'Tis the season ...
It was so tempting to start this final newsletter of the year with the same words I used last year: “we’ve got to the end of the year — a good year, a forgettable year, a year that for investors was not too different from the preceding two years”. But that would have been altogether too bland, and a year-end newsletter should never be that (even if it is factually correct).
I was also tempted to summarise the year’s economic drivers and major market themes — however, that also risked blandness, not to mention repetition. I went to my favourite weekly newsletter and reviewed the key topics from each of the last year’s issues and — you guessed it — they were virtually the same as the topics through the 2014 year. The year can essentially be summarised by: China’s growth, impending interest rate hikes by the Federal Reserve, bonds and interest rates, currency, commodity prices and the US economy. Yawn.
Arguably it is risky writing a year-end newsletter in the early days of December — something really momentous could happen in the final three weeks of the year. I am a risk-taker though, and anyway, I predict that if something momentous is going to happen in the final days of the year, it won’t relate to investment markets. It will most likely relate to other, more important aspects of our lives. It could be the birth of a grandchild, a new career direction, a generous year-end bonus, a new drug to cure our ailments, or best of all, an end to terrorism and all the other things that threaten our happiness and sense of wellbeing.
You see that’s the thing about the end of the year. We can cut ourselves some slack and focus on the really important things. If your investing experience has met your expectations so far in 2015, great — go ahead and enjoy the festive season, because your expectations won’t be dashed, regardless of what happens from here. If your investment expectations haven’t quite been met, it may be that your expectations or your investment strategy need to be reconsidered. Why don’t you give us a call and make a time in January to come and chat through the appropriate investment settings for you. There’s no instant fix to be had in the next few weeks, so switch off the money channel and join your family on the couch for some lighthearted viewing.
The Fisher Funds team would like to thank you sincerely for your continued support, and for telling your friends and family about us. We really do appreciate it.
We’ll be in touch again in February, and will let you know what you missed over the summer break and what might lie ahead in the 2016 year. We wish you the very best for the festive season — take care out there.
Oh OK. For those of you who just can’t switch off yet, who just need to know what’s happening next, here is the mainstream outlook for 2016 (according to a variety of important economists from around the world). China will continue to slow. The US will continue to outperform its peers. With global demand soft, interest rates and the prices of commodities will likely remain low. Central bankers will remain in the spotlight as they attempt to nudge interest rates higher (US) and stimulate growth (Europe and Japan). The world economy will be stronger than in 2015 and roughly in line with long-term growth averages. One economist aptly summarized it as follows: The coming year will be “OK-ish”.
There you are — told you — bland.
Now, Merry Christmas and a Happy New Year!
Managing Director | Fisher Funds
Your KiwiSaver portfolios
The best and worst of 2015
|International shares||New Zealand shares||Australian shares|
|Amazon||0.47%||Fisher & Paykel Healthcare||3.92%||Burson Group Ltd||1.98%|
|Alphabet (formerly Google)||0.35%||Summerset||1.53%||CSG Limited||1.85%|
|Drillisch||0.33%||EBOS||1.51%||Domino's Pizza Enterprises Limited||1.55%|
|Alphabet (formerly Google)||0.35%|
|New Zealand shares|
|Fisher & Paykel Healthcare||3.92%|
|Burson Group Ltd||1.98%|
|Domino's Pizza Enterprises Limited||1.55%|
|International shares||New Zealand shares||Australian shares|
|Qualcomm||-0.16%||Ryman Healthcare||-0.90%||Seek Limited||-0.45%|
|First Quantum Minerals||-0.15%||Michael Hill||-0.75%||ANZ Bank||-0.62%|
|First Quantum Minerals||-0.15%|
|New Zealand shares|
Contribution to return as measured for the period 1 January 2015 to 30 November 2015
For our final newsletter of 2015, we thought we’d look back on what has gone well and what hasn’t gone so well for each of our portfolios. It’s easy to forget what has happened and the following are among the most memorable for us, good and bad.
By Mark Brighouse, Chief Investment Officer
2015 was a strong year for international shares but mostly aided by the decline in the New Zealand dollar relative to the currencies that the portfolio invests in. Before currency effects the returns were much less exciting. The US market is by far the largest in the world and it has bounced around either side of a zero return for much of the year. It was pleasing to see continental Europe and Japan managing to eke out double digit returns (but only just).
