Market & Portfolio Update - March 2020
March saw the Coronavirus have a more tangible effect at home, with the move to lockdown in New Zealand taking it from a global event to something with a very clear impact on our day-to-day lives. Meanwhile, share markets around the world continued to be volatile, with the US S&P 500 index staging a dramatic partial 18% recovery in three days towards the end of the month.
While share market volatility can be unnerving, a disciplined approach combined with strategic diversification and active management, have all worked well to ease some of the downside risks. It is this combination of strategic planning and good risk management that goes in ahead of time, and which isn’t always evident in the ‘good times’, but whose impact becomes clear when it’s most needed.
As a direct result, despite the recent volatility a ‘Balanced’ portfolio is down less than 2%* in the 12 months to March, and a High Growth portfolio (with a bigger allocation to shares) has still delivered a positive gain over the past two years*.
The benefit of built-in ‘shock absorbers’
In today’s world where there’s more information available and more quickly than ever before, it can be easy to read about the latest moves in share markets and assume they directly translate to your investment portfolio. However, there are some key strategies that mean this often isn’t the case. These are the ‘shock absorbers’ that are built into many portfolios to help them deliver robust outcomes over time. The key examples include:
- Diversification across different asset classes – particularly holding some high-quality fixed interest investments. This means that over the first three months of 2020, investors in a Balanced portfolio have benefited from gains of about 1%* on NZ and Global Fixed Interest investments, which have helped offset some of the weakness in share markets.
- Strategic Currency management. Being a small, open economy, our New Zealand Dollar tends to fall in value when markets are ‘stressed’ and this year has been no different. The NZ Dollar has fallen 13% against the US Dollar since the start of the year, helping support the value of overseas shares in NZ Dollar terms. Some portfolios have strategically left 40% of portfolios’ global share investments ‘unhedged’ and free to move with foreign exchange rates, to capture this risk management benefit.
- Over the past three years Booster have been building an allocation to unlisted land and business investments via the Private Land & Property Fund and the Tahi Fund. While this is still small (around 4% of a Balanced fund), as we expected, these have helped take the edge off some of the volatility from listed share markets.
Governments and central banks ‘all in’
History consistently shows that investment markets ultimately recover from shocks – and often start this recovery process while the news headlines remain bleak. While the short term challenges are clear, it’s also clear that policymakers and central banks have ‘taken the gloves off‘ in providing liquidity and short-term support measures that seem to increase by the day. These measures are firmly aimed at helping to ease the burden and see businesses and economies through to the other side - acknowledging that some business casualties are inevitable along the way.
From here what matters for portfolios is future return prospects, not the last few months. We expect our focus on quality businesses and fixed interest investments puts client portfolios in good stead to weather this period, and ultimately will also show more areas of opportunity as the ‘light at the end of the tunnel’ inevitably becomes clear.
*The examples given about are based on Booster portfolios, but the same cases can apply to other providers. Please contact us to see how this applies to your portfolio.
Market & Portfolio Update - April 2022
Global share markets continued their choppy start to 2022 during April.For New Zealand based investors, a fall in the NZ dollar played an important role in helping offset the volatility global share markets experienced. The NZ dollar fell against most major currencies supporting the returns of unhedged overseas assets (assets that are free to move with exchange rates). As a result, ‘unhedged’ overseas investments fell by only 1.8% for NZ based investors.
The KiwiSaver Gender Divide – Why are women saving less and what can be done to combat this?
Recent data shows that, on average, women have 20% less in their KiwiSavers than men. The gap being at its largest between men and women in their 40s and 50s. There are a few factors that come into play causing this divide and although it will take years to achieve equality, there are ways in which we can be proactive to help close the gap. As of August 2021, the gender pay gap is at 9.1% in New Zealand, a decrease of about 0.4% from 2020’s stats.