Special announcement: COVID-19
Market update 2
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 comparatively than those who are with other managers for three reasons:
First, 96% of clients have invested through an adviser who can reassure them in a downturn. Second, 96% of our KiwiSaver clients are diversified across three strategies and not just one growth fund. Third, NZ Funds has, so far, successfully mitigated the downside with a portfolio strategy which will get stronger the further markets fall.
We are now focused on outperforming when the market rebounds – from an S&P500 level of 2,300 we believe shares have over 40% upside. The median recovery period following a share market fall of 20% or more is 211 trading days.
We anticipate a recovery sometime next year. We have purchased upside options and plan to continue to reinvest clients’ funds at the currently discounted valuations which are available.
Warning
NZ Funds urges advisers to be vigilant as to what their clients own. We have written at length in recent months about the risk of Booster, or other fund managers, using an Income fund to leverage a KiwiSaver fund – with both funds being owned by members of the public, we would not recommend either fund to New Zealanders.
We have warned of managers holding private market assets in public funds, in particular Booster, Milford and Fisher Funds.
In our experience, if these managers are not able to successfully mitigate the share market decline, and do not reprice their illiquid assets by a similar amount as the share market has declined, the allocation to illiquid assets in the fund may rise sharply as a proportion of the entire fund.
Investors who exit early may be materially better off as redemptions are funded from liquid funds and remaining investors are stuck with a growing allocation to an illiquid and potentially overvalued asset. During the Global Financial Crisis this led to some funds, including funds managed by NZ Funds, being frozen for reasons of investor equality.
NZ Funds has no unlisted private market assets in any of its funds. NZ Funds is happy to inform, assist and, when needed, support advisers who wish to switch clients away from managers who have – in our view – taken an unnecessary risk by investing clients’ capital into private market assets.
Please do not hesitate to contact the Principals at NZ Funds, or your adviser if you have any questions or require further information.
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 comparatively than those who are with other managers for three reasons:
First, 96% of clients have invested through an adviser who can reassure them in a downturn. Second, 96% of our KiwiSaver clients are diversified across three strategies and not just one growth fund. Third, NZ Funds has, so far, successfully mitigated the downside with a portfolio strategy which will get stronger the further markets fall.
We are now focused on outperforming when the market rebounds – from an S&P500 level of 2,300 we believe shares have over 40% upside. The median recovery period following a share market fall of 20% or more is 211 trading days.
We anticipate a recovery sometime next year. We have purchased upside options and plan to continue to reinvest clients’ funds at the currently discounted valuations which are available.
Warning
NZ Funds urges advisers to be vigilant as to what their clients own. We have written at length in recent months about the risk of Booster, or other fund managers, using an Income fund to leverage a KiwiSaver fund – with both funds being owned by members of the public, we would not recommend either fund to New Zealanders.
We have warned of managers holding private market assets in public funds, in particular Booster, Milford and Fisher Funds.
In our experience, if these managers are not able to successfully mitigate the share market decline, and do not reprice their illiquid assets by a similar amount as the share market has declined, the allocation to illiquid assets in the fund may rise sharply as a proportion of the entire fund.
Investors who exit early may be materially better off as redemptions are funded from liquid funds and remaining investors are stuck with a growing allocation to an illiquid and potentially overvalued asset. During the Global Financial Crisis this led to some funds, including funds managed by NZ Funds, being frozen for reasons of investor equality.
NZ Funds has no unlisted private market assets in any of its funds. NZ Funds is happy to inform, assist and, when needed, support advisers who wish to switch clients away from managers who have – in our view – taken an unnecessary risk by investing clients’ capital into private market assets.
Please do not hesitate to contact the Principals at NZ Funds, or your adviser if you have any questions or require further information.
Source: S&P500, NZ Funds research. Bear markets are defined as falls of more than 20%.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
New Zealand Funds Management is the issuer of the NZ Funds KiwiSaver Scheme. A copy of the latest PDS for the Scheme is available on request or by visiting the NZ Funds website at www.nzfunds.co.nz.
This document has been provided for information purposes only. The content of this document is not intended as a substitute for specific professional advice on investments, financial planning or any other matter.
While the information provided in this document is stated accurately to the best of our knowledge and belief, New Zealand Funds Management Limited, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed except as required by law.
New Zealand Funds Management is the issuer of the NZ Funds KiwiSaver Scheme. A copy of the latest PDS for the Scheme is available on request or by visiting the NZ Funds website at www.nzfunds.co.nz.
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James Grigor is Chief Investment Officer for New Zealand Funds Management Limited (NZ Funds) and a member of the NZ Funds KiwiSaver Scheme. James' comments are of a general nature, and he is not responsible for any loss that any reader may suffer from following it.
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