House prices to fall 10%! This was one of many headlines that came out of the Government's housing policy announcement this week. The policy aims to reduce speculation in the residential property market and help first home buyers. The package of measures will likely impact house prices at the margin. But given the staged implementation, it will take some time to play out. Escaping the headlines, the meteoric rise of housing is predominantly due to one factor; interest rates. John Key, in his role as ANZ chairman, recently commented that “low interest rates are really what's fuelling this, probably more than anything else." Interest rate risk It is interest rates that will dictate where property prices go from here. If interest rates remain low, the demand for property will remain and prices will remain high. However, as interest rates increase, financing becomes more difficult and debt servicing expensive. Demand will drop. Supply of investment properties ...

One of the interesting observations about the COVID-19 pandemic is how quickly the public can be educated about very scientific concepts. Who would have thought that the mechanisms of virus transmission and the calculation of a virus R number would be the topic of mainstream media? I guess that when any subject has a significant impact on our everyday lives we are incentivised to learn. We are about to experience something in investment markets which, although it won't have quite the same dramatic impact of COVID-19, will negatively affect the wealth of many New Zealanders. We are soon likely to see interest rates rise – resulting in the value of investors' bonds falling. This seems highly counter-intuitive. Investors are right to be baffled as to how the fixed interest component of their KiwiSaver could drop in value at a time when interest rates are rising. In simple terms, this situation occurs when new fixed interest investments are available which pay a high...

The early 2000’s was a golden period for the commodity industry as rapid growth in China and Latin America meant that demand continually outstripped the available supply. However, for the past decade commodities as an asset class have been a difficult investment. From January 2010 to December 2020 the S&P Goldman Sachs Commodity Index declined around 35% while the Bloomberg Commodity Index fell by 52%. At the same time the United States share market increased 266%. The COVID-19 pandemic may have brought this long period of poor returns in commodities to an end. A wide range of commodities should benefit from the demand pickup as the global economy reopens. We believe this is the beginning of a long-term structural bull market for commodities thanks to the following three dynamics. Structural under-investment Decades of poor returns have been a disincentive to reinvest capital into new production. This is particularly true in energy where Environmental, So...

Let us dive into the current investment environment and discuss one of the current hot topics of 2021: value versus growth and why we participate in both asset categories. Value-investing advocates believe that value shares, characterised by their low valuations, are poised to reverse a long period of underperformance relative to their faster-growing, generally technology-driven, peers. Growth-oriented technology shares have seen a rough stretch in 2021. The now infamous Cathie Wood of Ark Invest has been a clear example of how this reversal has affected growth strategies. Interest rates and asset prices Value shares usually do well in an economic recovery. Think of a well-known company such as Fletcher Building which is going through a surge in demand for its products. At the same time, the recently announced fiscal stimulus and the expected economic recovery are likely to cause higher inflation and a rise in interest rates. But as interest rat...

How are your New Year’s resolutions going? If you are like most people – not so well. I have read that the failure rate might be as high as 95%, although 80% is more commonly cited. Author B J Fogg suggests we avoid making big resolutions. Instead, we should go small. If you want an exercise habit start with just one exercise. Maybe even just one or two repetitions. Feel the success of that and build from there. Just one tooth if you want to floss more regularly. He calls them tiny habits and they apply to our financial lives equally well. Big, small, or tiny, our financial resolutions shouldn’t be made in a vacuum. What do we want money for? Is our goal simply to have choice in life or do we have dreams beyond that? What does financial freedom look like for us? We should seek to live intentionally, consciously planning the future we want. To assist that planning, an adviser might ask you what are called the Three Kinder Questions. They are worth pondering. ...

What a difference a year makes. In early March 2020 investment markets were panicking at the prospect of the COVID-19 virus going global. This saw share markets drop rapidly and credit spreads (the additional price corporates pay to borrow money) increase sharply. Fast forward twelve months and both share markets and corporate bond prices are higher than before the pandemic. Some commentators are concerned that share market valuations are high, but in many respects the true bubble is in the corporate bond area. Respected investor Warren Buffet recently warned in his annual letter to Berkshire Hathaway shareholders that “Fixed-income investors ... face a bleak future” and that bonds are not the place to be these days. Why did he say this and why do we agree? Looking at a number of measures, bonds look to be sitting in extreme territory. Valuations high vs history Credit spreads are now tighter than they were prior to the start of the pandemic. Investme...

NZ Funds KiwiSaver Growth Strategy was up 33.76% in 2020, making it the top performing KiwiSaver growth fund for the year. Returns generated for clients came from a diverse range of high conviction investments across multiple asset classes and included overweight positions in global shares, credit, technology companies, small cap companies, gold, commodities, rideshare and Bitcoin. In 2020 we believed the rollout of COVID-19 vaccines made it more likely that economic life will soon return to some version of ‘normality.’ Together with the extraordinary government stimulus and low interest rates, the opportunities for investors were immense and allowed us to aggressively position portfolios for a recovery. 2021 - Once-in-a-generation opportunity In December we wrote how excited we were about the enormous investment opportunities for active and curious investors in 2021. We have not been disappointed. Year-to-date, NZ Funds KiwiSaver Growth Strategy is up over 27% v...