The broadly diversified international share portfolio tracked its benchmark quite closely but there were some highlights and lowlights in terms of sector performances.
The strongest part of the market has been the consumer discretionary sector because it includes online retailers such as Amazon.com (which rose by 100% over the year and features in the portfolio).
This is in stark contrast to the energy sector which detracted from portfolio performance as holdings such as Marathon Oil in the US were adversely affected by the oil price slump. It has been a tough year for commodity producers of all kinds but oil companies have been particularly hard hit.
Often the biggest contribution to performance can come from avoiding the overvalued parts of the market that are vulnerable to corrections. This was the case with the emerging markets portion of the portfolio which is managed by UK firm Somerset Capital Management. Somerset avoided the selloff in Chinese shares in the middle of the year by holding just one Chinese company and having a large underweight to the country.
We expect that there will continue to be a wide dispersion between regions and sectors in the international share markets and a good spread of holdings remains a key consideration.
New Zealand shares
By Murray Brown, Senior Portfolio Manager, New Zealand shares
Fisher & Paykel Healthcare has been one of the star performers in the New Zealand share portfolio again this year, with a total shareholder return of 32% year to date. The company epitomises what we look for in an investment: it operates in a non-cyclical industry with a strong demand tailwind, it develops innovative products for which there are growing international markets, and importantly, this demand translates into strong and sustainable earnings growth. Finding a company that offers both quality and earnings growth sounds easy, but it’s not. F&P Healthcare is one of those rare companies and is among the largest positions in our portfolio.
We were very picky in selecting new IPO listings last year, missing many of the software related floats that have subsequently performed poorly this year. So we were disappointed that the share price of the only IPO addition to the portfolio, Metro Performance Glass, did not perform to expectations during this year. That said, as one of our smallest holdings it did not hurt performance materially, and the company is now starting to get good performance out of its new start-of-the-art Auckland plant. We added the company to the portfolio due to its dominant market position, national distribution and the strong structural demand for double glazing of existing residential homes. More recently the share price has started to reflect these factors and is now back close to its initial listing price.
By Manuel Greenland, Senior Portfolio Manager, Australian shares
Our largest portfolio position, Ramsay Healthcare, delivered a 25% return over the year. Nine portfolio stocks delivered superior returns, so Ramsay was not our star performer, but in ten of the last 11 months Ramsay’s share price out-performed the market. Importantly, Ramsay out-performed in three of the four months during which the market fell. Ramsay typifies our investment style; it has a tremendous scale advantage and substantial opportunities to grow by reinvesting its sizeable profits. We’re pleased to have our flagship position delivering a solid and stable return over the year.
“Market efficiency” refers to the idea that share prices reflect all available information. In March we bought shares of ANZ and Westpac. We recognised that Aussie banks would be required by regulators to raise additional capital, and believed that banking shares reflected this information at the time. In fact as the banks have undertaken these raisings, their share prices have suffered. It is frustrating to see the market responding to an issue we thought was commonly understood. While the market being only “partially efficient” is challenging, investor perceptions cannot change the true value of a company over the long-term, so we remain comfortable with our Aussie bank positions.
David McLeish, Senior Portfolio Manager, Fixed Interest
It hasn’t been the most memorable year for safe-haven assets. With just one month to go the global bond market, as measured by the Barclays Global Aggregate in U.S. dollar terms, has registered its worst performance since 2005. However, as was the case back then, last year’s losers can often become next year’s winners — and that is exactly what we predict will happen again this time around. Onwards and upwards, and here’s to an even more prosperous 2016!
While the country was still riding high on its “rock-star economy” tag this time last year, we were adding to our defensive, fixed income investments in New Zealand (while reducing our international exposure), as we didn’t share the market’s optimism. As you can imagine, holding assets that do best in weak economic conditions wasn’t on the minds of many people at that time. However, this contrarian decision has been a key contributor to the performance of our fixed interest portfolios over the first 11 months of this year.
Notwithstanding a mild improvement of late, we still expect New Zealand’s growth rate to slow next year on the back of a weak international outlook, dry weather conditions and a leveling off in construction activity. But most importantly for fixed income investors, we expect inflation to remain low. Should this outlook play out as expected we would not be surprised to see New Zealand fixed income assets produce even better returns next year.
What we're reading
A father’s letter to his adult children at Christmas.
