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Fisher Funds TWO KiwiSaver Scheme — Your Monthly Update

April 2017

Once upon a time

Carmel Fisher, Managing Director, Fisher Funds

Humans love stories. In ancient times, the only way to share knowledge was through story-telling, person to person and generation to generation. Stories help us visualise, understand concepts and build an emotional connection.

Investors particularly like investment stories. A tidy narrative can help us feel comfortable, and make something otherwise random seem logical and rational.

There are stock stories, like "the new CEO is going to turn the company around" or "the company is about to win a big contract" or "the business is ripe for a takeover".

Then there are market stories: "stocks are overvalued and ready for a correction" or "the Federal Reserve is going to end quantitative easing" or "the market has broken through 20,000 on its way to 21,000".

Once upon a time there was a Trump rally…

This has been the story of 2017 so far. It's been quite an exciting story, with enough emotional drama to keep a large audience interested. And it has been handy in explaining why stocks that were supposedly poised to fall this year have instead gone from strength to strength.

However, the problem with this narrative is that it doesn't really bear scrutiny. It belongs firmly in the fiction section.

The basic storyline is that the election of President Donald Trump will result in sweeping changes in trade, tax, infrastructure and spending that will benefit the US economy enormously. The US stock market has rallied with every page turn.

The kink in this storyline is that it doesn't explain why France, Germany, Japan and other developed markets have also rallied since the presidential election in November. Trump's policies shouldn't drive the French or Japanese share markets higher, especially given that he is threatening a global trade war.

Then there's the inconvenient fact that despite Trump's struggles to put any of his significant promises into effect, markets have rallied anyway.

The story also falters when you consider that most global equity markets had been rallying in the months leading up to the November election, so calling it a Trump rally is a bit of a stretch.

But really, what's wrong with fabricating a story if it makes you feel good?

Well if enough people opt for comfort over reality, they won't be prepared when the storyline eventually turns. If it is not a Trump rally but rather crowd momentum, animal spirits or blind faith with no fundamental basis, then someone will be left with the wrong investments when such behaviour stops.

Emotional stories can get in the way of intelligent investing. We've all seen strategists and economists get their forecasts wrong, only to offer a series of excuses for why. We've seen investors rationalising why they were right and the market was wrong. We've seen people prefer to put good money after bad, rather than admit they got it wrong.

The narrative that we've been following on your behalf is that politics are not the driving force behind markets or economies anymore.

It is quite possible that US politics will be dysfunctional and irrelevant for the next few years, and that Trump's utterings neither hinder nor help business and consumer sentiment. Instead, the US economy will recover on its own at its own pace, and the Federal Reserve will do everything it can to support that economic recovery. Other economies will stage their own recoveries, and many ships will be lifted by the rising tide. But not all ships will rise, and not all tides will either.

Rather than invest where we think Trump's policies will impact the most, we will continue to invest where quality, and the opportunity for consistent growth, exists. In following our own narrative we may end up zigging when markets are zagging, but at least we'll be focused on the reality rather than the imagined. And if we get it wrong occasionally, at least we'll have ourselves to blame rather than a character from a believable but ultimately fictitious yarn.

That way our portfolios can live happily ever after!

For more story-telling — of the non-fiction but entertaining variety — please do register for the upcoming Fisher Funds 2017 client roadshow. We look forward to seeing you.

Carmel Fisher
Managing Director | Fisher Funds

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2017 Fisher Funds Client Roadshow

2017 Fisher Funds Client Roadshow

We are delighted to invite you to our client roadshow in May — register now to secure your seat to hear our latest thinking.


Managing your KiwiSaver account

Don't forget to grab what's yours

Don't forget to grab what's yours

It's that time of the year again: the annual government contribution (also known as Member Tax Credit or MTC) of up to $521.43 is there for the taking. If you are eligible* the Government will contribute 50 cents to your KiwiSaver account for every $1 you've saved in the year to 30 June. There is still plenty of time to top up your account to $1,042.86 in order to get your full MTC entitlement.

It's really easy to sort this. You can top up your KiwiSaver account for the current KiwiSaver year before Tuesday 27 June 2017.

You can read more online about who is eligible for a MTC, how it is calculated and how to make a payment.

*18 years or older, mainly living in New Zealand, and not yet eligible to withdraw for retirement

What a difference two years makes

What a difference two years makes

Remember the song lyrics, "What a difference a day makes, twenty-four little hours …"? Well, two years doesn't trip off the tongue as well as a day, but this time period could make a big enough difference for some people's retirement as to warrant its own soundtrack!

