Bitcoin is a digital (electronic) currency. It’s stored on-line and used to settle transactions. Where we once used dollars and cents, we can use Bitcoin. More often it is known as a cryptocurrency. Of which there are many – it just happens that Bitcoin was the first to be created, in 2009, and therefore has become the best known. Others include Ethereum, Ripple and Litecoin. If Bitcoin has been in conversation in recent years, likely the focus has been on the opportunity to make money, but that it is speculative at best. There is now increasing discussion of Bitcoin as a serious investment option, over and above its core task of settling transactions. Particularly now there has been a drop in fraud concerns and increased safety in on-line storage options. It is even possible to buy insurance against Bitcoin theft and hacking. Gold meanwhile has been regarded as a store of value for centuries. Currencies, countries and investments have periodically collapsed but gold...

As 2020 draws to a close I thought it would be helpful to reflect on the year that was, and what specific financial lessons COVID-19 has taught us. I had hoped to create a clever acronym with the headings, but this proved to be well beyond my literary skills so, true to type, I have resorted to numbers. 1. Family. It is interesting to note that when confronted with an existential threat like COVID-19, our core values tend to be revealed. For many people those prized things were family and relationships. The simple truth is that these things don’t have to cost a lot. For those of us who stayed employed during the lockdown (and that was most of us) we generally saved money. Some of these savings related to reduced commuting costs but much resulted from less frivolous spending. One question to ask yourself is: have any of these improved spending behaviours been embedded in your ongoing savings habits? 2. Beware of alarmist experts. Conventional wisdom does ...

On 27 March New Zealand was two days into a four-week nationwide lockdown, China had closed its borders to all foreigners and the United States had recorded the highest number of COVID-19 cases globally while approving an historic US$2 trillion of spending in response. In our 27 March 2020 | Market Update Four we wrote that “there is no better time to buy shares.” Share markets were priced at levels not seen since the Global Financial Crisis. Given low interest rates coupled with economic stimulus, we expected a three- to four-fold gain in shares over the next five years, just as we saw post-February 2009 and following the 2000-2002 tech crash. Given the health consequences suffered by millions of people around the globe and the economic burdens faced by people and businesses, it was to some unthinkable that financial markets would now be trading at record highs. This highlights the relentless forward-looking nature of markets. It is not just the sharp drawdo...

If left unchecked, climate change will inflict untold harm on people across the globe, devastate economies, and threaten the viability of countries. The effects of climate change will strain the capacities of governments - even those of the wealthiest countries. According to an article published in Foreign Affairs magazine 1 , “of all the global threats Trump has neglected, mismanaged, or actively inflamed, the climate crisis is the most dangerous and far-reaching". President-Elect Biden appears to understand the gravity of the crisis, appointing former Secretary of State John Kerry as his cabinet-level climate envoy. The United Kingdom, the European Union, and many others have committed to reach net zero greenhouse gas emissions by 2050, and China - the world's largest emitter of carbon dioxide - recently pledged to reach 'carbon neutrality' (absorbing at least as much carbon as the country emits) before 2060. New Zealand is one of the few countries to hav...

Curiosity has led us to adapt our view on global share markets. To be curious implies eagerness to learn and to change. News flow is constantly changing and there are constantly new stories to understand. Three themes reflected in our clients’ growth portfolios are different from our competitors’ vanilla portfolios dominated by New Zealand shares and bonds. In this insight we discuss our high conviction themes and how curiosity and adaptation will generate positive returns. Small cap bounce back While every company may be unique, a company’s total market value - its market capitalisation, or market cap for short - is widely used to create a context for judging that company’s financial performance and business outlook. Small caps, or companies that have an average value of around US$2 billion or less, have disappointed share market investors for quite some time compared to their large cap counterparts. However, that leaves shares of smaller companies plenty o...

It seemed like the news everyone has been waiting for. A vaccine candidate with more than 90% effectiveness against the virus. Perhaps unsurprisingly, this was followed by a heavy rotation in financial markets as investors dumped technology shares and swooped on beaten-up value shares including travel (e.g. Southwest Airlines) and shopping centres (e.g. Simon Property) that could bloom on the vaccine induced rebound. Not so fast… unexpected consequences surface nearly daily and while a vaccine is great news for shares otherwise affected by the virus, the technological advancements and behavioural changes brought about by COVID-19 are likely here to stay. Furthermore, the road to recovery will be anything but smooth and the announcement of a vaccine does not yet mean global herd immunity. At NZ Funds, one way we make sector allocations is via our global investment partners. This includes our partnerships with Suvretta Capital and Emerson Point Capital. Both hedge funds ...

