MILFORD KIWISAVER PLAN MONTHLY REVIEW MARCH 2022
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Milford KiwiSaver Plan
Monthly Review March 2022
The rise of uncertainty
Geopolitical headlines dominated markets in short term. Furthermore, even if the Ukraine
February with the Ukraine situation escalating situation is resolved in the short run, investors will
beyond many investors’ expectations. The scenes have to face a wave of interest rate hikes and
from Ukraine have made for uneasy viewing and questions over the sustainability of growth going
understandably, many investors are nervous or forward. We still think this year will deliver
even fearful. The volatility in share markets positive performance for investors, but the path
reflected this unease with some sharp moves will be bumpy.
lower in global share prices as Russian tanks
Stock selection continues to be critical to
rolled over the Ukraine border.
performance. We have been adding to energy
And yet despite the headlines, global share names such as LNG exporter Cheniere (up 19.1%)
markets rallied into the end of the month. Global and EOG Resources (up 3.1%) as energy prices
shares were down 2.7% in February whilst NZ and look set to remain elevated. Core fund positions in
Australian shares finished the month up 0.7% and New Zealand utilities helped performance with
2.1% respectively. Predicting the path of Meridian Energy up 14.6%. Exposures to Australian
geopolitics is difficult, picking the reactions of banks also did well with Westpac up 12.4%.
financial markets to the news is even harder.
It is reasonable to expect market volatility to
Milford’s funds have retained a broadly defensive continue, but this volatility can see shares sharply
stance since the start of the year. Whilst this was rise as well as fall. US share markets fell by 8.9% at
not taken in anticipation of war in Europe, it has their worst point in February but they then staged
served us well as we navigate through the a 2-day rally of 6.6%. We view this volatility as
volatility. We acknowledge that the risks, and the opportunity, allowing us to actively manage
uncertainties, have increased. This justifies an portfolios to generate stronger long-term returns
ongoing defensive investment approach in the for our investors.
Milford Asset Management
Level 28, 48 Shortland Street, Auckland, 1010
Phone: 0800 662 346
Email: Info@milfordasset.com
milfordasset.com
Milford KiwiSaver Plan Monthly Review as at 28 February 2022
KiwiSaver Conservative Fund Actual investment mix1
Portfolio Manager: Paul Morris
Although the Fund retained a cautious stance with a lower exposure to bonds, a reduced
share exposure and more cash, it was insufficient to prevent a disappointing loss (-0.8% in
the month). Bonds continue to form the predominant Fund exposure, but they remained
pressured by rising market interest rates, albeit the negative impact on the Fund was
cushioned by having partially reduced exposure to rising market interest rates. Performance
across the Fund’s shares was mixed. Some sectors continue to see prices adjust lower to
reflect a less supportive policy outlook and potentially lower earnings growth, but there
were also pockets of strength. Australasian utilities and banks (e.g. Westpac +12.4%) were Effective Cash# Australian Equities
21.39% 2.63%
generally stronger, while commodity related exposures benefitted from higher prices (e.g. New Zealand Fixed International Equities
US gas exporter Cheniere +19.1%). Interest 25.03% 5.18%
International Fixed Listed Property 3.35%
We have continued to hold off from adding back to the Fund’s lower than long-run neutral Interest 40.32%
New Zealand Equities Other* 0%
exposure to bonds. Some valuations are however approaching levels which may offer 2.10%
attractive medium-term returns for their risk. Ultimately, we believe the higher interest rate # The actual cash held by the Fund is 15.61%.
backdrop should benefit future fund returns but for now we will be very selective in buying Effective Cash reported above is adjusted to reflect
the Fund's notional positions (e.g. derivatives used
bonds. to increase or reduce market exposure).
This approach also holds for the Fund’s share allocation, which remains lower than its long-
run neutral. We had been diversifying away from companies with more elevated valuations,
and companies more likely to be negatively impacted by higher interest rates. That
included a lower allocation to traditional income shares. While we remain wary of the risk
for further share market weakness, increasingly we are finding company shares which may
afford attractive medium-term returns. We will therefore look to opportunistically add such
shares while continuing to limit broad share market exposure.
