Global equity markets weakened slightly in the quarter, with
high oil prices determining developments.
Our actively managed Global Equity composite underperformed
for the quarter, reflecting its lack of exposure to the
energy and materials sectors, which benefited from high oil
prices in the quarter. For longer-term periods, the composite
kept its strong track record, outperforming benchmarks in the
one, five- and ten-year periods.
Global bond markets saw mixed developments in first
quarter 2005. Different economic growth outlooks and inflationary
expectations in a number of major economies prompted
interest rates to diverge. Government bonds in the eurozone
and Japan produced total returns (excluding the impact
of currency movements) well in excess of US treasuries. Yield
differentials between government and non-government bond
sectors, both investment grade and below, widened abruptly
in March, following a profit warning by US car manufacturer
General Motors. Our global fixed income portfolios trailed
their benchmarks in first quarter but continued to have a
strong long-term performance record.
Asset allocation portfolios outperformed their benchmarks
again in first quarter, with security selection in US equities,
treasury bonds and high yield bonds the most significant positive
factors. Market allocation was a slightly positive factor.
Longer-term returns against benchmarks remain positive.
Despite a difficult start to the year for most alternative and
quantitative investment strategies, performance was generally positive. Quantitative strategies performed very strongly,
as did our macro trading strategies. Trading conditions remained
tough for convertible bonds. The multi-manager
teams were able to generate profits across the majority of
investment programs.
Real estate investments continued to show strong performance
and growth in first quarter. The relative performance of
the US, Australian and global real estate securities was strong
despite absolute weakness in the real estate securities markets.
Private real estate funds in the US recorded robust
performance in first quarter, while performance in the UK was
good.
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