INVESTMENT REPORT 1H 2020 - MICHAEL LANG, CHIEF EXECUTIVE, NEW YORK_ - NUVIEW WEALTH SOLUTIONS
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Investment Report 1H 2020 Michael Lang, Chief Executive, New York_
Cover: Photographer, Mark Smith. Please note that this report has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter. While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited (NZ Funds), its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed in this document except as required by law. NZ Funds is the issuer of the NZ Funds Advised Portfolio Service,the NZ Funds KiwiSaver Scheme and the NZ Funds Managed Superannuation Service. For further information or to request a copy of either the NZ Funds Advised Portfolio Service Product Disclosure Statement, the NZ Funds KiwiSaver Scheme Product Disclosure Statement or the NZ Funds Managed Superannuation Service Product Disclosure Statement, please contact NZ Funds, or visit our website at www.nzfunds.co.nz. Please also note that past performance is not necessarily an indication of future returns. NZ Funds is an active investment manager. Accordingly, any securities discussed in this report may or may not be held by the Portfolios and Strategies at any given point in time.
Business update
NZ Funds is one of the few wealth management institutions to have taken a generation
of New Zealanders through retirement. In our early days, as managers of Lion Nathan’s
pension fund (then known as LD Nathan), we helped employers accumulate savings
through a workplace programme. Three decades later, many of those original clients are
still with NZ Funds, regularly drawing down on their capital to fund their retirements.
Along the way they have been joined by many more New Zealanders who were
seeking a resilient, advised portfolio service. Our role is to help them accumulate
enough to be financially independent, and then manage those funds in retirement and
for the generations to come. Our early LD Nathan employees are now in their seventies,
eighties and in some cases nineties. It is a privilege to manage their wealth during
periods of financial market volatility, such as now with COVID-19.
As a large and stable wealth management organisation, with an average client tenure
of over 12.5 years in our retirement portfolios, we have had many deep and meaningful
conversations with our clients over the last 32 years. In those conversations we have often
reflected on the similarities between health and wealth. Small positive actions taken over
many decades, whether that is exercising regularly or saving regularly, snowball over time
to have a meaningfully positive impact.
As is the case with health care, when people are young and everything is going well, they
may see little value in working with a specialist, particularly if there is a cost associated
with it. But when there is an “emergency” those who have access to expert medical or
financial advice are likely to do better than those who take a do-it-yourself approach
to either health or wealth.
We believe 2020 will prove to be an excellent example of the benefits of working with
a financial adviser and an organisation whose Directors and Principals (and many of its
employees) have managed clients savings through three previous market downturns.
Over the last three decades we have had ample time to design and test a disciplined
approach to navigating market downturns. And that is what we have implemented on
clients' behalf this year.
investment report : : 1h 2020 1Portfolio returns before tax and fees - to 26 March 2020 1
Fees and tax may vary by service type and account size.
return 2019 2018 2017 2016 2015 2014 2013 inception
2020 ytd date
term deposit index
Six month
0.62% 3.32% 3.33% 3.35% 3.29% 4.17% 3.90% 3.98%
term deposit
nz funds kiwisaver scheme
Income Strategy -6.13% 8.55% 2.01% 5.56% 7.15% 2.53% 5.51% 3.92% 31 Oct 2010
Inflation Strategy -13.31% 21.67% -4.50% 9.74% 3.35% 2.36% 12.81% 7.04% 31 Oct 2010
Growth Strategy -15.12% 18.57% -6.87% 18.69% -1.49% 8.63% 13.17% 29.73% 31 Oct 2010
LifeCycle 0-54 -14.48% 18.38% -6.17% 17.11% -0.55% 7.76% 12.79% 25.90% 31 Oct 2010
LifeCycle 65 -11.99% 16.85% -3.60% 10.00% 3.75% 3.60% 10.71% 9.68% 31 Oct 2010
nz funds managed superannuation service2
Income Strategy
-2.05% 10.86% 0.36% 7.81% - - - - 11 Aug 2017
- British Pounds
Growth Strategy