Looking ahead, we think the Fund is well placed to deliver moderate returns over its
recommended investment timeframe. The transition to a higher level of market interest
rates is well progressed. For now, we will retain a lower than long-term neutral exposure to
interest rates, and a higher cash balance at the expense of less corporate bonds and shares.
As discussed, we will look to invest some of this cash selectively should valuations at the
individual bond and share level provide attractive medium-term returns.
KiwiSaver Moderate Fund
Portfolio Manager: Mark Riggall
The Fund returned -0.8% in the month with a one-year return of 3.6%. Despite the invasion
of Ukraine by Russia and the ensuing market volatility, the funds only suffered modest
losses in February. This is partly due to the fact that share markets finished the month on a
stronger footing with Australian and NZ markets actually positive over the month. The
Fund’s ongoing defensive position also helped. The Fund has been running reduced
exposure to US share markets since the beginning of the year. Exposure was reduced even Effective Cash# Australian Equities
further at the end of January which cushioned the Fund from the sharper falls in February. 20.49% 7.45%
New Zealand Fixed International Equities
In periods of market volatility, bond prices tend to rise which can benefit diversified funds Interest 15.40% 14.03%
International Fixed Listed Property 5.23%
with large bond holdings. In February, bond prices actually fell. Whilst we have tried to Interest 31.59%
Other* 0%
mitigate against this outcome, it is difficult to completely avoid losses for such a large part New Zealand
Equities^ 5.81%
of the Fund. We have been increasing bond exposure in New Zealand and we think the
# The actual cash held by the Fund is 12.53%.
yields offer more reasonable returns going forward. The Fund will continue to retain a Effective Cash reported above is adjusted to reflect
the Fund's notional positions (e.g. derivatives used
defensive investment stance. We continue to find good companies with reasonable to increase or reduce market exposure).
valuations to invest in but the path ahead will likely remain bumpy.
^Includes unlisted equity holdings of 0.04% *Other includes currency derivatives used to manage foreign exchange risk. 1The actual investment mix
incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.
Milford KiwiSaver Plan Monthly Review as at 28 February 2022
KiwiSaver Balanced Fund Actual investment mix1
Portfolio Manager: Mark Riggall
The Fund returned -0.7% in the month with a one-year return of 7.7%. Despite the invasion
of Ukraine by Russia and the ensuing market volatility, the funds only suffered modest
losses in February. This is partly due to the fact that share markets finished the month on a
stronger footing with Australian and NZ markets actually positive over the month. The
Fund’s ongoing defensive position also helped. The Fund has been running reduced
exposure to US share markets since the beginning of the year. Exposure was reduced even
further at the end of January which cushioned the Fund from the sharper falls in February.
Some exposure was increased as markets fell sharply but the Fund retains a broadly Effective Cash# Australian Equities
20.94% 12.02%
defensive stance. New Zealand Fixed International Equities
Interest 5.68% 22.66%
The market conditions lend themselves to a more nimble approach and the Fund’s International Fixed Listed Property 6.91%
exposures will likely change frequently over the coming weeks, although a core defensive Interest 22.37%
New Zealand Other* 0%
tilt will likely remain. Other recent changes in the Fund have been an increase in exposure
Equities† 9.42%
to NZ bonds, as the yields on offer are now looking more attractive. On the other hand, # The actual cash held by the Fund is 11.34%.
exposures to NZ shares have been reduced as rising interest rates will be a significant Effective Cash reported above is adjusted to reflect
the Fund's notional positions (e.g. derivatives used
headwind for the domestic economy. Going forward, more volatility in markets is expected. to increase or reduce market exposure).
Medium-term returns are still expected to be positive and we continue to find good
companies at reasonable prices to invest in.
