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Welcome to the July edition of the Generate KiwiSaver Scheme Newsletter.
Get the most out of KiwiSaver
Member Tax Credits (MTC’s)
The IRD has begun making payments for members’ MTC’s. If you paid $1,042 or more into your account over the year to June 30, and you are over 18 years old you, should see your MTC’s in your account soon!
Warren Buffett WisdomsAfter 50 years at the helm of Berkshire Hathaway (which is currently one of our largest investments for both of our growth funds) Warren Buffett has become widely regarded as the world’s greatest investor. In his annual letters to shareholders, and in various interviews he has given, he has shared many of the lessons he has learned during his career. This month:
“Be fearful when others are greedy, and greedy when others are fearful.”
Buffett often talks about investor psychology and how from time time investors gets irrationally bullish (optimistic) or irrationally bearish (pessimistic) about the outlook for share markets. By keeping a cool head he has taken advantage of ‘herd mentality’ several times during his career. He has done this by maintaining investment discipline and basing his decions on facts whilst ignoring market “noise”. An example of this was Buffett’s refusal to buy in to the internet boom of the late 90’s. Whilst tech company share prices were rocketing higher he was under a lot pressure to partake in the ongoing boom and was labelled as being ‘out of touch’ by many in the market. He steadfastly refused to buy tech stocks on the basis that valuations were extremely high and instead maintained his focus on solid companies that consistently grew their earnings. When the internet bubble finally popped in March 2000 tech stock prices plunged and Buffett’s investing philosophy was proven to be right yet again.
“Investing 101”
The Power of Compounding Returns
Compounding returns offer one of the most powerful ways to build wealth. It means earning returns on re-invested returns. Over time, the more returns you reinvest, the more money you have working for you, and the more you can earn. KiwiSaver funds offer a good way to capture compound returns as all of a member’s returns are re-invested into the member’s account.
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Market UpdateDuring the month of June markets became progressively fixated on two distinctive upheavals – one in the West and one in East.
In the Western world we saw hopes of Greece doing a deal with its creditors rise and fall several times, only for the Greeks to walk away from the negotiating table at the end of the month and instead declare a national referendum on whether or not Greece should accept their creditor’s lending conditions. This raised the risk of Greece leaving the European Monetary Union and led to a risk off event and the EuroStoxx 50 closing the month 4.1% lower. The FTSE 100 fared even worse dropping 6.6%.
In China the Shanghai Stock Exchange Composite Index started the month much the way it finished the previous month by heading higher - only to enter a dramatic sell off midway through the month. Despite numerous efforts from Chinese authorities to stem the tide of red ink the index finished the month 7.3% lower. The sell off has since continued with the index tumbling a further 19.8% (at the time of writing). It is a testament to how strong the Chinese share market has been in 2015 that despite this weakness the Index is still up 6.1% year to date.
In the U.S. the S&P 500 fell 2.1% in June as investor sentiment was soured by the protracted stand off going in Europe.
Over the ditch and the ASX 200 had a tough month falling 5.5%. The two sectors which dominate the Australian share market – banks and mining companies – both fell during the month.
The NZ50G also gave back some of the year’s gains falling 2.0% in June. One thing we have been watching closely is the local economic data. Recent data is signalling that New Zealand is no longer the “rock star” economy. That is not to say doom and gloom is just around the corner but more the economy has peaked and more moderate levels of growth are to be anticipated.
We have been preparing for the current weakness in markets by holding a relatively high proportion of cash and/or fixed income in our growth funds. We are likely to put at least some of this to work in the days ahead as we envisage continued weakness in markets to present some good buying opportunities. We will be proceeding with caution - but in our opinion Europe is on a much stronger footing than it was back in 2010 - the last time Greece had markets on a nervous footing; and in China we believe that markets are for the most part simply giving back some of the gains from the recent over highly leverage run up in share prices.
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Generate Funds' Performance
Despite the fall in global share markets the Funds posted positive returns for the month of June. This is largely because the NZD fell over the month - with the NZD/USD down a considerable 4.8% - which increases the value of our offshore investments.
