Global share markets have fallen -26.3% year-to-date. United States shares are down -24.9% and Australia and New Zealand shares are down -27.3% and -25.4% respectively. Corporate bonds have also come under pressure and commodity prices continue to collapse, with oil trading at prices not seen since 2003. NZ Funds’ clients have fared much better than the market. The average 45-year old KiwiSaver member is down around -14.0% year-to-date and the average 65-year old KiwiSaver member is estimated to be down only -11.5% year-to-date. Following the share market downturns in 2000 and 2009, NZ Funds developed a strategy with a set of rules and protocols which we would follow in the next major market downturn. In early March NZ Funds implemented this strategy. The following is a record of actions. 10 March 2020 | COVID-19 Special Announcement. Financial markets were struggling to gauge the economic impacts of COVID-19. NZ Funds took steps to mitigate the effect of further financial mar...

Global share markets have now fallen 23.08% year-to-date. United States shares are down 22.92% while Australia and New Zealand shares are down 19.38% and 12.33%, respectively. Corporate bonds are under pressure and commodities prices have collapsed. NZ Funds’ clients have fared much better than the market. We estimate that after last night’s fall, the average 40-year old KiwiSaver member is down around 10.5% year-to-date and the average 65-year old KiwiSaver member is down only 6.5%. We expect global shares to fall further as the impact of a global recession are priced into the market. NZ Funds’ short-term target for the S&P500 index is 2,300, approximately 10% lower than today. Should markets fall another 10%, we estimate clients will be broadly flat, with further downside offset by a combination of a 50% cash-like hedging position on global shares, high exposure to the USD and further mitigation from Universa. We expect a lot of NZ Funds’ clients are better off compara...

NZ Funds has taken steps to protect clients’ global growth assets from further financial market volatility, while purchasing options to capture gains should a share market rally occur. This report is to let clients know we have hedged 50% of clients’ share market exposure. Financial markets are struggling to gauge the economic impacts of Coronavirus (COVID-19). As a consequence, we expect an unusually high level of volatility over the next three to six months and we aim to limit clients’ exposure to this. In the event of a sharp rise in share markets, we have purchased out of the money call options, which aim to compensate clients for being conservatively invested. If markets fall further, clients’ downside will be muted. We anticipate this will allow clients to remain fully invested during this period of volatility without the risk of permanent impairment to their retirement capital. Financial markets are grappling with pricing in three pieces of information. First, that COVID-1...

In last month’s column I discussed the self-inflicted harm that often occurs when we allow external factors, that are completely beyond our control, to influence our thinking. As if on cue, Covid-19 made its presence felt in investment markets in late February. I could have devoted this column to commenting on the various epidemiological scenarios and the range of impacts that they may have on investment markets. But the reality is, no one at this point in time knows what impact Covid-19 will have on global financial markets. News that the United States share market (as represented by the S&P 500) was 11.25% off its pre-virus high and the NZX 50 Portfolio Index had lost 6.54% (as at the time of writing) can leave one feeling powerless. What these headlines completely overlook is the fact that a family that is working with a qualified financial adviser is unlikely to experience the degree of volatility that these headlines suggest. This is because a well-constructed portfoli...

Cyber security is a key focus at NZ Funds . While it is impossible for anyone to say they are 100% secure, we have more than 30 years of experience in building and maintaining adviser information technology systems. We believe our extensive in-house experience is market-leading. We base this statement on our four pillars approach to cyber security - Our Team, Our Partners, Our Processes and Our Ability to Respond: Our Team – Unlike some providers in the market, we have a large in-house IT team. We have nine senior staff, who collectively have over 50 years’ experience at NZ Funds and 130 years’ experience in IT. This team has established a strong long-term track record in information technology systems. Our Partners – We complement our in-house team capability with market-leading operators from specialist areas. We currently have seven business partners – including Plan B, OneNet, Theta, The Instillery, Fusion5, FujiXerox, and importantly at this time, InPhySec, security sp...

As markets collapsed last week, NZ Funds mitigation strategies gained roughly $8 million. Last week was one of the worst in financial markets in a decade. United States shares fell 12.70% 1 from their high earlier in the month, while New Zealand shares collapsed 7.47% 2 from their highs. At a time when one index tracking manager is urging clients not to panic, Michael Lang, CEO at NZ Funds which has been managing New Zealanders’ retirement savings for over 30 years, says he has a different message. “What is it based on? Certainly not global economics or share market valuations, both of which point to a downturn. Detailed medical knowledge that no one else has? I very much doubt it!” “If I was preparing to retire shortly and had been sold an index tracking growth fund or a portfolio filled with nothing but high octane small cap shares, or perhaps avocado farms and vineyards which cannot be sold quickly, I would be taking a good hard look at my financial affairs.” Lang p...

Market views Global financial markets started 2020 on a positive note. The United States and China signed phase one of a trade agreement, while in Europe there was greater certainty around Brexit. Consequently share markets enjoyed a strong January and early February. The start of this week has seen a sharp ‘risk off’ across share markets following a surge of coronavirus (COVID-19) cases in Italy, Iran and South Korea and now the United States. Markets are repricing the risks of a potential spread to neighbouring countries. We will not attempt to be ‘armchair epidemiologists’ but we believe events like this will create volatility. Our experience has shown that during periods when markets enjoy multi-year uptrends, pullbacks of 10% are not unusual and should be viewed as an opportunity rather than a cause for concern. For this reason, a further sell-off would not compromise our longer-term positive views on shares. Portfolio positioning Given our more positive view at ...

Over the last decade New Zealand shares outperformed global shares by 120%. New Zealand shares now trade at a premium to their global counterparts. Whether your KiwiSaver manager favours local shares over international ones has been an important determinant of historic relative performance, and if history is any guide, it is likely to continue to be so. Despite this there is a paucity of research on local managers’ asset allocation. Why do managers favour local shares? Local managers favour local shares. The basic problem is something called home bias. Investors and managers the world over prefer companies that are listed on their home exchange. These companies follow local laws and regulations, report and are reported on locally, and raise capital and hold AGMs locally. They are therefore easier to follow than their international counterparts. In some countries a home bias is more than the warm fuzzies. In New Zealand for instance, the tax regime provides advantages for local i...