KiwiSaver Active Growth Fund
Portfolio Manager: Jonathan Windust
The Fund fell 0.9% in February in what was a particularly volatile month for shares due to
uncertainty over the situation in Ukraine. Global shares ended the month down 2.7% after
staging a rally towards the end of the month. New Zealand and Australian shares finished
the month up 0.7% and 2.1% respectively, boosted by returns in energy and commodity
companies. The Fund out-performed market returns due to strategies to help cushion
market falls in global shares. Effective Cash# Australian Equities
21.41% 12.18%
Key company positives during the month included New Zealand electricity companies New Zealand Fixed International Equities
Meridian Energy (+14.6%) and Contact Energy (+3.7%) which benefitted from rising Interest 1.33% 31.84%
International Fixed Listed Property 5.26%
electricity prices and the move towards renewable generation. Oil and gas companies again Interest 12.87%
Other* 0%
performed well with Santos (+3.9%) and EOG Resources (+3.1%) benefitting from rising oil New Zealand
Equities‡ 15.11%
prices. The best performer for the month was Genworth Mortgage Insurance Australia
# The actual cash held by the Fund is 6.07%.
which was up 23.5%. Genworth rose following news it had retained a major customer, a Effective Cash reported above is adjusted to reflect
the Fund's notional positions (e.g. derivatives used
strong result and a private equity company acquiring a stake in the company on the market. to increase or reduce market exposure).
We believe Genworth was materially undervalued trading below its book value.
The outlook for shares remains supported by the prospect of good growth (as Covid
restrictions subside), strong company earnings, relatively low interest rates and high levels
for liquidity. The key headwinds are the relatively high valuations of some companies, the
impact of rising inflation on consumer income and company profit margins, the prospect of
rising interest rates and political uncertainty. Given the increasing headwinds facing shares,
the Fund has become more cautious with a reduced holding in shares and increased
holding in cash. The strategy of the Fund continues to be to construct a portfolio of
investments which provide attractive medium-term risk adjusted returns. Rising volatility in
markets can create opportunities to acquire companies at more attractive valuations.
†Includes unlisted equity holdings of 0.09% ‡Includes unlisted equity holdings of 0.52%
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.
Milford KiwiSaver Plan Monthly Review as at 28 February 2022
KiwiSaver Aggressive Fund Actual investment mix1
Portfolio Manager: Stephen Johnston
The Fund fell 4.0% in February. While the Omicron wave has eased globally, the escalation
in conflict between Russia and Ukraine has added to concerns around inflation and have
sent oil and commodity prices higher. Unfortunately, this has seen share markets globally
continue their weak start to 2022.
In February, Australasian markets bucked the global trend and outperformed.
Outperformers in Australia included National Australia Bank (+6.7%) which rose after
releasing strong quarterly earnings where it outperformed its peers on a number of key
Effective Cash# International Equities
metrics. Our favoured gold stocks in Australia, Evolution Mining (+23.2%) and Northern Star 14.19% 60.95%
Resources (+24.4%) provided some defence in February, benefitting as the gold price International Fixed Listed Property 2.97%
soared on rising geopolitical risk. Technology shares underperformed locally with Xero Interest 0.05%
Other* 0%
New Zealand Equities
(-17.0%) tumbling for a second consecutive month. Locally, Contact Energy (+3.7%) and 5.37%
Meridian (+14.6%) were standouts as investors rotated to defensive business models such Australian Equities
16.47%
as these ‘Gentailers’. # The actual cash held by the Fund is 13.81%.
Effective Cash reported above is adjusted to reflect
It was a challenging month for international shares. Areas of strength were limited but the Fund's notional positions (e.g. derivatives used
to increase or reduce market exposure).
included US insurance broker Aon (+5.7%), which is well positioned internationally in an
industry that is capital light, has sticky customer relationships and generates attractive
returns on capital. Given these factors, we have been adding to our position in Aon. In
addition, Chinese restaurant giant Yum China (+8.0%), also outperformed after a difficult
period, as the company was hurt by China’s zero Covid policy. Looking ahead, as the
pandemic subsides and policy easing supports the Chinese economy, we expect a strong
recovery at Yum China, given its brand strength, digital capabilities, and industry leading
supply chain infrastructure.