The Conservative, Growth and Focused Growth Funds returned 0.57%, 0.75% and 0.81% respectively (after fees and before tax). Year to date the Funds have posted returns of 3.95%, 8.92% and 10.92% respectively (after fees and before tax).
The best performer out of the funds’ property and infrastructure investments in the month of June was Z Energy with a 14.7% return. Z got the month off to a cracking start by announcing on June 1 that it was acquiring Chevron New Zealand. The acquisition is subject to approval from the Commerce Commission but nevertheless was greeted warmly by investors.
On the other side of the ledger last month’s top performer – Contact Energy – was June’s worst performer with an 18.5% fall. Speculation in the media was rife that Contact’s 51% owner – Origin Energy – was preparing to offload its stake in Contact. This put pressure on Contact’s share price as it appears some in the market were selling down their holdings in anticipation of being able to buy it back cheaper via Origin’s sell down. In addition Contact paid a 50c special dividend in June (and the dividend amount typically comes out of the share price once a stock goes ex-dividend).
The top performing International Equities Manager for the third month running was Montanaro UK Smaller Companies Investment Trust (MUSCIT) with a 7.61% return in NZD terms. For much of 2014 MUSCIT was somewhat of a performance laggard within our stable of funds. Despite this we remained confident in Montanaro’s abilities and its great to see our patience being rewarded.
The weakest performance for the month was from Berkshire Hathaway Inc with a 0.1% gain in NZD terms. Although the share price weakened on the New York Stock Exchange the substantial drop in the NZD/USD cushioned the fall.
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Top Holdings
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Conservative Fund
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Growth Fund
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Focused Growth Fund
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International Equities Managers
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N/A
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Platinum International Fund
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Platinum International Fund
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N/A
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Berkshire Hathaway
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Berkshire Hathaway
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N/A
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T Rowe Price Global Equity Fund
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T Rowe Price Global Equity Fund
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N/A
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Magellan Global Fund
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Magellan Global Fund
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N/A
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Worldwide Healthcare Trust
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Worldwide Healthcare Trust
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Property and Infrastructure
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Infratil
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Infratil
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Infratil
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Ryman Healthcare
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Ryman Healthcare
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Ryman Healthcare
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Arvida Group
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Arvida Group
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Arvida Group
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Summerset Group
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Summerset Group
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Summerset Group
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Z Energy
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Metlifecare
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The NZ Refining Co
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Fixed Income and Cash
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Term Deposits
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Term Deposits
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Cash & Cash Equivalents
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Cash & Cash Equivalents
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Cash & Cash Equivalents
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N/A
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ANZ Perpetual Bonds
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Kiwi Property Group Aug 2021 Bonds
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N/A
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Fonterra Capital Notes
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Port of Tauranga Oct 2019 Bonds
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N/A
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Contact Energy May 2020 Bonds
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Trustpower Dec 2021 Bonds
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N/A
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International Equities Manager Spotlight
T. Rowe Price Global Equity Fund
Founded in Baltimore in 1937, T. Rowe Price has grown in to one of the world’s largest fund managers with more than USD$750 billion in funds under management. The company focuses exclusively on investment management; and the company’s key mantra is “if you take care of your clients, your clients will take care of you.”
The T. Rowe Price Global Equity Fund is run by Scott Berg. Scott has the ability to tap into 130 Equity Research Professionals, 9 Sector Portfolio Managers and 57 Regional and Diversified Portfolio Managers.
Scott took over the management of the Global Equity Fund in June 2012. As of May 30, 2015 it had funds under management of AUD$1.2 billion and a 3 year AUD annualised return of 26.4% p.a. (net of fees). Some of its largest holdings are in Amazon, Boeing, and Google.
A key differentiator of the Global Equity Fund is its ‘truly global’ nature with investments in approximately 30 countries. This compares with the average of its peer funds of only 18 countries.
Next month: The Magellan Global Fund
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Contact us
If you have any questions after reading your newsletter, give us a call on 0800 855 322 or email us at info@generatekiwisaver.co.nz and we would be more than happy to help.
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We thank you for your support.
Kind regards,
The Generate Team
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