• Why have funds become illiquid?
• Which funds have become illiquid?
• Does the Government guarantee cover the funds?
• Will my pension still be paid?
• What happens after share market corrections?
• What can I do?

During periods of market volatility, such as we are currently witnessing, funds are commonly deemed ‘illiquid’ by fund managers. Illiquid funds include funds that are:

• suspended
• frozen
• subject to transaction delays

Funds may become illiquid when low market confidence causes unusually large numbers of investors to request the withdrawal of their capital. The market’s reaction to the Government’s guarantee on banking deposits has also had a significant impact.

Fund managers want to ensure that all investors have an equal opportunity to make withdrawal requests and need to process these requests in a measured and fair manner out of the cash available in the funds.

The impact on specific transactions differs from fund to fund.

A number of funds that are available on Aviva’s Navigator platform have become illiquid. This may impact part or all of your investment strategy if you have invested in one or more of these funds.

The changes effectively mean that capital withdrawals from these investments cannot be accessed until a later date. However, you should be aware that:

• income distributions are still being paid
• a number of fund managers have indicated this is a liquidity issue, not due to the quality of the underlying assets (refer to the investment news section for specific fund manager information)
• the decision to change the redemption policy for the funds has been made by the fund managers, not by Aviva

The up-to-date list of illiquid funds is available within the investment news section, so it is important that you visit our website regularly. If you have any further queries regarding specific investments, please contact your financial adviser.

No, it does not. The Federal Government’s recent announcement to guarantee deposits held within Australian banks, building societies and credit unions was designed to provide stability and comfort to Australians who hold deposits covered by the scheme. This legislation took effect on 17 October 2008.

An unintended consequence of this announcement has been a movement of funds away from some market linked investments not covered by this guarantee.

Market linked investments are not covered by the Government guarantee. Market linked investments include insurance companies, investment managers, annuities and pooled superannuation trusts.

After an extensive review, we can confirm that almost all of Aviva pensioners will continue to receive pension payments until 30 June 2009 despite the freeze across a number of funds by fund managers.

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The term ‘market correction’ is often used to describe a drop in market prices after a term of rising prices. A correction is generally beneficial for the health of the market as prices typically have risen too quickly, giving false confidence to investors, followed by a decline.

No one can guarantee when and how quickly the market will recover. It is interesting though to look at previous events that caused equity markets to fall and how long it took for markets to recover, but remember past performance is not indicative of future performance.

Some examples include:

• 1987 share market crash in the United States when the market fell by around 30%. It took 22 months for the Dow Jones to return to its pre crash level.
• September 11, 2001 the terrorist attack sent panic through investment markets which immediately fell in value. It took the Australian equity markets (S&P/ASX 300 Accumulation Index) only 22 days to recover to the pre September 11 level.

Most of the funds invested in the share market have a medium to long term (five year) investment profile. It is important to remember that this type of investment is likely to experience periods of negative returns from time to time, but over the longer term, returns have historically outperformed other asset classes. Investment decisions should take this long term view into consideration and be made in consultation with your financial planner.

Every event and related impact on financial markets is different and so too is the time that it takes for the market to recover to pre event levels.

The best thing you can do is have a level-headed view of the situation. Markets will recover and fund suspensions are expected to eventually be lifted.

A few general tips for investing:

• Seek financial advice: financial advisers are experts in their field. Their knowledge and experience becomes even more valuable during periods of volatility and uncertainty. They can also show you ways in which to protect your wealth when market conditions improve.
• Diversify your portfolio: distribute your investments across a number of assets classes, market sectors and fund managers. This will not only spread the risk of your investment portfolio, but will also allow you to gain broader market experience.
• Re-invest your earnings: resist the temptation to realise your earnings. Compounding interest will allow greater returns both in the short and long term (note returns can be positive or negative).
• Look at long term trends: Time and patience are an investor’s friends. Taking a long-term investment perspective can compensate for any short-term market fluctuations.

Overall, it is important that you stay informed about your portfolio, keep abreast of the news and stay in regular contact with your financial adviser. Through their relationship with Aviva, they will have the latest information on your investments, including fund suspensions and how they may, or may not, affect you.

Our website, investment news section, will also be regularly updated with the latest information.