In our international portfolio, continuing the trend we saw in January, key detractors were
dominated by technology companies. It was a difficult month for payment network
Mastercard (-6.6%) and Fidelity National Information Services (-20.6%) which is one of the
largest financial technology providers globally. Despite this, we maintain a positive long-
term view, as both will benefit from a strong post pandemic rebound.Looking ahead, we
expect elevated volatility to continue, as the conflict in Ukraine adds uncertainty to the
economic outlook. We have increased our cash levels to allow us to take advantage of the
volatility, through adding to our favoured names at cheaper prices.
KiwiSaver Cash Fund
Portfolio Manager: Travis Murdoch & Katlyn Parker
As widely anticipated, the Reserve Bank of New Zealand (RBNZ) raised the Official Cash
Rate (OCR) at their February meeting by 0.25 percentage points to 1 percent.
Short-dated NZ Dollar bank bills, a reflection of interbank funding levels, continued their
move higher during the month. This continues to benefit the Fund by increasing the interest
rates into which it can progressively reinvest maturing holdings. Our base case remains for
higher interest rates from here albeit as it stands elevated market expectations seem higher Effective Cash#
36.33% Other* 0%
than what may be realised. New Zealand Fixed
Interest 63.67%
The portfolio management of the Fund remains focused on maintaining its low-risk strategy
# The actual cash held by the Fund is 36.33%.
which is built on a diversified portfolio of cash, short-dated debt securities and term Effective Cash reported above is adjusted to reflect
the Fund's notional positions (e.g. derivatives used
deposits, so as to protect capital. to increase or reduce market exposure).
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.
Milford KiwiSaver Plan Monthly Review as at 28 February 2022
Fund Performance
Since Fund
Past month 1 year 3 years (p.a.) 5 years (p.a.) Unit price $ Fund size $
inception (p.a.)
KiwiSaver Conservative Fund -0.78% 0.03% 4.15% 4.75% 7.52% 1.9466 191.8 M
KiwiSaver Moderate Fund -0.77% 3.56% — — 9.23% 1.1833 90.6 M
KiwiSaver Balanced Fund -0.73% 7.67% 10.32% 9.26% 9.96% 2.9750 834.7 M
KiwiSaver Active Growth Fund^ -0.94% 11.15% 13.34% 11.92% 12.59% 5.1373 2,976.0 M
KiwiSaver Aggressive Fund -4.04% 8.39% — — 13.33% 1.3768 759.3 M
KiwiSaver Cash Fund 0.06% 0.58% — — 0.48% 1.0092 50.7 M
For details of how investment performance is calculated, and returns at each PIR please see www.milfordasset.com/funds-performance/view-performance#tab-
performance.
Performance figures are after total Fund charges have been deducted and at 0% PIR.
Please note past performance is not a guarantee of future returns.
Inception dates for the Funds: KiwiSaver Active Growth Fund: 1 October 2007, KiwiSaver Balanced Fund: 1 April 2010, KiwiSaver Conservative Fund: 1 October 2012,
KiwiSaver Aggressive Fund: 1 August 2019, KiwiSaver Cash Fund: 27 March 2020, KiwiSaver Moderate Fund: 27 March 2020.
^This is based on the performance of the AonSaver AMT Milford Aggressive Fund until 31 March 2010 and the Milford KiwiSaver Active Growth Fund from 1 April 2010.
Key Market Indices
Past month 1 year 3 years (p.a.) 5 years (p.a.) 7 years (p.a.)
