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July 2014 Newsletter

Carmel Fisher

Happy birthday! KiwiSaver blew out seven candles on the first of July. It is quite staggering to reflect on the impact that KiwiSaver has had on the national savings landscape. There are now more than 2.3million New Zealanders in KiwiSaver, more than three times Treasury's 700,000 initial estimate. Those members have already built a $21 billion nest egg. While retirement is a long way off for many members, 15,000 people have used KiwiSaver to help them achieve the long-held Kiwi dream of buying their first home. To celebrate KiwiSaver's seventh birthday, we're pleased to announce the introduction of a new investment option for members – GlidePath – our "lifestages" investment solution.

Carmel Fisher
Managing Director | Fisher Funds

Team Talk

Roger Garrett talks about the emergence of e-Commerce companies in the International portfolio.

Watch video

At a Glance

As at 30 June 2014

Unit Prices ($)
Preservation Fund $2,595.4857
Conservative Fund $1.4580
Balanced Fund $3,828.5967
Growth Fund $1.3236
Equity Fund $3,264.7781
Cash Enhanced Fund $1.4065
Net Performance (June 2014)
Preservation Fund + 0.3%
Conservative Fund + 0.4%
Balanced Fund + 0.6%
Growth Fund + 0.8%
Equity Fund + 0.9%
Cash Enhanced Fund + 0.4%

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Investment Commentary

Investment commentaryGlobal share markets moved higher in June despite increasing tensions in Iraq and rising oil prices. This positive environment flowed through to the returns for your KiwiSaver funds over the month.

High weightings and favourable share price movements in F&P Healthcare, Mainfreight and Ryman Healthcare were the highlights from our New Zealand businesses. On the downside, Kathmandu issued an earnings downgrade for their current financial year with their key winter sale period significantly affected by the warmer weather. We have owned Kathmandu for over four years and acknowledge that periodically one of its sales periods will not go well and have reflected this into our portfolio weighting. Overall, however, Kathmandu is in a favourable sector (adventure travel), has a good track record, robust growth opportunities and is well run.

Our international share market exposure continues to perform strongly. An overweight allocation to Utilities, good stock selection in the Consumer Discretionary, Utilities and Energy sectors, lower US exposure than the benchmark and a strong performance by our emerging markets manager, Somerset, have been the big contributors. On the flipside, returns have been hurt by holding higher levels of cash and stock selection in IT, notably underweight exposure to Apple which has rallied strongly over the last six months.

Investing internationally does brings another layer of complexity. In addition to identifying companies to invest in there is also the impact of currency to consider. When we buy or sell shares overseas we complete these transactions in the local currency e.g. US dollars. The value of the New Zealand dollar relative to foreign currencies is not fixed and subject to market movements. We use currency hedging to reduce the impact of currency on investment returns from overseas assets. For example, the Growth Fund had investments in over 35 countries.

In New Zealand, a currency hedge might be used when investing in overseas markets if it is thought that the value of the New Zealand dollar will strengthen relative to other currencies and thus negatively affect the returns of those investments when converted back to New Zealand dollars. The New Zealand dollar may strengthen if the New Zealand economy is considered to be in a stronger position compared to the country and currency it is being compared against.

Another factor that influences currency is relative interest rates. Some investors may seek out currencies that offer them a higher return when invested in that currency than what they can achieve in their own country. This influence was prevalent in New Zealand during the mid to late 2000's as our interest rates were very high compared to many countries. You may recall media headlines talking about Japanese housewives or Belgium dentists buying the Kiwi dollar.

Decisions to hedge are made on a currency by currency basis and are actively managed. No two currencies have the same profile so we take a "view" on each of these currencies relative to the New Zealand dollar. Our view then dictates which currencies we hedge and how much. Hedging is typically done progressively as currency moves away from what we consider "fair value".

We have employed a hedging strategy for our overseas share investments over the last year that has helped protect the value of your investments as the New Zealand dollar has strengthened against most major currencies. To put it into perspective the New Zealand dollar has strengthened against the US dollar, Euro and Australian dollar by over 13%, 7% and nearly 10% respectively over the last 12 months.

Lastly, one of the big consumer-led shifts affecting business over the last 10 years has been e-Commerce. In this month's investment video commentary, Roger Garrett, our Senior Portfolio Manager for International Equities, talks about the impact e-Commerce is having on business, where the trend is heading and how we have structured our exposure to this fast growing and important sector. Watch here.

KiwiSaver Classroom

Risk and return continued

In June's newsletter we discussed the relationship between risk and return. We take that topic further this month and look at measures we have in place to manage risk.