Starting this year, mom and I will no longer be gifting you money as we have done since 2006. You appear to be doing so well financially, buying what you need when you need it, that the gift does not seem necessary.
We’ll be putting the amount we’d have given you into a fund that you will inherit for the benefit of your own children. Our intent is to leave the money to our grandchildren, but to give you some control over it.
We know there will be times our grandchildren may find themselves needing help with education, transportation or housing expenses. Maybe even for a comfortable retirement if they can keep the money invested and let the earnings grow. What they do with the money they inherit (through you) depends on you, their parents, as you teach them about personal finance before they leave the nest.
We taught you mostly by example. Only you can know how effective that was, if at all. There should have been some kitchen-table instruction that we regret never happened. We also regret that the kitchen table, chairs and instruction are always available today, but never taken.
Frugality, like anything else, can be taken to extremes. Mom and I don’t think we ever went to those extremes, but we know we sometimes came close. A few years in the 1980s (remember?) we were really broke. We learned from that time. If money is to be wasted — the opposite of frugality — it should be wasted in youth. But it’s obvious that if money is wasted, at any time, it’s money that won’t be there later in life. We think of this whenever we see those unfortunate souls sleeping under a bridge, all their possessions in a shopping cart. It also applies, if not as painfully, to those living at home, but miserable and anxious, struggling with a too-tight budget.
So with our expected life span of another 20 years or so (during which we will continue gifting), and the stock market willing, each of your children should inherit thousands of dollars. We leave it to you to educate your children so that their windfall is a blessing, not a curse.
It would be best if the grandchildren did not know about this account. We’d like to see them develop habits of frugality, never knowing they’re going to come into some money. It’s not a lot, we know that, but probably enough, if used wisely, to make some difference.
We love our grandchildren and want to give them a boost later in their lives. So unless you have any convincing objections to our plan, this is how it will work from now on.
Fisher Funds view: It can be easy to take money for granted. We thought this letter was a lovely reminder that we all have a responsibility to make good money decisions for ourselves and our family.
Managing your KiwiSaver account: KiwiSaver myth-busters
KiwiSaver has been around since 2007 and we still hear many myths about KiwiSaver. This month we “bust” a few of the common ones.
MYTH #1: You have to take out all of your money when you reach 65
No you don’t. You have a number of options available to you to suit your circumstances. Of course, you can withdraw all of it but you can also:
- Keep your savings in your KiwiSaver account — If you don’t need your money straight away, you can keep it where it is and we’ll continue to manage it for you exactly like we do now
- Setup a regular withdrawal — This is a convenient way to manage your money and supplement your pension or any other retirement income sources
- Make lump sum withdrawals at any time — Keep your money working hard in your KiwiSaver account with the comfort of knowing you can access your funds at any time to help with one-off expenses etc
- Use KiwiSaver as a one-stop-shop for other retirement savings you may have. A lot of our customers are looking for ways to combat low term deposit rates; KiwiSaver is a great way to diversify your money.
There are many good reasons to consider keeping your KiwiSaver account open.
Learn more about using your KiwiSaver account in retirement and how this could work for you.
MYTH #2: KiwiSaver is only for employees
Not true. If you are self employed or not working then you can still join and take advantage of certain benefits that you would otherwise miss out on.
You can choose how much and how often you want to save, but if you can afford to contribute the equivalent of $20 per week ($1,042.86 per year) then the Government will contribute up to $10 per week ($521.43 per year) each KiwiSaver year. Note this applies to members aged 18 and over.
Subject to the normal criteria, you may also be to withdraw your eligible savings to help buy your first home and may qualify for additional help from the government via the KiwiSaver HomeStart grant.
MYTH #3: It doesn’t really matter what fund I am in
Oh yes it does!
How your savings are managed is one of the most important decisions you can make about your KiwiSaver account. Even a small increase in the average annual return on your savings can make a significant difference to the value of those savings when you retire.
Everyone is different so most KiwiSaver schemes offer a range of funds to cater for people at various stages of their life. The right fund or mix of funds for you will depend on how long you have to save, your appetite for risk and your tolerance for ups and downs that will happen along the way.
If you haven’t thought about this for a while, our investor profile questionnaire is a good place to start. Consider it 10 minutes well spent from the deck chair over the holidays!
Office Christmas hours
Fisher Funds wish you and your family a Merry Christmas ...
Our office will be open throughout the Christmas/New Year period except for the statutory holidays.