollar. The AUD ended the quarter at 76 cents per USD, down from 82 cents at the end of December.
Property continued to do well, with listed A-REIT’s up 9.2% for the quarter and unlisted property also performing well. Residential property continued to be in demand, with the RBA rate cut fuelling another round of the debt-funded buyer frenzy we have become used to.
Unemployment in Australia reached 6.3% for the quarter, extending the trend of slow increases in the number of unemployed, as a sputtering economy fails to make up for the continuing slowdown of the mining sector.
Bonds continued to offer substandard returns, except for those who are prepared to take bets that the interest rate trend will continue to be downwards and acquired long-terms bonds with fixed yields. Australian Government 10 year bonds were offering a yield of just 2.3% at the end of March, reflecting both a dismal market view of the potential for economic recovery, and the prevalence of even lower rates in most other developed economies.
Fund Investments
| Investment | Class | Portfolio % |
| Cash | Cash | 27% |
| Cromwell Direct Property Fund | Unlisted Property | 50% |
| Phoenix Opportunities Fund | Equities | 23% |
| 23% | 100% |
