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June 2014 Newsletter

Carmel Fisher

It was great that so many of you shared your opinion with us last month about the Labour Party's proposal to use KiwiSaver contributions to control inflation. The results are in and 55% of you voted against the proposal, 40% voted in favour and 5% were unsure – clearly opinion is divided as it no doubt will be on all manner of issues in coming months. This is an election year after all! The media and politicians have moved on from the subject of KiwiSaver in recent weeks, but we haven't. June is an important month for those of you who need to top up your KiwiSaver account or make your annual contribution – we have all the information you need in the Managing your KiwiSaver account section.

Carmel Fisher
Managing Director | Fisher Funds

Team Talk

Australian share portfolio update with Manuel Greenland‏.

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At a Glance

As at 31 May 2014

Unit Prices ($)
Preservation Fund $2,588.7018
Conservative Fund $1.4521
Balanced Fund $3,804.2525
Growth Fund $1.3135
Equity Fund $3,235.7815
Cash Enhanced Fund $1.4016
Net Performance (May 2014)
Preservation Fund + 0.3%
Conservative Fund + 0.9%
Balanced Fund + 1.0%
Growth Fund + 0.9%
Equity Fund + 0.8%
Cash Enhanced Fund + 0.9%

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Investment Commentary

Investment commentaryMay was another good month for members of the Fisher Funds TWO KiwiSaver Scheme with positive performances recorded by all funds. Global markets dipped in early May then recovered in the second half as sentiment improved on the back of better US economic data and a strong start to the US first quarter reporting season.

The funds benefitted in particular from strong performances from our Trans Tasman companies and the performance of our fixed interest or bond positions managed by PIMCO.

The contributions of New Zealand companies, Fisher & Paykel Healthcare and Mainfreight were highlights. Fisher & Paykel Healthcare continues to achieve excellent earnings growth rates in constant currency terms and its net profit was up 26% on the previous year. The elevated NZ$ has been a headwind for some time but we prefer to look at underlying earnings which have been very strong (up 46%), and the outlook remains positive.

The Mainfreight result was slightly better than expected but it was management's bullish outlook on its offshore operations that got us excited. The company now believes that its Australian division will deliver more profit than its New Zealand division in the medium term. Those with long memories may recall that Mainfreight struggled for many years just to get their Australian operations to break-even.

While these companies are headquartered in New Zealand and listed on the local share market they are truly global businesses. F&P Healthcare and Mainfreight earn 97% and 74% of their revenues offshore respectively. While this adds to their complexity it also diversifies their revenue and earnings base.

Our largest Australian holding, SAI Global, was the subject of a takeover bid by a private equity company. This generated interest from other parties propelling the share price up to the indicative takeover bid price of A$5.10. We've elected to sell our holding believing it to represent a good exit price and result for investors given the takeover has some way to go before being finalised let alone approved.

Generally speaking, Australia's short term economic challenges, which have been well highlighted over the last year or so, remain. However, we still believe it still remains an attractive investment destination over the long term. Our Australian team spent a lot of May across the ditch and met with the management teams of more than 50 companies. There will come a time when we increase our exposure to the Australian share market so this type of hands-on market and company research is integral to ensuring we have our "finger on the pulse" and know when to make a change. Senior Portfolio Manager, Manuel Greenland, provides some perspective on Australia's situation in this month's investment commentary. Watch for a detailed update on Australia.

Further afield, our international share exposure has performed strongly over the last year. International share markets have been in a buoyant mood over the last 12 months and pleasingly our stock selection process focusing on high quality businesses has seen us outperform the global benchmark.

KiwiSaver Classroom

Risk and Return
While we try and keep our communications simple to understand, sometimes investment lingo can sneak in. We continue our series breaking down some of that jargon.

The relationship between risk and return is a concept that is often overlooked and misunderstood by investors. However, risk and return sits at the very heart of investing. Let us explain.