-12.02% 0.54% - - - - - - 03 Dec 2019
- British Pounds
Income Strategy -6.25% 8.60% 2.03% 4.90% - - - - 25 Jan 2017
Inflation Strategy -13.44% 21.60% -4.37% 7.73% - - - - 25 Jan 2017
Growth Strategy -15.63% 20.15% -6.74% 14.28% - - - - 25 Jan 2017
nz funds advised portfolio service
Core Cash Portfolio 0.34% 1.65% 2.26% 2.19% 2.61% 3.66% 3.60% 2.95% 28 Feb 2008
Core Income Portfolio -3.01% 6.80% 5.01% 5.76% 6.55% 3.92% 7.06% 4.83% 23 Jul 2008
Global Income Portfolio -11.53% 11.79% -1.27% 5.31% 7.25% 2.58% 5.62% 3.83% 31 Oct 2008
Core Inflation Portfolio -14.08% 23.78% -2.68% 12.64% 3.20% 2.50% 12.92% 7.17% 31 Oct 2008
Property Inflation Portfolio -16.33% 21.18% 3.49% 9.44% 1.05% 10.40% 17.40% 5.26% 31 Oct 2008
Equity Inflation Portfolio -12.36% 21.92% -6.44% 9.29% 2.12% 8.14% 16.58% 10.74% 31 Oct 2008
Core Growth Portfolio -14.29% 13.69% -10.30% 15.95% -3.08% 7.74% 10.59% 32.50% 01 May 2003
Global Equity
-14.87% 22.25% -7.78% 21.94% -0.38% 11.40% 19.25% 28.59% 06 Mar 1996
Growth Portfolio
Dividend and
-13.60% 26.89% -3.99% 22.93% 13.86% 16.89% 20.06% 8.65% 02 Dec 1992
Growth Portfolio
share indices
NZ Shares* -21.48% 30.55% 6.43% 25.20% 8.96% 17.74% 26.88% 23.65%
US Shares** -23.38% 28.88% -6.24% 19.42% 9.54% -0.73% 11.39% 29.60%
1. Returns are stated before tax, Portfolio/Strategy fees, and expenses, and any advisory fees. See latest Fund Updates
for returns after Portfolio/Strategy fees and expenses. Past performance is not necessarily an indication of future returns.
2. 2017 returns for NZ Funds Superannuation Service Income Strategy British Pounds, Income Strategy, Inflation Strategy
and Growth Strategy are from inception (not annualised). 2019 returns for NZ Funds Superannuation Service Growth
Strategy British are from inception (not annualised). * S&P/NZX50 Portfolio Index Gross. ** S&P500 Index.
2 investment report : : 1h 2020COVID-19
Why we were financially ready
The above table and graph illustrates how much better clients' portfolios have done
relative to the global share market which has, so far, borne the brunt of the market
downturn. NZ Funds was able to mitigate the downside, by almost half, by reacting to
every market downturn as if it could get worse. This approach has seen us prepare for
many false alarms over the last eleven years, but the overall approach need only work
once to be worthwhile.
Put simply, every time the market dipped, we treated it as a potential crash and practised
positioning clients’ portfolios defensively. Our active management approach places as
much emphasis on the downside as it does on the upside. We have been happy to see a
number of higher octane growth managers outperform us for a period of time, knowing
that when the next market downturn occurred these managers would give back much of
their gains.
manager / fund return ytd 20201 impact on $100 gain to recover
NZ Funds KiwiSaver LifeCycle (0-54 years old) -13.8% $86.20 16.0%
BNZ KiwiSaver Growth -14.8% $85.24 17.3%
Fisher KiwiSaver Growth -16.1% $83.90 19.2%
AMP KiwiSaver Lifesteps AMP Growth -17.1% $82.92 20.6%
Milford KiwiSaver Active Growth -17.7% $82.26 21.6%
Generate KiwiSaver Scheme Growth -18.1% $81.95 22.0%
BT Westpac KiwiSaver Growth -18.4% $81.57 22.6%
Booster KiwiSaver Scheme High Growth -18.7% $81.29 23.0%
AMP KiwiSaver Lifesteps AMP Aggressive -19.1% $80.86 23.7%
Generate KiwiSaver Scheme Focused Growth -19.2% $80.84 23.7%
ANZ Kiwisaver Growth -20.7% $79.28 26.1%
ASB KiwiSaver Schemes Growth -21.0% $79.00 26.6%
Booster KiwiSaver Scheme Geared Growth -27.3% $72.71 37.5%
New Zealand Shares -24.5% $75.50 32.5%
United States Shares -28.3% $71.70 39.5%
International Shares -27.6% $72.40 38.1%
1. For long term returns for the funds listed above, see the latest Fund Updates available on each manager’s website. Year
to date covers period 1 January 2020 - 19 March 2020. NZ Funds KiwiSaver LifeCycle (0-54 years old) is NZ Funds’ most
aggressive recommended asset allocation. It sits in Sorted ‘Growth funds’ category. LifeCycle is the NZ Funds KiwiSaver
default investment option. 89% of NZ Funds KiwiSaver members are invested in LifeCycle. Past performance is not necessarily
an indication of future returns. Returns are for the period 1 January 2020 to 19 March 2020 and are calculated by NZ Funds
using latest available data for each calculation date. Market index data is for the same period and is sourced from Bloomberg.
