Funds Update

Commodities boom continues apace

China's insatiable hunger for commodities had a strong positive impact on the Australian sharemarket during 2005 ...

World commodities markets have been booming since 2001, mainly due to strong economic growth, driven by China, and the resultant supply squeeze. Many commodities are at or near record prices. Gold reached its highest price of the last twenty-four years in December (US$544/oz), while silver reached its highest price since 1987 (US$9/oz).

As the world's largest supplier of coal, iron ore and alumina, Australia has been a key beneficiary of the strong demand for commodities, and much of the growth in the overall Australian sharemarket is due to the increased value of commodity stocks. In January 2002, commodities formed 15 per cent of the ASX300 index. Since then, they have grown to represent 20 per cent of the index. Several new gold companies listed over this period but most of the growth has come from existing companies. Just two companies now account for over half of the commodities sector representation in the ASX300: BHP (9 per cent) and Rio Tinto (2 per cent).

Investment markets

Australian and international sharemarkets rebounded in November and December following a gloomy October, recording some large gains across the board. The majority of investment managers, surveyed in the December 2005 Russell Investment Manager Outlook (read the full report - 150 Kb), believe that international sharemarkets will perform better than the Australian market this year, although the Australian market is still expected to reach high single digit returns.

Although lagging the overall Australian sharemarket, listed property trusts also performed well this quarter, especially considering the large number of new issues brought to market. Eleven new property trusts launched this quarter, raising $6 billion in new funds and representing around 9 per cent of the total market.

Bond markets produced modest returns, with yields trading in a very narrow range. The outlook for bond markets remains lacklustre, due to low current yields.

Our Russell LifePoints Diversified Portfolios provided strong returns this quarter. The Russell LifePoints Balanced Portfolio (70 per cent in growth investments) rose 14.75% per cent for the year to 31 December, while the Russell LifePoints Moderate Portfolio (50 per cent in growth assets) rose 11.53% per cent.

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