Monthly Review - Nuview Wealth Solutions

Monthly Review
For the month of February 2020

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Markets
new zealand economic update
The emergence of the first ‘social media’ pandemic has completely changed the outlook for the New Zealand and global economies.
Corona virus or COVID-19 is not the first pandemic of the twenty first century; 'Swine Flu' or N1H1 hit the world in 2009 and it is
estimated that around 1 billon people contracted the illness with fatalities believed to be as high as half a million people. At the
time of writing 120,000 people are estimated to have caught COVID-19 and over 4,000 people have died. However, the economic
response to the possible spread of the pandemic has been unprecedented. Following lock-downs, the Chinese economy came to an
effective halt. (Although outside the scope of this review, New Zealand has been in a lockdown since midnight on 25 March.)
This response will have an impact on the New Zealand economy. Exactly how great the impact will be will depend on the duration
of social isolation practices and the impact of the virus should it spread to the wider population. Initially it was felt that the impact
would be sharp but reasonably brief. However, it now looks like the impact will affect economic growth well into the second half of
this year. Most economists now expect the New Zealand economy to record negative GDP growth in the March quarter. The longer
self-isolation practices drag on, the greater the chance the New Zealand economy will fall into recession. We believe there is probably
now a 75% chance of a recession. The current environment is not helped by the drought that has also hit New Zealand. This is likely to
result in de-stocking over this quarter, which is positive for economic growth, but lower economic growth over the winter months.
One statistic confirming the impact on the economy is the ANZ Business Confidence survey. Having only just recovered late last
year, based on an early reading of the March survey, business confidence has declined back to global financial crisis levels. The survey
shows that business confidence has fallen from -19.4 to -53.3. Business Own Activity has fallen from +12.0 to -12.8.
The Reserve Bank of New Zealand (RBNZ) initially noted that monetary policy is not the appropriate response to a temporary shock.
This is consistent with the RBNZ not reacting to previous droughts as they are effectively over by the time they are announced. Again,
however, the longer the shock, the more likely that the RBNZ will react and reduce interest rates. The RBNZ is due to release an
update on the Official Cash Rate (OCR) on 15 March 2020. At present most economists are expecting the RBNZ to cut the Official
Cash Rate by either 0.25% or 0.50% at this announcement. This would imply the rate falls to either 0.75% or 0.50%.
The Government is also preparing fiscal stimulus measures to offset some of the cash flow constraints companies will find
themselves in. The Government's key concern is that people remain employed and that the economy does not suffer second-round
effects from the crisis. The Government is also looking at longer-term measures if the economy does slip into recession.

international economic update
A number of central banks have cut interest rates in response to COVID-19. The Reserve Bank of Australia decided at its regular
monthly meeting to cut their interest rates from 0.75% to 0.50%. The Federal Reserve in the United States made an inter-meeting
decision to cut their interest rates by 0.50% to 1.00%. The Bank of England cut rates by 0.50% to 0.25%. The Australian and United
Kingdom governments also announced a number of short-term stimulus spending initiatives. These measures are expected to offset
some of the longer-term impacts of the crisis but are unlikely to change anything in the short term.

financial markets update
Share markets declined over February as participants continued to factor in the possible implications of COVID-19. The New
Zealand share market declined by 5.65%1 while the Australian share market declined by 7.69%2. International share markets also
declined sharply with S&P 500 declining 8.23%, the European Euro-Stoxx by 8.43% and the Japanese Topic by 10.27%. The MSCI
Emerging Markets Index was one of the better performers over the month, declining by 5.27%.
Fixed-interest markets also reflected the change in outlook with 10-year bond yields declining to new all-time lows. In New Zealand
the 10-year bond declined to 1.06% (from 1.30%) while the United States 10-year bond declined to 1.15% (from 1.51%).
The degree of interest rate moves experienced in 2020 has been astounding. At the beginning of 2020 the US 10-year bond was
approximately 1.90%; by the end of February the yield had fallen to 1.15%, a drop of 75bps. The yield has dropped further to 0.80%
at the time of writing. The total move from the end of December to this current level equates to a price increase of more than 7.00%.
New Zealand interest rates have moved in a similar, albeit not so dramatic, fashion. The 5-year interest rate started the year at
1.45% and had dropped to 0.85% at the end of February.
Since the end of February many of the world’s central banks, including the US Federal Reserve, the Bank of England and the Reserve
Bank of Australia, have chosen to lower their official cash rates in response to the onset of COVID-19. This puts increased pressure
on the RBNZ to lower the Official Cash Rate (OCR) at, or before, their next meeting on March 25. We expect the RBNZ will need to
lower the OCR from the current 1.00% to 0.50% at a minimum.