New Zealand Funds Management Limited is the issuer of the NZ Funds KiwiSaver Scheme, which incorporates the Strategies
making up the NZ Funds KiwiSaver LifeCycle (0-54 years old). Further information is contained in the NZ Funds KiwiSaver
Scheme Product Disclosure Statement. A copy can be downloaded from www.nzfunds.co.nz.
investment report : : 1h 2020 3Longer term, we are not sure which investment approach accumulates higher returns. It becomes academic whether a fund delivers 11% p.a. if along the way it is periodically so volatile that clients feel uncomfortable and do not stay the course. Instead, for most clients we seek to compound their portfolio at around 7% per annum, which enables them to double their wealth every ten years. Our approach to managing clients’ life savings is grounded in the mandate we received for the original employees of LD Nathan in the aftermath of the 1987 share market crash. At the time, the New Zealand share market was one of the worst performing markets in the world, so we were asked to design an investment approach that was both diversified (to ensure clients' returns were not solely reliant on the New Zealand economy) and conservative. The portfolio-orientated approach which NZ Funds designed holds both local and international assets and uses a number of world class specialists to manage client funds. This was a novel approach at a time when most families relied on a single local share broker. It is an approach that has stood the test of time well, navigating market downturns in 1997, 2000, 2009 and now 2020. Our approach to mitigating the downside During these downturns NZ Funds designed and put in place a set of protocols (which include systems, managers and our active portfolio management) which treat each downturn as a potential threat. Much like the Government’s recent announcement on COVID-19, NZ Funds has four distinct phases to combat market volatility. First, when markets begin to slump on bad news we review how sensitive clients’ portfolios are to a market downturn. Our initial aim is to make sure clients hold portfolios which are likely to do slightly better than the market in a slump. Technically speaking, we can adjust the sensitivity of a portfolio down from 100% of any market move to 80% or 90%. This might occur three or four times a year. If nothing further occurs, the portfolio is adjusted back to 100%. If on the other hand the news gets worse and the speed at which the market begins to fall accelerates, we in turn accelerate our downside mitigation. This is done by reducing clients’ exposure further, in some cases by up to 50%, as occurred in the current downturn. We may also increase clients’ ownership of assets which help to offset a share market fall, such as long-term government bonds, United States dollars and gold. During the last market downturn, which began in 2007 and lasted until March of 2009, NZ Funds noticed that a number of specialist hedge funds were able to generate sizeable gains in the downturn. It has been our goal over the last decade to ensure that one or more such managers were in clients’ portfolios in the next downturn and in this 4 investment report : : 1h 2020
we were successful. One of clients’ five global managers, Universa, generated a gain of
around 711%, helping NZ Funds dampen the downturn.
The final phase is to systematically buy back into the market at depressed prices. We
are pleased to announce this is now underway. While we will never be able to pick the
bottom, we can tell when share market valuations have collapsed to good long-term
entry points. For several years now, we have been saying valuations are stretched at
between 20x and 25x earnings, but that they could remain so for long periods of time.
Today, we assess most companies to be trading at 15x long-term sustainable earnings,
and some at considerably cheaper prices than that. At these prices our job is now to buy
greedily on your behalf. We expect the purchases we make today to deliver significant
capital gains over the next two to three years.
Chart of Spanish flu recovery
130
DJI average (US shares) Equities rising at the height of
the Influenza pandemic of 1918 (Spanish Flu)
120
110
First wave of the Flu
100 strikes July 1918
(not very deadly) Flu officially
disappears
90
80
Second, deadly Third, final
70 wave of the Flu wave of the
hits Oct 1918 Flu strikes
Official start to Spanish Flu
60
jan 1917 jul 1917 jan 1918 jul 1918 jan 1919 jul 1919 jan 1920
Source: FactSet, UBS.