The influence of real interest rates on technology shares This is the second in a series of articles that looks under the hood at what is driving markets and how the patterns that we have seen over recent months and years may be changing. Everyone knows that interest rates are at record lows around the world. What is not as well understood is that real interest rates (interest rates less inflation) have also collapsed. Indeed, the real interest rate in the United States and in New Zealand is now negative and this has important implications for the valuation of other assets. We are taught in school textbooks that an interest rate is the cost that a borrower must pay to gain access to money now rather than wait for their savings to build up over time. With low interest rates the cost is minimal. Putting this another way, low interest rates and especially low real interest rates are very positive for assets which have cashflows well into the future, as the discount required ...

It is hard to believe that it has been four years since Donald Trump was elected President of the United States. This election season has certainly been unique, occurring in a year that has been characterised by a global pandemic, a short but deep recession and continued social unrest. Yet the surprises keep coming. The events of the past few weeks include a new Supreme Court Justice, a combative first presidential debate and President Trump contracting COVID-19 — adding to the uncertainty. We have received an increasing number of questions around how to interpret and follow results from the upcoming election day on 3 November (4 November NZ time). Below, we outline our high-level framework for how events might unfold and more importantly, how clients’ portfolios are positioned. For those who love politics, read on. For those who do not, feel free to skip to our concluding remarks on Portfolio positioning as whoever wins, it does not change our investment approach. After all, w...

Share markets were generally negative in September, which caused a friend of my teenage son, upon checking his KiwiSaver balance, to conclude that his provider was stealing his money. He could see no other reason why his balance would have decreased. We can smile at the young man’s assumption. After all, market movements, up and down, are a normal event, bearing in mind that they go up more often than they go down. But his assumption highlights the more serious issue of our financial literacy. And that if there are knowledge gaps, whether investors are costing themselves returns unnecessarily. It has been reported that up to 50,000 KiwiSaver investors moved $1.4 billion into cash and conservative funds in March 2020 as the COVID-19 pandemic took hold. Some will have been new funds being invested, but much more will have been the result of investors reacting to the pandemic and moving to a more conservative allocation fearing further losses if they remained in their more growth-o...

Over the last decade the performance of the United States share market has significantly overshadowed other major markets. This is in large part due to the success of the technology related companies which have made up a larger percentage of the market in the United States compared to other markets. However, this may not be the case over the next decade as other markets around the world have some potential. One candidate for outperformance is the Chinese share market. The Chinese government is making significant moves to migrate household assets, predominantly held in real estate, into financial assets such as shares. During the last week of October, the Chinese Communist Party will meet to set the blueprint for the five-year plan for 2021-2025. The message from this meeting will be that the external environment is likely to get more challenging for China in the next five years. On the economic front, global growth is expected to be lower in the coming years and trade protectio...

The announcement on the 26th of August that the Bonus Bonds Scheme would immediately stop taking new investments and completely close on 31st October came as a surprise for many retail investors. The scheme, which was established by the Government to encourage savings in 1970, was originally run as part of the Post Office. In 1989, when ANZ Bank purchased the Post Bank, the Bonus Bonds operation moved into private ownership. As at 31st of March this year , there were just over 3.12 billion of $1 bonds on issue. That works out at around $625 for every New Zealander. The closure will be a significant financial event for many people. Based on the current prize pool, and the number of bonds on issue , the average return worked out at 1.09% p.a. However, the key feature of Bonus Bonds is that this return is not distributed equally, with random chance being the arbitrator of your return. The holder of a $20 bond had a 1 in 160 million chance of winning a 1-million-dollar pri...

While the pandemic is killing scores of businesses that depend on office workers, it is also making way for start-ups and titans alike to conquer a new industry of powering our remote lives. In our Investment Insight, 25 September 2020 | Digitising the global economy , we wrote that new technology and changing consumer expectations are shattering the status quo. Our consumer choices are also influencing the data used to assess the economy. There has been a lot of discussion recently that the risk of inflation is misplaced. This concern is not without validity, with delays in New Zealand opening its borders and the United States showing signs of fatigue without more stimulus from the government. However, the gap between everyday experience and the printed inflation rate is massive. Essentially, the price of the stuff we are buying is rising fast, while the stuff we are no longer buying has been falling, but still counts in how inflation is calculated. According to an articl...

In September, we described how NZ Funds was successful in mitigating the downside as markets fell and capturing the upside as markets recovered. We also highlighted how growth-orientated and income-orientated investors were up strongly year to date versus the New Zealand share market. This situation continues, and despite the volatility in financial markets, clients’ portfolios are well positioned for what we believe will be a strong economic recovery. In our view, this is only the beginning of a new bull market for shares. While the upward trajectory may pause as we navigate the United States and New Zealand elections, once the market digests these events, we believe the second phase of the market recovery will commence, driving growth assets higher. Think long term - now is the time to invest Those who invested funds in March and April are now sitting on a handsome capital gain as global share markets have rebounded strongly due to Government intervention. We believe a simil...