NZ Funds has continuously managed New Zealand shares in-house since 1992. As a result, we have one of New Zealand’s longest standing domestic share investment track records. Today, New Zealand shares remain a key driver of returns for NZ Funds clients’ growth and inflation portfolios. One aspect of the New Zealand share market which makes it such a rich hunting ground to invest is the dividend yield of New Zealand companies when compared with other global markets. In this article we discuss why dividend paying companies are an attractive investment. We will also review some of our favourite New Zealand companies that clients are currently invested in. Dividends form a significant component of a company’s total return According to EY, Australia and New Zealand are two of only a handful of countries with a dividend imputation regime. By substantially removing the double taxation, EY believes the regime in New Zealand replicates a near tax-free marketplace and, accordingly, imp...

In my March column I closed with the Warren Buffet quote, "be fearful when others are greedy and greedy when others are fearful". At that time, I was focusing on the second part of the quote and referencing the buying opportunities that are created when the market is falling and investors can only see a bleak future. We now know that investment markets bottomed out around the 23rd of March. Most markets have staged some form of recovery since then, with some even posting all-time highs. The question I am now asking myself is: has the world improved so much that the COVID-19 - induced economic uncertainty is now behind us? It is true that unprecedented levels of government support and central bank action means that the world is unlikely to suffer a 1930s style economic depression. But is the global economy really resuming 'business as usual'? Because this is what the recovery of these markets seems to be saying. The term 'irrational exuberance' comes to mi...

As we cross the 2020 halfway stage, it is an opportune time to step back and take stock of a turbulent and captivating year-to-date in financial markets. On 20 March, three days out from the lows of the COVID-19-induced market turmoil, we wrote that global share markets had fallen -26.3% year-to-date. United States shares were down -24.9% and Australian and New Zealand shares were down -27.3% and -25.4% respectively. Corporate bonds were also under pressure and commodity prices continued to collapse, with oil trading at prices not seen since 2003 (before turning temporarily negative!). Financial markets were struggling to gauge the economic impacts of COVID-19. NZ Funds took steps to mitigate the effect of further financial market volatility on clients’ growth assets. We hedged 50% of clients’ share market exposure. We also purchased options to capture gains should an unexpected share market rally occur. NZ Funds’ clients fared much better than the market in the downturn. The...

In this Investment Insight, we take the opportunity to discuss NZ Funds’ investment philosophy. A philosophy, backed up by a sound investment process, can act as a compass for investment decision-making during extraordinary market conditions, like the one we faced earlier this year. The investment philosophy which underlies NZ Funds is for each of our clients to hold a globally diversified portfolio with downside mitigation. Using specialist investment managers and our in-house active management approach, we seek to maintain a balance between preserving capital and growing wealth. Active investment management We take an active approach to managing clients’ portfolios. Our approach enables us to better meet the objectives of each Portfolio and to take advantage of investment opportunities as they arise. In times of volatility, active management guides clients’ portfolios through cycles, especially during inflection points in the economic cycle. Asset allocation As part of...

Dividends are an increasingly attractive way of generating an income, especially given the sharp fall in interest rates and term deposits. Furthermore, history has shown that dividend-paying companies tend to have defensive characteristics. However, as the global economy remains vulnerable due to COVID-19, many companies face tough choices when it comes to returning cash to shareholders. Dividend cuts and suspensions have jumped. New Zealand companies have not been immune from this global phenomenon. On the New Zealand share market, 22 companies have so far cancelled, deferred or reduced their dividend guidance since March 2020. Of these, 17 companies have cancelled (or expect to cancel) near-term dividends, three have deferred payments and two have signalled a reduction. This is not great news for income-hungry investors. Not only do shareholders miss out on a dividend, any cut or deferral is likely to be met with a fall in the share price. Relying on dividend income is not wi...