All investments involve risk, and risk manifests itself in many ways. Our entire investment process is about managing risk and return.

Investment guidelines are in place for each Fund and these have been agreed with the Trustee. These investment guidelines contain the permitted investments, exposure levels and investment criteria for the investments held in the Funds. For example, the Balanced Fund long-term benchmark to growth assets is 55%. However, the approved range for growth assets is 35% to 75% providing flexibility to reflect changing market conditions.

Prior to investing in a company, we undertake rigorous analysis to determine the suitability of that particular company for inclusion in a Fund. We follow a disciplined investment approach to determine whether we should invest in a company and to assess how much we should have invested in that company. We regularly assess the rankings of our companies to ensure our weightings reflect the risk and return characteristics.

Our regular company visit schedule plays an important role in determining if our rankings and company weightings need changing. In essence, these visits help us determine if a company is still performing as we expect. If a company's performance is likely to be materially different (better or worse) to what they told investors, they are obligated to inform the market. However, our visits can uncover trends that concern us or reinforce our view of a company, for example, a delay in getting a new product to market.

This regular company visit schedule plays an important role in managing risk and maximising return.

Managing my KiwiSaver account

Introducing GlidePath

What is it?

GlidePath is a service that automatically allocates and adjusts your KiwiSaver savings to a Fund or a combination of Funds based on your age over time.

What is the key benefit of GlidePath?
GlidePath takes away the hassle of reviewing your investment strategy by automatically adjusting your investment mix to a strategy that we believe is appropriate for a typical person of your age.

How does it work?
While some lifestages strategies adjust a member's asset allocation infrequently (resulting in bigger one-off shifts of asset allocation) GlidePath will make adjustments to member's asset allocation every year following their birthday from age 28. This will result in a smoother transition of asset allocation and reduce the risk involved of switching on one day over a longer period of time.

There is no additional fee to participate in GlidePath.

Is GlidePath suitable for everyone?
GlidePath does not take into account your personal circumstances and may not be suitable for all members. For example, it may not be suitable for someone saving for their first home as it assumes you are investing for your retirement. Also GlidePath does not take into account your personal risk tolerance, and therefore may not be suitable for people who are particularly cautious when it comes to investing.

How do you join GlidePath?
You can opt into or out of GlidePath at any time after you join the Scheme simply by completing a switch form or making this adjustment within your online access facility.

Keen to learn more?
We have a web page dedicated to GlidePath where you can read all about the ins and outs.

Getting to know Jorden Barron

Jorden BarronJorden joined our client services team in September 2013 with the official title Client Services Administrator. That title doesn't really do justice to Jorden's role as she has dealt with, and continues to deal with all manner of client enquiries from KiwiSaver first home purchases and serious financial hardship claims and advice regarding our managed funds, through to incomplete forms, changes of address, emigration withdrawals – you name it, Jorden has dealt with it! Not only has she dealt with hundreds of enquiries each week (and more in busy periods) but she has done so with her characteristic warm and friendly manner and a dedication to client service.

Jorden grew up in Hawke's Bay and moved to Auckland as a teenager, attending Long Bay College before joining a contact centre in a large bank. She enjoyed this role for a couple of years but has relished the opportunity to work with a smaller team at Fisher Funds, where clients (and team members) are treated as individuals rather than cogs in a big wheel.

Jorden was the only girl of five children and is a real girl, being obsessed with all things fashion and having a passion for fitness and living a healthy lifestyle (well, except for the strong coffee that she can't start her day without!). She enjoys wearing sky-high heels and makes walking in them look easy (it's not).

Jorden lives in Ponsonby with partner Ash, and they have recently returned from a three-week adventure in Bali where they immersed themselves in the amazing culture, not to mention the waves and the sand. With the recent onset of winter weather though, memories of balmy Bali are quickly fading.

Fund Facts

Fund Performance (as at 30 June 2014)

Fund After Fees & before-tax Returns 3 Months 1 Year 2 Years* 3 Years* 5 years* Since Launch*
Preservation Fund + 0.9% + 3.1% + 3.3% + 3.2% + 3.1% + 4.1%
Conservative Fund + 2.0% + 8.0% + 7.5% + 6.7% + 7.4% + 5.2%
Balanced Fund + 2.5% + 12.0% + 11.9% + 8.4% + 8.8% + 5.0%
Growth Fund + 2.8% + 15.0% + 15.7% + 9.9% + 10.5% + 3.5%
Equity Fund + 3.1% + 17.9% + 17.3% + 9.3% + 10.3% + 0.9%
Cash Enhanced Fund + 2.0% + 7.1% + 6.4% + 6.1% + 6.1% + 5.2%

* 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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