November 2014 Newsletter
|Carmel addressing the crowd at the Auckland Museum roadshow|
Another month in the bag
October was something of a whirlwind for us (but the nicest possible whirlwind) as we visited twelve venues around the country and met with more than 3,000 clients at the 2014 Fisher Funds Investment Roadshow. As you can imagine, it is no small feat to have our investment professionals tour the country while still managing your portfolios. Thankfully our team is extensive enough to ensure that your investments were under constant surveillance remained actively managed while we met investors all around New Zealand and answered questions covering all manner of topics including KiwiSaver strategies, retirement savings, the Aussie share market, the level of the New Zealand dollar, Europe’s recession, the growth of Fisher Funds, and favourite asset classes for those wanting to top up their investments (for the record, we don’t play favourites!).
Many of our clients were concerned that we would be exhausted by the roadshow and keen to return to our desk jobs. Actually, it is quite the contrary, as listening to clients share their concerns and market worries and being able to talk about our investing strategy and portfolio holdings is exhilarating and an important reminder of what our desk jobs are all about! We received positive feedback about our regular communications and many investors enjoyed the opportunity to discuss our investment ideas in more detail, in one-to-one conversations. While the roadshow is a great way to connect, please don’t hesitate to give us a call or send us an email at any time, as the roadshow only happens once a year and we’re sure you’d like to chat more often than that!
It seems that we weren’t the only ones to enjoy the new format roadshow – a game show where the contestants (our investment professionals) were rewarded for answering investment questions, with the opportunity to play for the ‘Money or the Bag’. Typical audience feedback was that the format was both informative and enjoyable, and many enjoyed hearing our investment team speak in ‘Plain English’, without relying on the ubiquitous PowerPoint presentation! Money and prizes won by our investment team are being donated to our five chosen charities – Ronald McDonald House, Books in Homes, Heart Foundation, Cancer Society and St John. In total, the team raised $19,886 and in recognition that there was an element of luck involved in selecting the winning bag each night, we have decided to round up the donations so that each charity will receive $5,000, which we look forward to delivering in coming weeks.
There was an element of ‘absence making the heart grow fonder’ because in our absence during October, your funds performed well and markets ended what turned out to be a volatile month in pretty good shape. Volatility returned to markets in October as investors worried about the impact of a prolonged European economic recession, a weakening of the global economy, Ebola and rising geopolitical risks. At the worst point, the MSCI world index was down some 8% from its previous peak, however markets staged a strong recovery in the second half of the month reclaiming lost ground, and some.
At the end of the month we had a passing of the quantitative easing (QE) baton from the US to Japan and I have to say that it feels quite liberating to know that I can stop talking about the Federal Reserve and analysing Janet Yellen’s every word. The US was only able to end QE because its economy is now faring well enough to no longer require support. Add US economic growth to China’s growth and some stimulus in Japan, and we have enough reason to be at least mildly optimistic.
At last, a gradual economic recovery seems to be in the bag.
Managing Director | Fisher Funds
Banks - love 'em or hate 'em?
David McLeish talks about the dilemma facing savers confronted by low interest rates.
Your KiwiSaver Portfolios
Highlights and Lowlights
- In the US, it's so far so good for third quarter earnings season and this has flowed through into returns with positive contributions from the utilities and consumer discretionary sectors.
- Good news continues to flow from our New Zealand companies with Freightways announcing their best first quarter result ever (with earnings up 22%) and EBOS announcing that earnings are trading 10% above last year-to-date.
- The re-rating of the 'gentailer' sector in the wake of the New Zealand election in September continued with Mighty River Power (+10%) and Meridian Energy (+15%) both experiencing strong share price gains.
- A continuation of weak inflation data means expectations for interest rate rises across much of the developed world have now been pushed further into next year. This propelled fixed income assets to post another month of healthy gains.
The End of QE
It's official – quantitative easing (QE) in the US is no more. The Federal Reserve announced that the final round of bond buying will take place in November having been wound down since late last year. Markets can now stop hanging on every word uttered by the Federal Reserve and focus instead on the economy and individual companies. Was QE a success? Probably the final word on QE will have to wait for historians, but we can at least conclude that QE enabled the US to weather the aftermath of the global financial crisis and it has certainly served as a confidence booster and played a supportive role in asset markets, albeit that its withdrawal last week was pretty much a non-event.
