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February 2014 Newsletter

Carmel Fisher

Welcome to the new look monthly Fisher Funds TWO KiwiSaver Scheme update. I trust you had an enjoyable holiday break and recharged the batteries. Hopefully, you have received an information pack from us recently outlining a number of changes that have been made to the Scheme. As a reminder, all of the changes are "behind the scenes" - there is nothing for you to do. In this issue we provide an update on investment markets, introduce another member of our investment team and shed some light on the parties involved with your KiwiSaver Scheme account.

Carmel Fisher
Managing Director | Fisher Funds

At a Glance

Unit Prices ($)
Preservation Fund $2560.8739
Conservative Fund $1.4050
Balanced Fund $3627.8340
Growth Fund $1.2394
Equity Fund $3014.4802
Cash Enhanced Fund $1.3600
Net Performance (December 2013 & January 2014)
Preservation Fund + 0.5%
Conservative Fund + 0.7%
Balanced Fund + 0.4%
Growth Fund + 0.1%
Equity Fund - 0.2%
Cash Enhanced Fund + 0.9%

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Investment Commentary

Investment commentaryAs investors, we have all been blessed over the last couple of years with strong positive returns as share markets have enjoyed a long period without a significant correction. 2014 started in the same vein but as we moved through January, fresh concerns were raised about the strength of the global economic recovery unsettling markets and investors.

We've previously written about the US Federal Reserve's (Fed) decision to wind back its asset purchase program; a program that was designed to stimulate its economy. During January, the Fed announced its second consecutive $10 billion reduction in this program on the back of what it felt was a continued improvement in key economic indicators such as employment. As a result share markets pulled back quite strongly (at least initially) as investors perceived more risk around growth in the US and emerging markets and conversely, as you would expect, bond markets gained.

One of the popular analogies over the last year has been that tapering the asset purchase program is like removing the punchbowl from the party. Many commentators feel that emerging markets have been a big beneficiary of this party, propping up their economies and asset prices. So in the face of the punchbowl being removed investors became concerned about capital outflows from these emerging markets. Turkey and Argentina saw significant depreciation in their currency while Russia, Brazil and South Africa also suffered, albeit to a lesser extent.

The Fed's decision to taper coincided with some weaker than expected economic data releases from the US, renewed concern about rising debt/GDP levels in China and question marks over China's rate of growth. A deceleration in the Chinese economy obviously has significant growth ramifications for both developed and emerging economies.

It's important to keep these market developments in perspective - such concerns are not new or uncommon. There is no doubt that we should be prepared for a more volatile year than last year simply because we are that much further through the economic cycle. As long-term investors we know to expect volatility from time to time. It is a fact of life. In 2013, we didn't have a correction or crisis but we nevertheless had 17 days on which the S&P500 dropped by 1% or more. For disciplined investors, volatility represents real opportunity.

So really the events of January were not surprising. We didn't learn anything we didn't already know about some of the key "big picture" influences and, on balance, news from our companies was positive. Our focus remains on positioning your portfolio for long-term gain so we aren't concerned with what a company's share price will be tomorrow.

In terms of the current composition of your KiwiSaver Scheme funds, we continue to be underweight in our exposure to Australian shares. The Australian economy is struggling to replace the mining investment boom of the last 20 years with other sources of growth; the effects of which are being felt throughout the economy. While cuts in interest rates will help both businesses and householders in time, employment, confidence levels and terms of trade remain relatively soft. We're also mindful of the regulatory risk that election year brings to the New Zealand share market despite "rock star" status being accorded to the economy recently by HSBC.

Our attention turns this month to company reporting season which allows us to get an up-to-date assessment of how our investments are performing against the market and our expectations.

KiwiSaver Classroom - Where does my KiwiSaver money go?

Where does my KiwiSaver money go?Fisher Funds is a specialist investment manager that manages money on behalf of its investors. What many people don't appreciate is that there are other parties involved in the governance of the Fisher Funds TWO KiwiSaver Scheme that ensure your hard earned savings are invested in accordance with your instructions and correctly accounted for.

So who are the parties to your KiwiSaver Scheme account and what do they do?