Epidemics and share markets
$145 HIV/AIDS (June 1981)
Pneumonic plague (September 1994)
$135 SARS (April 2003) Swine flu
Avian flu (June 2006)
$125
Swine flu (April 2009) Plague
MERS (May 2013) SARS
Avian flu
$115 MERS
$105
$95
$85
HIV/Aids
$75
-182 -154 -126 -98 -70 -42 -14 +14 +42 +70 +98 +126 +154 +182 +210 +238 +266 +294 +322 +350
Source: NZ Funds, Bloomberg. trading days
investment report : : 1h 2020 5Three decades of experience After three decades of managing New Zealanders’ savings, we can summarise our advice into four recommendations: be advised, be diversified, be protected, be serviced. While these concepts may seem simple and more like common sense, they are remarkably powerful tools, given time. Be advised: We have previously mentioned the increasing number of studies which show that advised clients fare much better than unadvised clients over time, even when the cost of advice is taken into account. The most recent study released in this vein was by Russell Investments. In their Value of an Adviser Report 2019 they found that the value of planning, annual rebalancing of investments, tax advice and the correcting of behavioural mistakes (such as abandoning a long-term investment at the wrong moment) added significantly more value than the cost of advice. They estimated an advised client benefited by up to 4.4% per annum more than an investor trying to do it all themselves. Be diversified: Clients often mistake diversification for owning more than one investment in the same market. For example, in 2007 many New Zealanders mistook owning several different finance companies for diversification, when they were all similarly exposed to a market downturn in New Zealand. Similarly, having almost all one’s retirement savings invested in ten or twenty New Zealand shares and bonds (often issued by the same companies) provides limited diversification if the New Zealand economy were to slump as it did following the 1987 crash. NZ Funds' investment approach means that clients have approximately half the funds invested locally and half internationally, a formula that has stood the test of time. Be protected: NZ Funds is also one of the few private client orientated managers using the downside mitigation tools that would ordinarily sit in large private endowments and sovereign wealth funds. Specialist managers, like Universa, may only have ten to twelve clients in total. Such managers are just not available to individual investors, irrespective of how much they have to invest. Downside mitigation (because it is impossible to protect against all downside) enables clients to benefit from the long-term ownership of growth assets without feeling they are taking on more risk than they should. Be serviced: For a number of years NZ Funds has been the top rated KiwiSaver manager in New Zealand for service and communications, as ranked by Sorted1 (a website run by the Commission for Financial Capability). Advisers have often commented that this is nice, but not nearly as important as fees or returns. We feel differently. There is nothing more 1. Sorted Top ranking 2018, 2019 and 2020. 6 investment report : : 1h 2020
frustrating (and at times frightening) than not knowing whether world events are having
a mild or severe impact on your investment portfolio. Instead of only disclosing the top
10 holdings quarterly, NZ Funds discloses every investment it makes on clients’ behalf
every month. In response to the recent market downturn we have stepped up our level of
communication and now provide clients with a weekly portfolio summary via email, and text
messages for those who have registered their mobile phone number with us. We will keep
this up until markets have stabilised and resumed their upward path.
Share markets - millennium to date
$800
New Zealand shares
$700
United States shares
$600
$500
New Zealand
$400 P/E = 18.5x
$300
$200
United States
$100 P/E = 16.3x
$0
2000 2005 2010 2015 2020
Source: NZ Funds, Bloomberg, S&P 500 total return index, NZSE40 gross index (to January 2001), S&P NZX 50 portfolio index
(from January 2001).
Unprecedented response by US Congress, fastest in history
$2.25 trillion
Eleven weeks after Coronavirus outbreak,
Congress passes $2 trillion Coronavirus
$2.00 trillion
Aid, Relief and Economic Security Act.
Eighty weeks after the
crisis began, President
$1.75 trillion
Barrack Obama signs
into law the $787
$1.50 trillion Since China reported first death billion American
from Coronavirus (Jan 11, 2020) Recovery and
Reinvestment Act.
$1.25 trillion Since early signs of financial crisis
(Aug 7, 2008)
$700 billion Troubled
$1.00 trillion Asset Relief Program
$0.75 trillion $300 billion
mortgage-guarantee bill
$0.50 trillion $8 billion
preparedness bill
$0.25 trillion and $100 billion $152 billion stimulus bill
stimulus bill
$0.00 trillion
0 days 100 days 200 days 300 days 400 days 500 days
Source: NZ Funds, Bloomberg, Wall Street Journal 28 March 2020.
investment report : : 1h 2020 7Summary Your investments are in good hands. If you are worried please talk to your financial adviser, or contact us directly. We can take you through everything, slowly and carefully. We have waited eleven years for this and we were prepared and well positioned. If you have not downloaded the NZFUNDS app yet, you can do so and track your balance online. Please keep up your contribution rates, and continue to invest (or withdraw) as you normally would. At today’s prices the investments you make in 2020 are likely to lead to rewarding long-term outcomes. On the other hand, if your investment portfolio is currently funding your retirement you should be able to draw down on your plan, safe in the knowledge that your portfolio has so far fluctuated a lot less than local or international shares have. Investing is not a get rich quick scheme, but if you stick with the programme it should enable you to achieve your financial goals. Finally, if you are comfortable with how your money is being managed, please do not forget to turn your mind and energy to looking after those in your community who are less fortunate. NZ Funds will use the fact that it was well prepared for this downturn to do just that. We look forward to announcing a number of nationwide initiatives which are designed to help less fortunate New Zealanders deal with the concerns they have about their investments in the current market environment. 8 investment report : : 1h 2020
investment report : : 1h 2020 9
New Zealand Funds Management Limited
Level 16, 21 Queen Street
Private Bag 92163, Auckland 1142
New Zealand
T. 09 377 2277
E. info@nzfunds.co.nz
www.nzfunds.co.nz
Auckland | Wellington | Christchurch | Timaru | Wanaka | Dunedin | InvercargillYou can also read