QE ended just shy of its sixth birthday and has led to the Federal Reserve's balance sheet extending by more than $US4 trillion. QE1 began in November 2008 and had the effect of boosting liquidity when credit was frozen and the US was facing deflation. QE2 ran from November 2010 to June 2011, then Operation Twist (a variation of QE) ran from September 2011 to December 2012. The most recent round, QE3 began in September 2012 and became QE Infinity in December 2012 when the Federal Reserve decided they would buy as many bonds as they wanted until they didn't feel like buying them anymore. QE was tapered off as the US economy began to grow under its own steam – life support is no longer required.
The Failure of Fear
October again lived up to its billing as one of the more volatile months of the year for financial markets. The month's volatility, which came in a string of sharp yet short-lived bouts of turbulence, probably felt more severe because we have become accustomed to relatively stable markets.
Evidenced by the fact that October 2014 was the busiest month on record for trading futures in the 'Fear Index', the Chicago Board Option Exchange Volatility Index (or VIX for short), anxiety levels have undoubtedly risen of late. Not that this would be at all obvious by simply looking at month-end prices. The weeks of October 6 and October 13 were particularly volatile, but then markets settled again by the end of the month. It is no coincidence that these episodes began in earnest as we approached the end of quantitative easing in the US. It is now time for companies to show they can indeed stand on their own two feet and grow into the valuations the market has set for them.
Is this increased volatility in financial markets really such a bad thing? We think not.
Volatility is natural, or at least should be, in any healthy investment environment. So with the US Federal Reserve no longer dominating the investing landscape, we are hopeful markets are now set to return to a more natural state of fluctuation. While intervention from central banks was a necessary evil as the world recovered from the worst financial crisis in living memory, it is no longer needed in the same quantities as before. This is an encouraging sign.
It is also important to remember that an unexpected price change should not necessarily change your opinion on the value or prospects of the underlying investment.
Volatility in itself is not reason to be fearful. We believe we should be more comfortable, not less, that market volatility is returning to 'normal'.
A bird's eye view
We'd like to introduce Australian health insurer Medibank to you. Medibank is an IPO (initial public offer) coming to the Australian Stock Exchange later this month. We are considering participating in the IPO and may introduce the stock to our Australian portfolios.
Medibank is Australia's largest private health insurer. The company was established by the Australian Government in the 1970s as an affordable health insurance alternative, to encourage people to pay for their own healthcare. Healthcare is important in Australia, as indeed it is all around the world, given ageing populations and the fact that the longer we live, the more chronic diseases we are getting, and then by treating them, we live for even longer. While it is great that life expectancy is improving (and Australia ranks 6th in the OECD with the average baby expected to live 82.1 years), the problem is that relatively few people (the elderly and the sick) account for the vast bulk of healthcare spending and can't afford to pay for it.
Medibank enjoys significant scale and competitive advantages including brand, reputation (it has 3.8 million customers) and regulatory approvals. It is a privatisation and as such is expected to continue its recent record of impressive earnings growth principally from cost-cutting and efficiency improvements. The earnings outlook is attractive given a tremendous tailwind from an ageing population and a strong incentive for the state to shift more of the 90% total medical bill it carries to the private sector. Further the company should enjoy the benefit of regulated price increases that should see profits continue to grow over the medium term. Medibank is a well-recognised brand with a 30% market share and can leverage its scale to negotiate better prices and terms with hospitals and healthcare providers. The $150 billion-odd that Australians spent on healthcare last year is growing, which makes the company very defensive and its profit and dividend prospects are quite appealing, which has encouraged a number of investors to get excited about the IPO.
Many investors expect the company to flourish free from the constraints of government ownership, with particular emphasis on cost-cutting and efficiency measures which should flow directly through to increased earnings and dividends. Also, with two years before the next election, it is expected the government will want the Medibank IPO to be successful for Australian retail investors, many of whom will be Medibank policyholders, suggesting that they could price the issue to ensure a positive post-listing share price gain.
Media reports have said that demand is at least four times the size of the issue, and one headline breathlessly proclaimed that demand will be ten times the issue by the time international investors put in their bids.