S&P/NZX 50 Gross Index (with imputation credits) 0.75% -1.41% 9.48% 11.81% 11.81%
S&P/ASX 200 Accumulation Index (AUD) 2.14% 10.19% 8.42% 8.48% 6.78%
S&P/ASX 200 Accumulation Index (NZD) 2.08% 10.96% 9.39% 8.67% 7.33%
MSCI World Index (local currency)* -2.65% 12.82% 14.43% 11.78% 9.81%
MSCI World Index (NZD)* -5.41% 18.98% 14.70% 13.55% 11.42%
S&P/NZX 90-Day Bank Bill Rate 0.06% 0.49% 0.83% 1.30% 1.73%
Bloomberg Barclays Global Agg. Bond (USD-Hedged) -1.33% -2.19% 2.64% 2.69% 2.51%
S&P/NZX NZ Government Bond Index -0.86% -4.02% 0.18% 2.17% 2.64%
*With net dividends reinvested
Milford KiwiSaver plan is the proud winner of multiple awards:
Milford KiwiSaver Plan Monthly Review as at 28 February 2022 Top Security Holdings (as a percentage of the Fund’s Net Asset Value) KiwiSaver Conservative Fund KiwiSaver Moderate Fund KiwiSaver Balanced Fund NZGBI 2% 2025 4.73% NZGBI 2% 2025 2.90% Contact Energy 2.11% NZ Govt. 0.5% 2026 2.95% NZ Govt. 0.5% 2026 1.78% Santos 1.26% ANZ 1.45% 2022 1.94% Contact Energy 1.35% HCA Holdings 1.17% NZLGFA 1.5% 2026 1.25% ANZ 1.45% 2022 0.98% Alphabet 1.15% ANZ 2.999% 2031 0.92% HCA Holdings 0.77% Microsoft 1.11% Government of Australia 0.5% 2026 0.83% Santos 0.77% NZGBI 2% 2025 1.04% Westpac 3.696% 2027 0.69% NZLGFA 1.5% 2026 0.75% Telstra 1.04% NAB Float 2027 0.64% Spark 0.71% Spark 1.00% Housing NZ 3.36% 2025 0.62% Alphabet 0.71% Charter Hall Retail 0.91% McDonald's 3.45% 2026 0.62% Telstra 0.71% Anthem 0.89% Note: Fixed interest securities are reported in the following format: Issuer name, interest (coupon) rate, maturity year, size of fund holding (as % of total portfolio). KiwiSaver Active Growth Fund KiwiSaver Aggressive Fund KiwiSaver Cash Fund Contact Energy 3.89% Microsoft 2.74% Westpac 45 Day WND 12.29% Santos 2.86% Alphabet 2.62% ANZ 1.35% 2022 5.32% Virgin Money 2.66% Mastercard 2.06% Auckland Airport CD 2022 4.78% Alphabet 2.43% Aon 2.03% ANZ 1.32% 2022 4.26% HCA Holdings 2.15% Wyndham Hotels 1.96% Contact CD 2022 3.72% EOG Resources 2.07% EOG Resources 1.94% SBS CD 2022 3.72% Microsoft 1.99% HCA Holdings 1.91% Spark CD 2022 2.66% CRH 1.76% Boston Scientific 1.77% Genesis CD 2022 2.65% EBOS Group 1.69% CME 1.61% Genesis CD 2022 2.60% JPMorgan 1.68% Coca-Cola 1.40% Port of Tauranga CD 2022 2.39% Note: Fixed interest securities are reported in the following format: Issuer name, interest (coupon) rate, maturity year, size of fund holding (as % of total portfolio). Milford staff have approximately $16.9 million invested in the Milford KiwiSaver Plan as at the end of February 2022.
Milford
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PlanMonthly
MonthlyReview
Review as at 28 February 2022
Investment Highlight:
Prologis
Logistics real estate riding on the e-commerce boom
Prologis is a US listed industrial real estate investment trust (REIT) that owns land
used for warehousing and distribution in and around major cities, mostly in the US.
For those familiar with Goodman Group in the Australian market, Prologis is
similar – but while Goodman Group manages and develops a property portfolio
Dan Simmonds largely on behalf of its clients, Prologis owns its properties outright and generates
Portfolio Manager
earnings predominately as a landlord receiving rents from clients.
Warehouses may sound old world and boring, but prime urban logistics sites are in hot demand from the e-
commerce sector. Timely fulfilment (in many instances same or next day) of online orders requires proximity
of warehousing to customers. Amazon is Prologis’ largest single customer at close to 5% of its customer
rents.
