To the Finance Department, with love - Nest Egg News June 2017
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Nest Egg News June 2017 To the Finance Department, with love ... It was great meeting so many Fisher Funds clients around The Financial Markets Authority (FMA) provides an excellent the country at the recent investment roadshows. As your investor service by publishing warning notices, international new Chief Executive, it’s been an excellent introduction to regulator alerts, businesses to be wary of and also a list of the business; and everyone I have met so far has been very unregistered businesses. You can find these prominently supportive and welcoming. Less welcome, however, were the displayed on the fma.govt.nz website under WARNINGS! scammers that kicked into gear within my first two weeks in These are obvious businesses to avoid. the role! Realistic looking, but fictitious, emails and invoices were supposedly sent by me, as Chief Executive, to the But not all opportunities to avoid are either illegal or scams. Fisher Funds Finance team authorising all kinds of payments Of as much concern is the legitimate, but risky, “investment for all kinds of services. Fortunately, our team were onto the opportunities” that always appear in certain market scammers quickly and both our reputation and bank accounts circumstances. Currently, the world is in a sustained historically remain intact. low interest rate environment and that has driven many investors on fixed incomes to chase yield. These so-called In 2016, the US Federal Bureau of Investigation (FBI) warned opportunities are everywhere and are typically accompanied about a dramatic increase in these so-called “CEO fraud” by words like Guaranteed or Secured. Having worked through email scams — in which the attacker spoofs a message from quite a number of disastrous periods in the past of investors the boss and tricks someone at the organisation into wiring getting burnt, it always amazes me that the basic fundamentals funds to the fraudsters. At the time, the FBI estimated these of investing (like understanding risk) are quickly forgotten in the scams had cost US organisations more than $2.3 billion in the search for apparent higher returns. previous three years. In this context I am very proud to be leading a reputable, Typically in the US, after a company discovers that the wire responsible and successful funds management company fraud was not a legitimate request from the real CEO, the that genuinely has the best interests of clients at the heart of finance employee who wired the funds is often dismissed and everything we do. It is very important to me that we are active the financial losses are reported internally. Investigations to fund managers that make well-researched investment decisions identify the attackers are conducted, officials contacted, and not only based on the inherent quality of companies, but also boards informed. Many companies are required to publicly screening via a thorough environmental, social and corporate disclose their losses, and the revelations lead to damage in governance lens. The Fisher Funds model established by brand reputation. Carmel, that will live on into the future, doesn’t blindly and passively follow a notional index, but rather backs investing This serves as a reminder that there are whole industries your money into investments with strong inherent value. And employed to try and convince us all to part with our we are particularly careful at checking the validity of emails hard-earned cash, by legitimate means or foul, but from the Chief Executive. You cannot be too careful these days! most often not with our own best interests at heart. Unfortunately, the investment world is also littered with such people and industries. Bruce McLachlan Chief Executive Officer Fund Manager of the Year — Winner
Highlights and lowlights A snapshot of the key factors driving the performance of markets and your portfolios last month. The NZX50 continued its uninterrupted five month rally with a +0.5% move in May. The market has regained almost all the ground it lost in September and October of last year. Our New Zealand part of the portfolio was up 1.5%; outperforming the market. Fisher & Paykel Healthcare was again our top contributor for the month, up 6.0%. The portfolio’s best performing stock, Port of Tauranga, was up 9% due to a strong rebound in log volumes through the port (+21% year to date) and rising container volumes. Summerset was the largest drag on portfolio performance, down 6%, as the market remains concerned about a possible peak in house prices and the impact to earnings. The Australian part of the portfolio was down 2.9% for the month, comparing favourably with the Australian share market which fell 6.5% in New Zealand Dollars; the worst month for the market since August 2015. With the exception of the Industrials sector, which was buoyed by a small number of shares rallying on very specific issues, all other sectors were down. Stock selection, reducing exposure to mining and banking positions earlier in the year, and currency hedging contributed to the portfolio’s outperformance against the market. In company news, Wisetech announced a development partnership with global freight leader UPS, and AUB Group continued a strong rally on expectations of rising insurance premiums. Global markets continued their upwards climb in May with our International portfolio up 1.8% for the month. Outperformance of the global benchmark was driven by our core technology holdings such as Expedia, Alibaba and Cognizant and positive contributions from recent additions to the