All investments (e.g. KiwiSaver) involve taking some risk. The risk of investing is essentially the chance of negative returns or receiving back less than you have invested. The potential return of an investment is generally related to the level of risk. The greater the amount of risk an investor is willing to take on, the greater the potential return. The reason for this is that investors need to be compensated for taking on that additional risk.

As a general rule, income investments such as Cash and Fixed Interest tend to be less volatile than growth investments such as Shares, Infrastructure and Property investments. By applying this theory to the Fisher Funds TWO KiwiSaver Scheme, you can better appreciate the outcomes likely to be achieved over the long term by the different KiwiSaver funds.

For example, the Growth Fund invests in a higher proportion of growth assets (76.7% at 31/3/14) which will have the potential for higher returns in the long-term but experience more ups and downs (volatility). In contrast, the Conservative Fund is invested in a higher proportion of income assets (70% income assets at 31/3/14) which will have lower long-term potential returns but have less volatility and therefore have less risk attached to them.

As an investor, you need to decide how much risk you are comfortable with, which will depend on your personal circumstances (how long you have to invest and your appetite for risk) and your investment objectives. In order to receive a potentially higher return, you may choose to accept a higher degree of volatility.

Next month, we'll write about the various measures we have in place to manage risk.

Managing my KiwiSaver account

Less than 20 days to get your Big Five Hundy!
The end of the KiwiSaver year is nearly upon us. We're sure you don't want to miss out on the Government's annual contribution to your KiwiSaver account so here's what you need to know.

For every $1 you contribute to your KiwiSaver account you'll receive 50 cents from the Government, up to a maximum of $521.43. This generous KiwiSaver incentive is known as the MTC (member tax credit).

To maximise your full MTC entitlement of $521.43 you need to have contributed at least $1,042.86 (the equivalent of $20 per week) into your KiwiSaver account. If you have not put in at least this amount, you can top up your KiwiSaver account for the current KiwiSaver year (1 July 2013 to 30 June 2014) before Thursday 26 June 2014.

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

Getting to know Roger Garrett

Roger Garrett

Like so many of the Fisher Funds team, Roger is a multi-faceted personality who packs a lot more into his life than just his day job, which in itself occupies a lot of waking hours! Roger manages our international equity portfolios and is really happy to be back in New Zealand after working in the financial markets in London for twenty years.

Roger is particularly keen to revisit some old interests that were put on hold while he was overseas, like hiking and climbing, while remaining active in squash, tennis, skiing and golf along with regular gym sessions to balance out the hours spent behind the computer.

Roger is not alone in being interested in wine, though his interests are rather more developed than us social drinkers. He has amassed a significant wine collection which he brought back with him from the UK and has had the opportunity to taste and judge many top quality wines over the years. Roger describes two of his passions as managing money ("one of the most fulfilling jobs when you put in the work, reach the right decision and as a result, make money for your investors") and driving fast(ish) cars – responsibly of course!

The apples of his eye though, are his two daughters Paige and Sophie who "even after 17 and 14 years continue to melt my heart". Aaww! He is not so in awe that he tolerates all the sounds that come from the girls' iPods, but Roger does enjoy most types of music, along with holiday travel, reading and meeting people - one of the more memorable being the great man Nelson Mandela at a function in London many years ago.

Fund Facts

Fund Performance (as at 31 May 2014)

Fund After Fees & before-tax Returns 3 Months 1 Year 2 Years* 3 Years* 5 years* Since Launch*
Preservation Fund + 0.8% + 3.0% + 3.3% + 3.1% + 3.1% + 4.1%
Conservative Fund + 2.3% + 5.9% + 7.4% + 6.4% + 7.4% + 5.2%
Balanced Fund + 3.2% + 8.9% +11.8% + 7.9% + 8.7% + 4.9%
Growth Fund + 3.9% +11.3% +15.6% + 9.1% +10.2% + 3.4%
Equity Fund + 4.7% +13.2% +18.4% + 8.3% + 9.8% + 0.8%
Cash Enhanced Fund + 2.2% + 5.2% + 6.4% + 5.9% + 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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