You'll be aware that the National Party recently announced its election policy of lifting the age of entitlement for NZ Super from 65 to 67. Their plan is to implement the policy gradually, starting in six monthly steps from July 2037 until it reaches 67 in July 2040.

Now it's important to remember that this is only a policy at this stage and will only become a reality if National wins the General Election in September. Because it is such a gradual policy, we're all going to be impacted differently depending on our age.

The people most affected are those born on or after 1 January 1974. The bottom line effect for you is that you're going to have to replace two years' worth of income that you were previously expecting to get from NZ Super. If you're single, you will need to find another $40,000; and if you're a couple, it's $60,000 (and these numbers are after tax).

Theoretically, by signalling a change this far in advance, you've got plenty of time to plan. And actually, a Massey University study of people aged 18 to 22 found that 73% were already expecting the age of eligibility for NZ Super to rise. So maybe you've already starting planning!

KiwiSaver can help you bridge the gap. The effect of compounding over long periods of time means that your KiwiSaver account is going to play an important role in ensuring you have sufficient retirement savings, whatever the official retirement age.

Give us a call if you'd like help with your planning. Two years need not make a difference at all.

Highlights and Lowlights

Your KiwiSaver portfolios: Highlights and lowlights

A snapshot of the key factors driving the performance of markets and your portfolios last month.

New Zealand

The New Zealand part of the portfolio outperformed the local share market which was up +0.4% in March. Fisher & Paykel Healthcare was one of our top contributors for the month, lifting 6.5%. The medical devices manufacturer continued to recover after the market's overreaction to ResMed's patent infringement lawsuit. The key underperformer was Tegel (-11.7%) as it remains under pressure from persistently weak poultry pricing.


The Australian part of the portfolio was slightly ahead of a strong Aussie market in March. CSL continued to win investor favour on the success of its key immune therapies and expectations of a strong recovery in its recently acquired flu vaccine business. After falling precipitously over the end of 2016, Australian IVF volumes started to improve providing support for the share price of Virtus Health. AUB Group (previously Austbrokers) rallied on expectations that commissions would benefit from rising insurance premiums.


Our international companies had a strong month returning 4.9% and outperforming the global share market. With international markets up by around 1% in local currency terms, the selloff in the New Zealand Dollar was a strong contributor to returns. For instance, our currency was down -2.5% for the month against the US Dollar. This was after the Federal Reserve raised the benchmark US interest rate by +0.25% mid-month and signalled further rate rises. As we hold stocks denominated in different currencies, these become more valuable when converted back into a depreciating New Zealand Dollar.

The Industrial sector also contributed to the outperformance during the month, while Financials were a drag on performance. Top individual contributors included Apple Inc. (+5%) which reached all-time highs during the month, while rival Samsung (+7%) also had a strong month where it's new Galaxy S8 and S8+ phones were well received. Among the detractors to returns was Amgen Inc. which was down -7% after announcing drug trial results which while positive fell short of investor expectations.

Fixed income

A resounding Trump (and Republican) defeat this month over the planned repeal of the Affordable Care Act further dampened optimism that the Trump Presidency will be as effective as hoped. This fuelled demand for safe-haven assets such as government bonds, continuing a trend that has now been in place since the start of the year.

Our managers have expected, and subsequently been positioned for, bond yields to rise over the past quarter. As mentioned, a series of political and macro-economic disappointments have caused bond yields in fact to fall. For now, our managers both expect this retracement in yields to be short-lived. As a result they continue to favour bonds which carry less interest rate sensitivity and prefer corporate over government bonds.

Your KiwiSaver portfolios

Smartphones are only so smart — technology versus the human brain

By Fisher Funds

Smartphones are only so smart

As a nation of early technology adopters, most of us would probably agree that smartphones have made life easier and better. Scanning your boarding pass on your Air NZ app makes travelling a breeze and choosing your pizza toppings is much easier with a tap and swipe! However, with the convenience and efficiency of smartphones comes the tendency to think less and rely on the device to do all the work. When it comes to bigger financial decisions, completing transactions on your smartphone might not be that clever — no matter how smart it is.