Investment Manager - Fisher Funds' role is to manage the money in line with the mandate of each investment option within the Scheme. It is important to note that no investors' money is invested within Fisher Funds itself. Fisher Funds simply charges a fee for the investment management service it provides.

Trustee - Trustees Executors Limited (New Zealand's oldest Trustee Company) acts as Trustee for the Scheme's investors. Their sole function is to protect the interests of investors. They are responsible for ensuring that Fisher Funds meets its obligations to investors including checking that the Scheme's investments comply with the mandate outlined in the Prospectus. Fisher Funds must also provide regular reporting to the Trustee certifying that we have acted in accordance with the relevant trust deed.

Custodian - All investors' money is held in trust by a custodian who is appointed by an independent Trustee. The custodian is completely independent of Fisher Funds. In order to make payment from the Fisher Funds TWO KiwiSaver Scheme it must be authorised by the trustee and/or custodian. Fisher Funds is unable to make payments directly from the Scheme's bank account because it does not have authority to act on accounts that belong to the trustee or the custodian.

Trustees Executors Limited is the Custodian for the Scheme's assets and settling agent for the Scheme's transactions. Trustees Executors Limited holds the scheme assets in its wholly owned nominee companies. They reconcile all bank accounts daily and the investment holdings at least monthly back to the underlying share registries, so that they know all the assets are real and are held in their name.

Who monitors the Trustee and the Custodian?

The Trustees of KiwiSaver Schemes must be licensed and are monitored by the Financial Markets Authority.

How often are the assets of each Fund revalued?

The investments in each fund are independently valued each business day and a new unit price issued. That is the price for both contributions (creation of new units) and withdrawals (sale of existing units). All of each fund's net asset value is reflected in the unit price.

What costs are incurred by Members and the Manager?

There are clear rules in place that govern what fees and expenses are payable by you in connection with your investment in the Scheme. Pages 28 to 30 of the Investment Statement outline these rules. Any costs involved in marketing the Scheme to attract new members are incurred by Fisher Managed Funds Limited. The recent information pack sent to investors about the change of Scheme name was paid for by Fisher Managed Funds Limited, not members, as the change was driven by us.

View a visual summary of the above here.

Introducing Roger Garrett

Roger Garrett

Senior Portfolio Manager -International Equities

Roger is responsible for managing our International Equity portfolios and joined the team in October 2012. Roger brings significant industry experience beginning his investment career began in 1988 as an economist and analyst at Francis Allison Symes. In 1991 he joined Citibank Investment Management as a Senior Portfolio Manager responsible for managing the equity and bond portfolios. In 1994 he transferred to London with Citibank and joined their Emerging Markets equity team as a Portfolio Manager. In 2004 Roger moved into the role of Head of Global Equities at Citigroup until the asset management business was sold to Legg Mason at the end of 2005. Roger then moved back to the Emerging Market equity team as a Senior Portfolio Manager and Head of Research.

Outside of the office, Roger has a keen interest in wine. While many people consider themselves wine buffs, Roger can truly lay claim to wine connoisseur status. He has previously judged at the Air New Zealand Wine Awards and Royal Easter Show Wine Awards, and while living in the UK he was a regular on tasting panels for well known UK wine magazine, Decanter. All of this experience came to the fore at a recent company function where he impressed the rest of the Fisher Funds team with his spittooning ability.

Fund Facts

Fund Performance (as at 31 January 2014)

Fund After Fees & before-tax Returns 1 Month 3 Months 1Year 2 Years* 3 Years* 5 years* Since Launch*
Preservation Fund 0.30% 0.60% 3.20% 3.30% 3.20% 3.10% 4.10%
Conservative Fund 0.50% 0.70% 4.80% 6.60% 6.00% 6.90% 4.90%
Balanced Fund 0.20% 0.30% 7.40% 9.60% 6.90% 7.80% 4.40%
Growth Fund -0.10% -0.10% 9.60% 12.70% 7.70% 9.50% 2.60%
Equity Fund -0.30% -0.70% 10.50% 12.10% 5.90% 8.80% -0.30%
Cash Enhanced Fund 0.60% 0.80% 4.30% 5.90% 5.60% 5.70% 4.90%

* Annualised return before tax and after fees

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.

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