At the turn of the year, we had a positive view of financial markets. Geopolitical tensions in Iran failed to escalate, and the United States – China trade war had started to subside. The outlook was bright. However, following NZ Funds’ research trip to Hong Kong in mid-January, we witnessed first-hand how Asian economies were reacting to a newly discovered virus. It was touch-and- go whether we could easily return to New Zealand given rumours Hong Kong airport would close due to the virus. We immediately pivoted clients’ portfolios to become moderately defensive. As we continued to discuss the spread of the virus with our global network of experts, we believed markets were being complacent and struggling to gauge (what was now called) COVID-19’s economic impacts. In 10 March 2020 | Market Update 1 , we explained how NZ Funds took steps to mitigate the effect of further financial market volatility and hedged 50% of clients’ share market exposure. There was no better time to buy

NZ Funds is one of the few wealth management institutions to have taken a generation of New Zealanders through retirement. In our early days, as managers of Lion Nathan’s pension fund (then known as LD Nathan), we helped employers accumulate savings through a workplace programme. Three decades later, many of those original clients are still with NZ Funds, regularly drawing down on their capital to fund their retirements. Along the way they have been joined by many more New Zealanders who were seeking a resilient, advised portfolio service. Our role is to help them accumulate enough to be financially independent, and then manage those funds in retirement and for the generations to come. Our early LD Nathan employees are now in their seventies, eighties and in some cases nineties. It is a privilege to manage their wealth during periods of financial market volatility, such as now with COVID-19. As a large and stable wealth management organisation, with an average client tenure of

The road to recovery for the global economy will be long, reflecting the reality of the economic ‘sudden stop’. However, after the volatility in March, global share markets are now 22% off their lows with the United States and New Zealand share markets up 24% and 26% respectively since 23 March. NZ Funds has outperformed as the share market recovers The table below highlights the performance of a typical NZ Funds KiwiSaver Growth client versus our major competitors. Not only did we successfully mitigate the downside, (see Special announcement: COVID-19 Market update ), we have participated fully in the market rebound given our positioning we outlined in Special announcement: COVID-19 Market update 3. Uncertainty prevails, what’s next? The next phase in the pandemic-induced economic cycle could be somewhat soggy. After large bouts of volatility in March, followed by the euphoria in April created by extreme government stimulus, the economic reality will start to set in as peopl

The human tragedy of COVID-19 is real, especially in hard-hit places like New York, Italy and the looming crisis in many developing countries. However, there is reason to be more optimistic. Positive news has altered the trajectory of the economy and financial markets. The New Zealand and global share markets are both trading significantly above their lows reached on 23 March 2020. As we wrote in Special announcement: COVID-19 Market update 3 , given the financial support from governments across the globe, we moved to fully invest clients’ growth portfolios. When we think about where financial markets might be in one, three, or five years’ time, it is hard to bet against the support governments are providing. Markets have not and will not wait for the virus all-clear signal to recover. The change in news cycle Initially, financial markets were struggling to gauge the impacts of COVID-19. This complacency gave us an opportunity to become more defensive and mitigate the selloff i

NZ Funds wrote on 27 March 2020 | Market update 4 - 2020 vision that we all wish we could have perfect foresight when investing in financial markets. However, without some sort of crystal ball, most of us are unlikely to pick the bottom of a market correction. What has led us to be fully invested within our growth portfolios? The largest economic stimulus package in modern history together with cheaper share market valuations means we expect a three to four-fold gain in shares over the next three to five years. If we can think beyond the next few months, now is a great time to be invested. This is despite the long road ahead to get the global COVID-19 pandemic under control. As Warren Buffett famously said during the 2009 global financial crisis (also known as the GFC) “Be careful when others are greedy and greedy when others are fearful” . Over the long term, the value of innovative business will continue to grow despite the short-term pain of a crisis. The government stimu

Our $100 billion debt of gratitude Every now and then someone comes along who in their lifetime, puts in place changes which touch not only everyone in their generation, but generations to come. Sir Michael Cullen is one such person. In 1898, the Government of Richard Seddon introduced a means-tested ‘old age pension’. This pension was available for people 65 and over and was worth around one-third of the average wage. This pension, like most of the later changes, was funded out of current taxation rather than through a separate investment fund. Subsequently, the age of eligibility declined to 60 and the pension as a percentage of the average wage increased. However, those who were fortunate enough to be employed by a responsible employer – like my father whose employer was the Auckland Hospital Board – could contribute a portion of their salary to a superannuation fund which paid either a lump sum, or an annuity for the rest of their life based on a percentage of their final

The investment environment inflicted upon the global economy by coronavirus (COVID-19) has changed. While the medical emergency continues apace, and the impacts of social isolation on individuals and businesses remain, it appears that markets may have found the bottom and will rise from here, well before COVID-19’s peak infection is reached. The bazooka The New Zealand Government announced the largest stimulus packages in New Zealand’s history. In the United States, the Senate approved a bazooka – the largest economic stimulus package in modern history. The US$2.2 trillion (NZ$3.7 trillion) package will give American families and businesses a financial shield against the ravages of COVID-19. To put US$2.2 trillion into context, at 10% of United States GDP, it is more than twice what the 2008 bailout package was worth. The 1948 Marshall Plan, where the United States bailed out Europe, was US$144 billion. This United States’ stimulus package dwarfs even a world war level of inve