While internet banking is great for paying your bills and making sure your mortgage has gone out on time, we think for the really big financial decisions, using your smartphone is not, well, the smartest thing to do. A recent US study found that people performed significantly worse on a test of financial literacy (they were asked about things like interest rates and inflation) when they took the test on a smartphone, compared with pen and paper. This and other studies confirmed what most of us already know — devices tend to fragment our attention, leading us to multi-task and not bother thinking or understanding. The problem is that multi-tasking can lead to multi-mistaking.

When it comes to your investments and retirement savings we think you're better to use your own smarts (and ours too if you like) rather than your smart devices. You don't want to get in the habit of tapping and swiping quickly without considering the long term consequences of your behaviour. You wouldn't buy a house at the tap of a button, and neither should you make significant investment decisions like that.

By all means tap and swipe ... jump online to our website, call, text or email us or if you like the old-fashioned way of doing things, come and chat with us in person.

YouTube still king

By Chris Waters, Senior Investment Analyst, International

YouTube still king

In 2006, Google (now Alphabet) acquired YouTube, the most popular video site in the history of the internet.

At the time this acquisition drew plenty of criticism, given the high purchase price ($1.65bn) for what was a loss-making company with little revenue and a collection of user generated content and cat videos.

Google however saw something different. They saw a growing share of leisure time spent online and a strong source of video content and user data to ultimately monetize through digital advertising. Time has proven them right on both counts.

However, recently YouTube has been in the headlines for the wrong reasons. A number of large brands such as Pepsi and McDonalds have been pulling advertisements from the site, after a newspaper investigation found that ads from terrorist organisations and other offensive content were appearing on videos. Part of this issue stems from the fact that over 400 hours of video is uploaded every minute (or 65 years' worth each day!). This sheer quantity of content makes it difficult for the company to properly screen each video, allowing these kinds of mistakes to occur.

While these headlines have been unfortunate, the enormous volume of content on the platform is one of YouTube's strengths. Users watch over 1 billion hours of content a day, increasingly shifting viewership away from traditional television. YouTube's most watched video, the 2012 music sensation Gangnam Style has generated 2.8 billion views to date. This far outstrips even the most watched television event — the Super Bowl with 160 million viewers worldwide.

While unfortunate, we are not too concerned about the recent controversy. A large and growing audience and the ability to target advertisements to viewers means that advertisers cannot afford to ignore this platform. We have owned Google for a number of years now — and believe that we are only partway through this secular shift to online advertising, and still see plenty of growth ahead for the company.

Are you a collector or constructor?

By Mark Brighouse, Chief Investment Officer

Are you a collector or constructor?

Like Lego bricks, investments come in a wide range of shapes, sizes and colours. After a few years of investing you may find that you've accumulated quite a variety. While you may be happy to own a large collection, it may resemble a bin of loose bricks rather than having a cohesive design.

If an investor adds to their portfolio with every new share offer or bond issue they can end up with a collection that has lots of duplication, too much concentration and a lack of overall cohesion. Inevitably there will be a lot of very similar pieces and for an investor, this is a real problem. A jumbled collection means that you are more likely to get caught out by market turmoil, lose sight of your original investment plan, or abandon it at the worst possible time.

Every investor benefits from being methodical and organised.

The most successful investors are those who build well planned portfolios rather than collections of investments. They see themselves as "constructors" rather than "collectors".

The first step is to sort out your collection. This can be achieved by classifying investments into categories or, to use a market term, "sleeves" of similar securities. Typical sleeves are NZ Shares, Australian Shares, International Shares, Property and Infrastructure, Cash and Fixed Interest.

You should place each piece in its relevant sleeve and measure the size of each sleeve. It is likely that most people will find that the largest sleeves by far are New Zealand shares or bank deposits. In contrast, a well balanced portfolio will have a healthy weighting to international investments and to fixed interest assets.

There is not going to be a single allocation that suits everyone. It has to be matched to your individual risk tolerance and objectives.

The tough part is that inevitably you will have to throw some pieces out. This can be hard with Lego — ask any parent — and may be even harder with investments; but it has to be done if you want to create something great.

Bear in mind that in a diversified portfolio not every sleeve will be as colourful or exciting as others. The very nature of a well balanced, diversified portfolio is that some sleeves will be going strongly while others are going sideways; but that's the aim of a long term portfolio.

The construction process is not a one-off. It requires ongoing adjustment to stay on course and ensure that the end result is solid.

Constructing a well balanced portfolio is like turning a pile of Lego bricks into an amazing castle. Become a constructor rather than a collector!

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