1. S&P NZX 50 Portfolio Index
2. S&P ASX 200 Index

Advised Portfolio Service
                       Previously known as the NZ Funds Managed Portfolio Service

income category1,2
The Income Category returned 1.14% for the month of February, taking the twelve month return to 8.91%.
The dominating feature for the Income Category in February was a dramatic move lower in interest rates. At the beginning of
2020 the US 10-year bond was approximately 1.90%; by the end of February the yield has fallen to 1.15%, a drop of 75bps. Since
then the yield has dropped further to 0.80% at the time of writing. The total move from the end of December to this current level
equates to a price increase of more than 7%.
New Zealand interest rates have moved in a similar, albeit not so dramatic, fashion. The 5-year interest rate started the year at
1.45% and dropped to 0.85% at the end of February.
Since the end of February many of the world’s central banks, including the US Federal Reserve, the Bank of England and the Reserve
Bank of Australia, have chosen to lower their official cash rates in response to the onset of the COVID-19. This puts increased
pressure on the Reserve Bank of New Zealand (RBNZ) to lower the Official Cash Rate (OCR) at, or before, their next meeting on
March 25. We expect the Reserve Bank will need to lower the OCR from the current 1% to 0.50% at a minimum.

inflation category1,3
The Inflation Category returned -4.08% for the month of February, taking the twelve month return to 8.14%.
United States shares began February strongly, with the S&P 500 Index setting a new record high on robust economic data and
President Trump’s acquittal in the final impeachment vote. However, a rising number of COVID-19 cases outside China prompted
one of the sharpest United States share market sell-offs in history later in the month.
The declines in the share market reflected growing concern over the combination of supply chain disruption and waning levels of
demand due to COVID-19. In line with this, economically sensitive commodities were firmly lower. The largest negative returns were
in the energy component with Brent crude oil posting a double digit decline as the demand outlook for oil further deteriorated. At
the time of writing oil is trading at levels not seen since 2003.
The Inflation Category benefits from a balanced approach to asset allocation given the uncertainty over the outcome of the
COVID-19 outbreak. Risk aversion could prevail if more countries see numbers of cases rising in the coming weeks. If risk aversion
does continue, the circa 30% cash and bond allocation in the Category provides a defensive footing.

growth category1,4
The Growth Category returned -5.98% for the month of February, taking the twelve month return to 4.13%.
NZ Funds is an active fund manager. This means we look to adjust portfolio exposure to growth assets as events evolve. Toward
the middle of February we reduced the Category’s exposure to shares. This reflected our view that the financial markets were
largely underestimating the impact of COVID-19.
As the virus moved from being a 'China problem' to being a global problem, we further reduced the Category’s exposure to shares.
However, we are always aware that markets can quickly rebound and purchased options on the United States share market to
enable the Category to participate in any positive share market environment. We are continuously reviewing the Category’s
exposure to shares. These actions are intended to help reassure clients that they do not face a permanent impairment of their
retirement capital.

1.   All returns are after Portfolio fees but before investor tax.
2.   The return calculations are based on a 50% allocation to the Core Income Portfolio and a 50% allocation to the Global Income Portfolio.
3.   The return calculations are based on a 34% allocation to the Core Inflation Portfolio, a 33% allocation to the Property Inflation Portfolio, and a 33% allocation to the Equity Inflation Portfolio.
4.   To 30 September 2019, the return calculations are based on a 25% allocation to the Core Growth Portfolio, a 10% allocation to the Global Multi-Asset Growth Portfolio, a 25% allocation to
     the Global Equity Growth Portfolio, and a 40% allocation to the Dividend and Growth Portfolio. From 1 October 2019, the return calculations are based on a 30% allocation to the Core Growth
     Portfolio, a 30% allocation to the Global Equity Growth Portfolio, and a 40% allocation to the Dividend and Growth Portfolio.

KiwiSaver Scheme
income strategy1
The KiwiSaver Income Strategy returned 1.18% for the month of February, taking the twelve month return to 8.80%.
The dominating feature for the Income Category in February was a dramatic move lower in interest rates. At the beginning of
2020 the US 10-year bond was approximately 1.90%; by the end of February the yield has fallen to 1.15%, a drop of 75bps. Since
then the yield has dropped further to 0.80% at the time of writing. The total move from the end of December to this current level
equates to a price increase of more than 7%.
New Zealand interest rates have moved in a similar, albeit not so dramatic, fashion. The 5-year interest rate started the year at
1.45% and dropped to 0.85% at the end of February.
Since the end of February many of the world’s central banks, including the US Federal Reserve, the Bank of England and the Reserve
Bank of Australia, have chosen to lower their official cash rates in response to the onset of the COVID-19. This puts increased
pressure on the Reserve Bank of New Zealand (RBNZ) to lower the Official Cash Rate (OCR) at, or before, their next meeting on
March 25. We expect the Reserve Bank will need to lower the OCR from the current 1% to 0.50% at a minimum..

inflation strategy1
The Inflation Strategy returned -4.07% for the month of February, taking the twelve month return to 8.24%.
United States shares began February strongly, with the S&P 500 Index setting a new record high on robust economic data and
President Trump’s acquittal in the final impeachment vote. However, a rising number of COVID-19 cases outside China prompted
one of the sharpest United States share market sell-offs in history later in the month.
The declines in the share market reflected growing concern over the combination of supply chain disruption and waning levels of
demand due to COVID-19. In line with this, economically sensitive commodities were firmly lower. The largest negative returns were
in the energy component with Brent crude oil posting a double digit decline as the demand outlook for oil further deteriorated. At
the time of writing oil is trading at levels not seen since 2003.
The Inflation Category benefits from a balanced approach to asset allocation given the uncertainty over the outcome of the
COVID-19 outbreak. Risk aversion could prevail if more countries see numbers of cases rising in the coming weeks. If risk aversion
does continue, the circa 30% cash and bond allocation in the Category provides a defensive footing.