portfolio. Hearing aid manufacturer, William Demant, which was added to the portfolio earlier this year was the strongest performer in May (+11%), with management reporting that new product launches are driving strong growth and market share gains. Sarine Technologies was the weakest performer in the portfolio (-9%), with first quarter sales below expectations due to weaker than expected demand for their diamond inclusion mapping systems and a competitor making traction with a similar product. The portfolio’s Property & Infrastructure investments were up 2.9% in May. For the second month in a row, Flughafen Zurich was our top contributor up 9%. However, the best performing stock in the portfolio was Aeroports de Paris, up 11%.The airport owner/operator benefited from an upgrade to earnings guidance on the back of stronger passenger growth. The biggest detractor from performance was again Kinder Morgan -9%.The oil and gas pipeline company’s shareprice fell as the IPO price of its Canadian business was below expectations. Global growth expectations continue to fall back down to reality, having risen strongly after the election of Donald Trump. In light of this more challenged outlook, investors are undoubtedly finding solace in the safe-haven qualities of fixed income assets – allowing their rich vein of form this year to continue. Our cautious positioning, which favours government-issued bonds over corporate bonds, also proved a valuable contributor to the strong performance of our fixed interest portfolio this month. While still posting positive returns for the month, it was our corporate bond investments that lagged this month’s rally. As we have highlighted in recent months, we have been taking the opportunity to reduce our corporate bond holdings as valuations reach our target. This process continues. 2 FISHER FUNDS NEST EGG NEWS
Your KiwiSaver portfolios ET TO GRAB DON’T FORG RS! WHAT’S YOU $521 Last few weeks to get your $521! There’s still time to get your hands on the annual government There is still plenty of time to top up your account. Read contribution (member tax credit or MTC) for your KiwiSaver more here about how to top up and make sure you do it by account. In order to get the full amount of $521.23, you must Tuesday 27 June 2017. have contributed at least $1,042.86 into your account during the KiwiSaver year (1 July to 30 June). Last year, only 43% of eligible members received the full $521 payment; 29% received a partial payment; but 28% missed Even if you aren’t able to contribute the full $1042.86, you out entirely — make sure you don’t miss out this year! will still be rewarded for what you can save as for every dollar saved, you’ll receive 50c up to $521.43. (The MTC is paid into your KiwiSaver account and is not a cash or personal bank account payment.) Three cheers for Simon Challies years. As our team recently discussed Simon’s tenure By Sam Dickie, Senior Portfolio Manager, New Zealand as Ryman CEO, words like passion, honesty, good humour At last month’s annual results briefing, Ryman Healthcare and dedication came to mind. Managing Director Simon Challies announced he’d be Such qualities are consistent standing down on June 30 for health reasons. Simon was with the attributes Warren diagnosed with Parkinson’s disease in 2011 but has continued Buffett looks for when hiring in the CEO role since then with the full support of the board. CEOs to run his portfolio Simon joined Ryman as Chief Financial Officer in 1999, and companies. We’ll leave the last took over as Chief Executive in 2006 from Ryman co-founder word to him, quoting a ‘sermon’ that Buffett often gives to Kevin Hickman. MBA students who are heading out into the workforce. As many of you will know, Ryman Healthcare has been a “We look for three things when we hire people. cornerstone investment for Fisher Funds and we’ve enjoyed Interestingly enough these things are a bunch of qualities being shareholders of this extraordinarily successful New that are self-made. We look for intelligence, initiative or Zealand company. energy, and we look for integrity. If they don’t have the latter, the first two won’t be enough. Under Simon’s leadership, Ryman’s portfolio of retirement villages has grown from 12 to 31 and the company has won It’s not about whether you have the ability — lots of people the Most Trusted Brand in the retirement village industry do. It’s not about how tall you are. It’s not whether you can accolade three years in a row. Simon led the company run the 100 yard dash in 10 seconds. It’s not whether you’re through the Global Financial Crisis, the Christchurch the best looking person in the room. It’s about how you’re earthquakes (which destroyed their offices) and oversaw wired; it’s integrity, it’s honesty, it’s generosity, it’s being its expansion into Melbourne. The company has been a willing to do more than your share, taking the initiative and consistently high performer on the NZ Stock Exchange making things happen. That’s the person we’d hire.” and was recognised for its growth strategy in the 2011 Simon, we think Buffett would quite like you! Management Magazine Top 200 Awards, with Simon also being recognised as an outstanding leader in 2014, winning Gordon MacLeod, Ryman’s Deputy Chief Executive and the Deloitte top 200 CEO award. CFO, will take over as Chief Executive on June 30. We want to pay tribute to Simon, a CEO who we admire, Simon will continue as an advisor to the Ryman board until respect and have very much enjoyed working with over the December 2018. FISHER FUNDS NEST EGG NEWS 3