Healthcare is an exciting sector. In fact healthcare IPOs were the best performing IPO sector of 2013, up 64% on average following their market debuts. Regardless though, each IPO should be carefully considered on its own merits. Medibank certainly has significant merit, however investment discipline and rigour will still be required in determining the optimum entry price and portfolio positioning for the stock.
Where does your KiwiSaver money go?
It's not unusual for us to hear our KiwiSaver members ask "where does my KiwiSaver money go?" It's a question that we're glad people ask as it's really important to understand that your KiwiSaver account isn't a bank account and that your savings don't just disappear into thin air!
You have a KiwiSaver account in your own name that collects all of your contributions, your employer's contributions (if relevant) and contributions from the government. These savings are then invested across a broad range of assets (as opposed to just cash like your bank account) with the objective of making your savings grow to help fund your retirement.
The mix of the assets depends upon the type of fund you are invested in. Our job is to identify the best mix of assets and individual investments within a fund at any time. The following charts show how the mix of these assets varies depending upon the level of risk and return of the fund (as at 30 September 2014) – using the Conservative Fund and Growth Fund as examples.
Breaking things down to the next level you can see the individual holdings of each Fund. For example, the top 10 holdings of the Growth Fund at 30 September 2014 were:
|Cash deposit – ANZ Bank||Cash and cash equivalents||New Zealand|
|Bayfair Mall||Unlisted property||New Zealand|
|Fletcher Building||Australasian equities||New Zealand|
|Ryman Healthcare||Australasian equities||New Zealand|
|Fisher & Paykel Healthcare||Australasian equities||New Zealand|
|Spark New Zealand||Australasian equities||New Zealand|
|Auckland International Airport||Australasian equities||New Zealand|
|Westpac Bank current account||Cash and cash equivalents||New Zealand|
|Merivale Mall||Unlisted property||New Zealand|
|Sky Network Television||Australasian equities||New Zealand|
A lot of these companies are household New Zealand names and will be familiar to you.
We have lots of information on our website about where your KiwiSaver savings is invested and your investing options. You may find the following links helpful to learn more:
|Did you know that you can change
your investment strategy at any time
within our login facility?
- Quarterly Fund Reports - including asset allocations
- Which investment option is best for you?
- Introduction to our GlidePath service
Managing your KiwiSaver account
Bringing back your Aussie Super just got easier!
Since July 2013, Kiwis have been able to transfer their Aussie Super back to their KiwiSaver account. One of the difficulties in doing this was that Australian legislation required that the statutory declaration (stating you have permanently emigrated to New Zealand) be completed in person by an Australian official. In practice this meant you needed to see an Australian Consular or Diplomatic Officer at the Australian High Commission in Wellington, or at the Australian Consulate-General in Auckland.
Australian legislators have recognised the difficulty this caused and have removed this requirement. The statutory declaration can now be completed according to New Zealand legislation meaning you can now go to your local New Zealand Lawyer, Justice of the Peace, Notary Public or court official and complete your statutory declaration.
This is a very positive change and will make the process of consolidating your retirement savings in one place that much easier.
To learn more about transferring your Aussie Super to your KiwiSaver account, check out our dedicated web page.
If you would like to talk with one of our team about Aussie Super, we're only a phone call away!
Getting to know ... Tim Brien and the Fisher Funds LifeSaver Plan
Tim is our Product and Compliance Specialist and his job focuses mainly on looking after our registered superannuation scheme, the Fisher Funds LifeSaver Plan.
Tim has lived and worked in some of the world's most desirable cities: London, Wellington, Dublin, Auckland, Sydney and Timaru (Tim's birthplace). Tim and his wife Sarah have three children, aged 1, 2 and 4, and Tim is proud to be a fit and active father courtesy of his bike rides to and from our Takapuna office each day, rain or shine, from his home in Mairangi Bay.
More than 80 employers from all over New Zealand offer LifeSaver to their employees as a superannuation plan (as an alternative to or in conjunction with KiwiSaver), and individual investors can invest in it directly also. Each employer has its own rules around contributions, withdrawals, how fees are charged and which investment funds are available to their employees. We have more than 5,000 members in LifeSaver. Tim is the point of contact for LifeSaver, and not only does he have to manage all the unique features of each employer's scheme, he also visits these companies, provides presentations and helps all the individual members understand more about their investment options so that they can maximise their retirement savings. Going home to his young family each night can be child's play compared to his day job!!