Rising e-commerce penetration has been a long-term theme, and US e-commerce sales have grown at a
15.2% compounded annual growth rate over the past decade versus 4.2% for total retail sales. This has been
accelerated by Covid, and e-commerce currently represents over 20% of sales in the US. It is also notable
that e-commerce requires 3 times the warehouse space versus warehousing for traditional bricks and mortar
retailing. This is due to the requirement to have stock on hand for rapid fulfilment and handling of single
goods rather than bulk wholesale. Further, rents are only approximately 5% of total supply chain cost (with
costs mostly comprising of transport and labour).
On the supply side, there is a scarcity of existing sites relative to demand, and there is a long and difficult
zoning approval process required to create new industrial properties.
In terms of how this has translated to the operating environment for Prologis, they reported occupancy had
risen to 97.4% in the 4th quarter of 2021, and the US industrial REIT market rents grew at 18% to 20% in 2021.
Another positive theme for the sector is that the Covid experience has meant that retailers will seek to hold
high inventory levels relative to history, to ensure resilience from potential supply chain shocks.
We believe the positive themes and tailwinds for the company are structural and enduring. More near term,
while same store cash net operating income grew at 7.5% in 2021, this is guided to continue at 6 to 7% for
the 2022 financial year.
Prologis has been a standout “Covid winner” in terms of share price performance, with a total return since
the start of 2020 of 24% p.a. Although valuation metrics became more stretched by late 2021, and while the
stock has sold-off -16.4% so far in 2022, we see the present environment as potentially representing a more
interesting entry point. We believe Prologis exhibits pricing power, which is a positive in an inflationary
environment, and the stock has a bright future riding on the coat tails of the e-commerce trend.
Disclaimer: Milford is an active manager with views and portfolio positions subject to change. This article is intended to provide general information only. It does not take
into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Should you require financial advice you should
always speak to a Financial Adviser. Past performance is not a guarantee of future performance.Milford KiwiSaver Plan Monthly Review
Do you have a KiwiSaver goal?
Data from the IRD tells us that there are now more than 3 million
KiwiSaver members, which I think, is fantastic! But how many of us have
set a KiwiSaver goal? I suspect not many, and certainly not enough.
In fact, research from the Financial Services Council shows that despite the
reassuring uptake of KiwiSaver, most only contribute the minimum 3% and
one fifth are unsure how much their KiwiSaver is currently worth or
perhaps more importantly, what their KiwiSaver could be worth.
Liam Robertson
Financial Adviser
Kiwis are worried about affording retirement
An astonishing 70% of adults in New Zealand think that they may have to keep working past retirement, whilst
two thirds are concerned that they are not on track to be able to afford where they want to live when they
retire.
Questions to ask yourself
Whilst these statistics are worrying, we know that goal setting can play a key part in providing both peace of
mind and ensuring that we stay on track. When it comes to your KiwiSaver investment, there are a couple of
things to think about. Are you saving for your first home? Or for a comfortable retirement?
If you’re saving for your first home, are you in the correct fund considering both your investment time horizon
and risk tolerance? If you’re saving for retirement, are you aiming to withdraw a lump sum at 65 or are you
wanting to draw an income from your fund during your retirement years? In each case, our goals need to be
SMART – Specific, Measurable, Achievable, Realistic, and Time-bound.
Setting a goal is the first step to achieving it
Goal setting is a powerful process for thinking about your ideal future, and for motivating yourself to turn your
vision of this future into reality. If you want some help setting a goal for your Milford KiwiSaver Plan
account, we have both Digital and Personal Advice available to anyone who is interested.
You may even have family, friends or
colleagues who are not Milford
KiwiSaver Plan members but are keen
on using these services. Digital advice
can be accessed easily via our website,
if you aren’t already a Milford member,
or your Client Portal or Mobile App if
you are.
For a more personal touch, request a
call back from one of our KiwiSaver
Advisers at:
kiwisaveradvice@milfordasset.com
For more information about getting advice at Milford, see milfordasset.com/getting-advice
Disclaimer: The Milford Monthly Review has been prepared by Milford Funds Limited. It is based on information believed to be accurate and
reliable although no guarantee can be given that this is the case. No reproduction of any material either in part or in full is permitted without
prior permission. For more information about the Funds please refer to the Product Disclosure Statement or the latest Quarterly Fund Update.You can also read