growth strategy1
The KiwiSaver Growth Strategy returned -5.55% for the month of February, taking the twelve month return to 4.24%.
NZ Funds is an active fund manager. This means we look to adjust portfolio exposure to growth assets as events evolve. Toward
the middle of February we reduced the Strategy’s exposure to shares. This reflected our view that the financial markets were
largely underestimating the impact of COVID-19.
As the virus moved from being a 'China problem' to being a global problem, we further reduced the Strategy’s exposure to shares.
However, we are always aware that markets can quickly rebound and purchased options on the United States share market to
enable the Category to participate in any positive share market environment. We are continuously reviewing the Strategy’s
exposure to shares. These actions are intended to help reassure clients that they do not face a permanent impairment of their
retirement capital.

1. All returns are after Portfolio fees but before investor tax.

Managed Superannuation Service
income strategy1
The Income Strategy returned 1.18% for the month of February, taking the twelve month return to 8.80%.
The dominating feature for the Income Category in February was a dramatic move lower in interest rates. At the beginning of
2020 the US 10-year bond was approximately 1.90%; by the end of February the yield has fallen to 1.15%, a drop of 75bps. Since
then the yield has dropped further to 0.80% at the time of writing. The total move from the end of December to this current level
equates to a price increase of more than 7%.
New Zealand interest rates have moved in a similar, albeit not so dramatic, fashion. The 5-year interest rate started the year at
1.45% and dropped to 0.85% at the end of February.
Since the end of February many of the world’s central banks, including the US Federal Reserve, the Bank of England and the Reserve
Bank of Australia, have chosen to lower their official cash rates in response to the onset of the COVID-19. This puts increased
pressure on the Reserve Bank of New Zealand (RBNZ) to lower the Official Cash Rate (OCR) at, or before, their next meeting on
March 25. We expect the Reserve Bank will need to lower the OCR from the current 1% to 0.50% at a minimum.

inflation strategy1
The Inflation Strategy returned -4.07% for the month of February, taking the twelve month return to 8.24%.
United States shares began February strongly, with the S&P 500 Index setting a new record high on robust economic data and
President Trump’s acquittal in the final impeachment vote. However, a rising number of COVID-19 cases outside China prompted
one of the sharpest United States share market sell-offs in history later in the month.
The declines in the share market reflected growing concern over the combination of supply chain disruption and waning levels of
demand due to COVID-19. In line with this, economically sensitive commodities were firmly lower. The largest negative returns were
in the energy component with Brent crude oil posting a double digit decline as the demand outlook for oil further deteriorated. At
the time of writing oil is trading at levels not seen since 2003.
The Inflation Category benefits from a balanced approach to asset allocation given the uncertainty over the outcome of the
COVID-19 outbreak. Risk aversion could prevail if more countries see numbers of cases rising in the coming weeks. If risk aversion
does continue, the circa 30% cash and bond allocation in the Category provides a defensive footing.

growth strategy1
The Growth Strategy returned -5.55% for the month of February, taking the twelve month return to 4.24%.
NZ Funds is an active fund manager. This means we look to adjust portfolio exposure to growth assets as events evolve. Toward
the middle of February we reduced the Strategy’s exposure to shares. This reflected our view that the financial markets were
largely underestimating the impact of COVID-19.
As the virus moved from being a 'China problem' to being a global problem, we further reduced the Strategy’s exposure to shares.
However, we are always aware that markets can quickly rebound and purchased options on the United States share market to
enable the Category to participate in any positive share market environment. We are continuously reviewing the Strategy’s
exposure to shares. These actions are intended to help reassure clients that they do not face a permanent impairment of their
retirement capital.

1. All returns are after Portfolio fees but before investor tax.

New Zealand Funds Management Limited is the issuer of the portfolios making up the NZ Funds Advised Portfolio Service,
the NZ Funds KiwiSaver Scheme and the NZ Funds Managed Superannuation Service.
The Product Disclosure Statement and the Disclose Register contain important information to help you to understand how your
money is managed and the risks associated with investing.
A copy of the NZ Funds Advised Portfolio Service Product Disclosure Statement, the NZ Funds KiwiSaver Scheme Product
Disclosure Statement and the NZ Funds Managed Superannuation Service Product Disclosure Statement is available on request
or by visiting the NZ Funds website at www.nzfunds.co.nz.
Even if you have invested with NZ Funds for many years, please take the time to read these documents regularly as the content is
frequently updated.

Disclaimer
Past performance is not necessarily an indication of future returns.
This document 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, to the best of our knowledge and belief, stated accurately, New Zealand Funds Management Limited, 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.

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
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