KEY POINTS:
The pot of money put aside by the Government to help pay the future costs of retiring New Zealanders has shrunk by $2.8 billion - almost a quarter - after another loss in November.
A steadier market in December and an early New Year rebound may have enabled the New Zealand Superannuation Fund to break its three-month losing streak, but figures issued yesterday show a fall from a peak of $14.499 billion in August to $11.664 billion at the end of November.
The fund, nicknamed the "Cullen Fund" after its founder, Labour's former finance minister Michael Cullen, lost 5.04 per cent in November after its worst monthly loss of 13.5 per cent in October.
Its total loss from July to November - the first five months of the Government financial year - amounted to 24 per cent.
Although that performance beat all major sharemarkets around the world, the funds's annual average return has dropped well below what the Government could have received by investing the money in the bank.
At the end of November the average return since it began investing in September 2003 was 3.74 per cent per year compared to the risk-free rate - the rate of return on 90 day treasury bills - of 6.9 per cent a year.
In its monthly commentary, the Super Fund said it had continued to "experience exceptional turbulence" in international financial markets in November but December had started to look up.
Despite the losses the fund said it remained well-positioned.
"As a long-term investor, the fund is positioned to withstand volatility and benefit from the investment opportunities that arise."
The fund does not comment on its monthly performance, but other fund managers agreed with its prognosis of a calmer December and said markets had rebounded since then.
"We have definitely seen a significant rebound in equity market prices from the lows of last year," AMP head of equities Guy Elliffe said.
Mr Elliffe said there had also been good news in the credit markets which had significantly reduced the stress on institutions.
The number of economic stimulus packages emerging around the world had also boosted the markets.
But Mr Elliffe said it was difficult to know whether the rebound would continue.
"There are questions over whether that rebound has got legs or whether we are likely to go back and re-test the lows."
He said the next three to six months would remain extremely economically challenging.
More job losses were expected, as was a drop in consumer spending which was likely to have a negative effect on corporate earnings.
Mr Elliffe said the Super Fund had a well-diversified portfolio but it was not immune from global economic trends.
He expected its December and January performance to be an improvement on September, October and November.
BT Funds Management chief investment officer Paul Richardson said last year had been difficult because all forms of assets had been hammered by the global credit crunch.
He expected some assets to improve, but there were still some cross-roads to get through before the markets could be considered to be back on track.
The Super Fund had the advantage of having a very long-term outlook.
The future of the fund is expected to be hotly debated this year after National said it would direct it to invest 40 per cent of its money in New Zealand.
The suggestion received a mixed response from the finance industry. Some were concerned it would interfere with the purpose of the fund. Others were worried the fund would be stopped from operating independently.
Departmental recommendations to the new government have said it would be better to suspend contributions to the Super Fund than force it to invest in infrastructure.
The Government gives about $2 billion a year to the Super Fund, which does not have to start contributing to New Zealand superannuation until at least July 2020.
* Super fund returns
July - 0.24 per cent
August - 0.48 per cent
September - 7.96 per cent
October - 13.51 per cent
November - 5.04 per cent
Total - 24.14 per cent