Investing responsibly by investing wisely By Frank Jasper, Director Imagine a company that dumps 200,000 tons of waste We have decided to add thermal coal producers to our list of into its local rivers every day, systematically bribes local product exclusions. This is because of the impact of thermal police forces, and shows utter disregard for the lives of the coal on man-made climate change. indigenous people who live near it. The second group of exclusions is for those companies Not only is this a bad investment — abusing your that have exhibited widespread and severe corporate stakeholders is rarely profitable in the long term — you misbehavior. wouldn’t even want to be associated with it. Freeport McMoran, the company referred to in the Responsible investing involves avoiding these sorts of introduction, is an example of a company on our conduct companies — selecting investments that generate sound exclusion list. Freeport has faced serious criticism over its returns in a way that does not cause widespread harm to environmental practices at its Grasberg gold and copper society or the environment. mine in West Papua, Indonesia. The company has also been involved in widespread human rights abuses of the local Fisher Funds is committed to investing your money indigenous populations. responsibly — ensuring we all feel comfortable with the investments you own. For us, responsible investing is more than just excluding the worst companies. Whenever we look at a company, we look at its financial performance, its strategy and the experience We look at responsible investing of its management team. We also explicitly consider its performance through a responsible investing lens. This in two ways — avoiding the bad involves looking at its treatment of stakeholders, the and embracing the good. environment and the sustainability of its business model. Considering these factors in addition to the traditional “Avoiding the bad” ensures we don’t invest in companies financial ones gives us a greater insight into the quality that are poor performers from an environmental, social or of a company and makes us better investors. You will be corporate governance (ESG) perspective. hearing more from us about our responsible investing policy and how we’re applying it. In the meantime, know that we We have, for some time, not invested in the tobacco industry are committed to investing your money responsibly; and or in companies that manufacture weapons that cause therefore wisely. indiscriminate and disproportionate harm. The rationale for these exclusions is simple: these industries cause only harm Watch our video on our responsible investing approach. and have no redeeming benefits. This includes not having fisherfunds.co.nz/responsible-investing. investments in companies like Textron which makes land mines, but also more well-known companies like Boeing, which makes components used to produce nuclear weapons. 4 FISHER FUNDS NEST EGG NEWS
Big bank tax is a tax on all Australians By Manuel Greenland, Senior Portfolio Manager, Australia The biggest news on the back of Australian Treasurer Scott Morrison’s latest Budget was an unexpected tax on the big Australian banks. The market value of the banks fell by A$14 billion as sharemarket investors anticipated the negative effect of the tax on banks’ profits. The banks themselves cried foul. Head of Australia’s largest bank, the Commonwealth Bank of Australia (CBA), said “this is bad policy”; while NAB’s chief executive moaned it was “very unfortunate”; and Westpac’s boss declared the move “disappointing”. The Treasurer remained unsympathetic, saying the interest rates at which the banks borrow depends on the financial strength of Australia, so it was only right they should pay up to support the Budget. Earlier in the year we had noted increasing headwinds to bank profits. In addition to the cost of their deposits rising, interest rates in foreign markets — where the Australian banks borrow — had also gone up. In an effort to strengthen the banks’ financial positions regulators were pushing them to take on expensive long-term debt and to hold higher levels of even more expensive share capital. So the series of mortgage rate increases that banks had recently implemented was not at all surprising; they were seeking to recover rising costs through higher lending rates to borrowers. This extra tax will now add more pressure on profits, and will likely be another reason to raise interest rates. What does it mean for Aussies? Rising mortgages and weak income growth have left Australian households with high levels of debt. Over the decade to 2016, Australian housing debt almost tripled to A$1.4 trillion. Borrowers have taken on this debt because of rising house prices and falling interest rates; not because they are earning more. High debt levels and weak incomes mean that household budgets will quickly feel the impact of any increase in interest rates. An important implication of this is that companies that sell products and services to Australian consumers will suffer if households have to use more of their income to service debt. At the moment electoral polls in Australia are very close. As this tax is pretty popular with voters, it is likely to be approved by the major political parties. The tax is therefore a reality, and for all their grumbling, the Australian banks are going to have to pay it in addition to their other rising costs. In our view they will do so in part by raising interest rates on borrowers, in part by reducing service levels to customers to cut costs, and in part by reducing profits and returns to shareholders. Borrowers, customers and shareholders will all share the pain; many ordinary Australians are all three. FISHER FUNDS NEST EGG NEWS 5
