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March 2014 Newsletter

Carmel Fisher

February was full-on so we have a lot to cover in this month's newsletter. We summarise what was a good earnings reporting season during February, we share with you some upcoming changes to our Australian share portfolio team and we shed some light on bull and bear markets. As always we welcome any feedback you have on our newsletter, so if you have any comments or suggestions for future editions feel free to send us an email.

Carmel Fisher
Managing Director | Fisher Funds


At a Glance

As at 28 February 2014

Unit Prices ($)
Preservation Fund $2567.5385
Conservative Fund $1.4189
Balanced Fund $3685.1509
Growth Fund $1.2645
Equity Fund $3091.1235
Cash Enhanced Fund $1.3716
 
Net Performance (February 2014)
Preservation Fund + 0.3%
Conservative Fund + 1.0%
Balanced Fund + 1.6%
Growth Fund + 2.0%
Equity Fund + 2.5%
Cash Enhanced Fund + 0.8%

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Investment Commentary

Investment commentaryIt was another positive month for your KiwiSaver Scheme Funds both in terms of portfolio performance (all Funds delivered positive returns) and company reporting season.

Global markets were buoyant in February as, on the whole, company reporting season was well received. While we are in regular contact with our companies and maintain a disciplined visit schedule, we eagerly anticipate reporting season as it delivers concrete information on recent performance and gives us insight as to how company management are seeing the short-term outlook and whether any strategy changes are afoot.

In New Zealand, further strong economic data (business confidence levels at 20 year highs, falling unemployment and solid manufacturing activity) supported a generally sound reporting season. Aggregate company profits grew by 11% and around 70% of companies reported higher earnings.

Several trends were evident when assessing New Zealand company reporting season as a whole. Those companies with meaningful Australian operations were quick to point out the negative impact of the rising strength of the NZ$/A$ cross rate; most companies continued to increase dividends – at least in line with earnings growth; and there were more earnings upgrades than downgrades, which is important given that current valuations are above long-term averages.

The highlights from our portfolio companies were SKY TV who surprised on the upside with profit lifting by 22% due to lower programming costs and more customers moving to the higher margin MY SKY platform. Summerset delivered an increase in underlying profit of 46% (albeit off a low base) but importantly, the company continues to hit its build targets and is developing a "wave" of earnings behind it, not dissimilar to Ryman Healthcare. Trademe's result disappointed the market as it delivered an underwhelming short-term earnings outlook.

Across the ditch in Australia, reporting season was better than expected although results did vary by sector. While in aggregate earnings were up 15% on this time last year, earnings per share for the resources sector was up by 39% driven by a stronger iron ore price whereas in the financials and industrials sectors earnings per share were only up 10% and 4% respectively.

Internationally, global share markets rebounded strongly in February as broad based weakness in January gave way to investor optimism as 75% of S&P 500 companies beat analysts' fourth quarter earnings forecasts and the mostly weak economic data out of the US was attributed to the severe bout of cold weather experienced recently.


KiwiSaver Classroom

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.

What is the difference between a bull market and a bear market?

The terms "bull market" and "bear market" are most often used in reference to the share market but can also be applied to anything else that is traded such as bonds, currencies and commodities. The use of "bull" and "bear" to describe markets comes from the way the animals attack their opponents. A bull thrusts its horns up into the air while a bear swipes its paws down. These actions are metaphors for the movement of a market. If the trend is up, it's a bull market. If the trend is down, it's a bear market.

Bull markets are characterised by optimism, investor confidence and expectations that strong results will continue.

Bull and bear mural in the Fisher Funds officeDuring bear markets falling prices are accompanied by widespread pessimism. The negative sentiment tends to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows.

A bear market should not be confused with a correction, which is a short-term downward trend with a duration of less than two months.

One of our talented clients, Dee Defina, created this bull and bear mural that greets visitors on arrival to Fisher Funds' offices in Takapuna.


Managing your KiwiSaver account

End of year processing

The tax year for the Fisher Funds TWO KiwiSaver Scheme runs from 1 April to 31 March each year. To complete the necessary end of year processes to ensure your PIE tax is calculated and applied correctly, we are required to 'freeze' our registry system for the first week of April. This means that any contributions received from 31 March this year will be processed on Friday 4 April, and any withdrawal requests received from 31 March will be processed from 8 April. We will do our best to process all of the outstanding withdrawal requests on 8 April, however if we have too many requests to complete in one day we may take an extra day or two to work through the back log. We appreciate your understanding.

The unit price that we will use when we begin processing is the one that will be calculated on Friday 4 April. This means that the price at which contributions and withdrawals are processed will effectively be frozen for up to 4 days, despite markets moving up and down during this period. Please note this only applies to clients who wish to transact at this time and may work to your advantage or disadvantage depending on how your investment performs during this period. This situation is an unavoidable consequence of the end of year processing which takes place each year at this time.

First Home Withdrawals
If you are planning on making a first home purchase and using the available funds from your KiwiSaver account during the period 31 March to 8 April, you will need to make sure that you send your withdrawal application to us by no later than Friday 21 March to give us time to process your application and deposit the funds to your solicitor's trust account before the end of year PIE tax processes begin.


Getting to know Manuel, Terry and Frank

Manuel Terry and Frank

After nearly eight years managing Fisher Funds' Australian equity portfolios, Frank Jasper will next month hand over responsibilities to a new Portfolio Manager, Manuel Greenland.

Manuel joined Fisher Funds in May 2012 and has been working alongside Roger Garrett and Ashley Gardyne on our International equity portfolios. Manuel is an experienced investment professional. Prior to joining Fisher Funds he spent four years at Polo Capital in Brazil, managing Latin American and South African portfolios. Prior to moving into fund management Manuel worked at Deutsche Securities in Johannesburg where he was a highly rated analyst in both the Industrial Metals, and Paper and Forest Products sectors. Manuel is a CFA charterholder and a Chartered Accountant, having spent the early part of his career with KPMG in South Africa.

While some things change, some stay the same. Terry Tolich, who has ably assisted Frank for the past eight years, will continue in his role as Senior Investment Analyst for the Australian equity portfolios, ensuring that we retain his extensive market and portfolio knowledge.

Frank will remain an employee and Director of Fisher Funds and is moving into a dedicated business strategy role. We are in the process of recruiting a new investment analyst to join the international team, and will introduce them in due course.

The change in the Australian team will bring a fresh perspective, but importantly, Manuel is well versed in the Fisher Funds investment approach and philosophy.


Fund Facts

Fund Performance (as at 28 February 2014)

Fund After Fees & before-tax Returns 1 Month 1Year 2 Years* 3 Years* 5 years* Since Launch*
Preservation Fund + 0.8% + 3.2% + 3.3% + 3.1% + 3.1% + 4.1%
Conservative Fund + 1.7% + 5.4% + 6.9% + 6.0% + 7.6% + 5.0%
Balanced Fund + 2.0% + 8.5% + 9.9% + 6.8% + 9.0% + 4.6%
Growth Fund + 2.1% + 11.3% +12.8% + 7.9% + 11.5% + 2.9%
Equity Fund + 2.4% +12.8% +11.8% + 5.7% + 11.4% + 0.1%
Cash Enhanced Fund + 1.7% + 4.8% + 6.1% + 5.6% + 6.2% + 5.0%

* 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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