The financial year ended 31 March 2011 has seen a lot less volatility compared with the prior couple of years from an investment standpoint. Following the massive loss of value in 2009, markets have now recovered a substantial proportion of their value.

The continued support for markets by central banks with particularly low interest rates has meant cheap capital has been readily available for all manner of uses and is helping aid the recovery. Economies however, remain patchy and uncertain, sometimes in recovery mode while at other times weaker.

The investment portfolio recorded a gain of four percent for the year, which was below the market benchmark. This is a disappointing outcome given our expectations but we need to bear-in-mind that the portfolio holds many long term investments and it can take time for these to reach their full potential. Furthermore, we were fortunate not to suffer losses as great as many other investors had had in prior years. Reasonably good gains by Global Shares and New Zealand Fixed Interest were largely offset by flat returns from the Alternates and Property classes while New Zealand Shares provided only modest returns this year.

The continued rise in the New Zealand dollar against the US currency over the year once again negatively impacted the portfolio although this was partially offset by a fall against the Australian dollar. All investment classes, however, provided a positive return for the period which was pleasing. Overall, given the Trust’s set of assets and the probabilities involving investment characteristics the annual investment return is considered to fall within the normal range of expectations.

THE YEAR AHEAD:

Much has been achieved in the last year to stabilise investment markets with a concerted focus from central banks and the IMF, however, significant issues remain. In particular, a threat to the continued recovery will hinge on the ability of the authorities to restrain inflation from getting out of control. This has already had a significant impact in emerging economies, however the key question will be around whether this problem now gets exported to the developed world. Another likely stumbling block may be how countries such as Greece and Portugal manage their large debt positions and whether belt tightening in the UK will be successful.

On a more positive note, corporate profits are looking better as companies have successfully restructured their balance sheets and a semblance of normality returns to economic conditions. In addition, with interest rates remaining very low the cost of doing business has improved and this is benefiting both companies and consumers alike.

Regardless of the market conditions that may lie ahead, by holding a diverse range of high quality investments the Trust continues to be able to meet its objectives in terms of cash flow requirements, protection from inflation and longer term capital growth.