There’s never been an easier time to travel By Ashley Gardyne, Senior Portfolio Manager, International If you’ve ever tried to travel with a group of friends, or like me with young children (heaven forbid!), you’ve probably realised the shortcomings of many hotels. Rooms that are too small for port-a-cots and prams and have no shared space to relax in — or if they do they can cost an arm and a leg. Thankfully, yet again, the internet has saved the day by providing a solution to this problem through online villa and apartment booking platforms like Airbnb and HomeAway (owner of NZ’s Bookabach). HomeAway owned by our portfolio company, Expedia, is a prominent example of the “sharing economy” in which people rent beds, cars and boats from each other through a mobile app. Finding a house to borrow for a holiday used to be more trouble than it was worth (particularly in a foreign location), but technology has made this much easier, and possible, on a much greater scale. But it’s not just families with kids that are increasingly flocking to HomeAway for accommodation, recent data shows that over 30% of US travellers now stay in this type of alternative the Hilton or Holiday Inn because they knew the level of accommodation, up from less than 10% in 2010. service they were going to get. When you can review hotel photos, amenities and maps online, and read countless user It is not just where we stay that is changing, the way we generated reviews, the value and appeal of a hotel’s brand is book our travel is also evolving and gradually moving reduced. online with about half of travel now being booked online rather than via offline travel agents like Flight Centre or Humans will always prefer having more choice and flexibility by phone. This shift provides another leg of growth for than less. Regardless of how the sharing economy and online Expedia as travellers embrace the more seamless booking shift impacts hotel chains and high street travel agents, we experience and the broad choice of properties on its believe the level of choice that Expedia provides customers platforms (Expedia, HomeAway, Hotels.com, Wotif.com positions them well to benefit from a growing travel market. and Trivago). Expedia’s revenue model of clipping the ticket on every night booked by travellers, combined with strong growth These changes aren’t good for everyone however, and drivers and a business that requires limited fixed assets (they hotel chains are coming under increasing pressure from manage websites, not properties) creates what we believe is these trends. Travellers used to book at chain hotels like a compelling investment opportunity. 6 FISHER FUNDS NEST EGG NEWS
Fund facts Fund performance as at 31 May 2017 Returns Unit 1 3 1 2 3 5 7 Since fund Date of (after fees and before tax) Price $ Month Months Year Years* Years* Years* Years* inception* Inception Growth 1.8984 0.5% 4.5% 8.2% 7.6% 8.8% 11.3% 8.8% 6.9% 2/10/2007 Balanced** 0.6% 3.5% 6.6% 6.4% 7.4% 8.8% 7.5% 7.7% 12/06/2009 Conservative 1.5303 0.8% 2.3% 4.2% 4.9% 5.8% 6.5% 6.2% 5.5% 12/06/2009 * Annualised return before tax and after fees ** The Fisher Funds KiwiSaver Scheme does not have a separate Balanced Fund. A Balanced investment strategy is available and reflects a 55% weighting in our Conservative KiwiSaver Fund and a 45% weighting in our Growth KiwiSaver Fund. The above returns are based on the percentage change in the unit price of the fund for the period specified, they are not the returns individual investors will receive as this will depend on the prices at which units are purchased on the date of each individual contribution. Changes in the unit prices reflect changes in the market value of the assets of the fund. The above returns exclude government contributions and no allowance has been made for monthly administration fees. Returns displayed are after management fees but before tax. Biggest holdings as at 30 April 2017 Growth Fund Conservative Fund Cash Deposit (ANZ Bank) 9.1% Cash Deposit (ANZ Bank) 9.8% Bayfair Mall 2.0% Government Of New Zealand 5.0% 15-mar-2019 4.0% Mainfreight Limited 1.8% Government Of New Zealand 6.0% 15-may-2021 3.2% Top 10 Holdings 21.9% Top 10 Holdings 32.5% Further information about your KiwiSaver portfolios (including a full breakdown of the portfolio holdings, investment team profiles and current fund fact sheet) can be found at fisherfunds.co.nz. The information and any opinions herein are based upon sources believed reliable, but the Company, its officers and directors make no representations as to its accuracy or completeness. All opinions reflect our judgement on the date of this report and are subject to change without notice. The information contained in this publication should not be used as a basis for making an investment decision about any particular company. Professional investment advice should be taken before making an investment. Past performance is not a reliable guide to future performance. For a product disclosure statement on any of our funds, please go to our website or call us on 0508 FISHER (0508 347437). with you all the way... Fisher Funds Management Limited Registered Office | Fisher Funds Management Limited, Level 1, Crown Centre, 67-73 Hurstmere Road, Takapuna, Auckland 0622 Investor Enquiries | Level 1, Crown Centre, 67-73 Hurstmere Road, Takapuna, Auckland 0622 Postal Address Private Bag 93502, Takapuna, Auckland 0740 | Freephone 0800 FFKIWI (0800 335 494) Telephone 09 445 3377 | Facsimile 09 489 7139 | Email kiwisaver@fisherfunds.co.nz | Website fisherfunds.co.nz
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