Generate Newsletters

Welcome to the December edition of the Generate KiwiSaver Scheme Newsletter.

Performance of Our Funds

Returns to 30 November 2016 (after fees and before tax).

	One Year	Two Year (p.a.)	Three Year (p.a.)
Conservative	4.41%	6.76%	7.09%
Growth	0.89%	7.02%	8.62%
Focused Growth	-1.95%	5.79%	8.11%

Note: Past performance is not necessarily an indicator of future performance.

The month that was…

November was a strong month for global equities although the New Zealand share market underperformed for the third month in a row. More on this later.

Warren Buffett Wisdoms

After 50 years at the helm of Berkshire Hathaway (which is typically 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:

“I bought a slot machine a long time ago and put it on the 3rd floor of my house. I could then give my children any allowance they wanted, as long as it was in dimes, and I’d have it all back by nightfall. I wanted to teach them a good lesson. My slot machine had a terrible payout ratio, by the way.”

It is probably of little surprise that the ‘Oracle of Omaha’ handed out many financial lessons to his three children when they were growing up. We think this one was a gem.

What's New in KiwiSaver

If you haven’t already tried the new Generate online member area we would encourage you to give it a go. We are getting very positive feedback from new members who log in and experience all the functionality - especially compared to what they were used to seeing on their internet banking apps. Our functionality allows you to see your balance, the breakdown of contributions and performance, your transactions history and to switch between our funds with the click of a button. Importantly we also provide a full breakdown of all your direct investments so you can see exactly what your KiwiSaver account is invested in, or more importantly for some - what it is not invested in!

Investing 101

Derivatives

A derivative is a security that has its value ‘derived’ from a separate underlying asset.

Its value changes with price fluctuations in the underlying asset. The most common underlying assets include shares, bonds, commodities, currencies, interest rates and market indices. However, derivatives do not have to be based on financial assets. For example, there are derivatives based on weather data, such as the amount of rainfall over a period of time in a particular region.

A derivative is a contract typically between two parties. When the value of the underlying asset goes up one party benefits at the expense of the other; when it falls the other party gains.

Derivatives can be used for hedging, or insuring against risk on an asset. For example, at Generate we use foreign exchange forward (derivative) contracts to partially hedge our offshore investments from movements in the underlying currencies.
Derivatives can also be used for speculation or betting on the future price of an asset.

Derivatives play a large part in financial markets. Earlier in the year the Bank for International Settlements calculated the total notional value of derivatives contracts around the world to be an astounding USD544 trillion dollars.

November was a memorable month for financial markets. The US election drove direction. Share markets were tentative leading into the big day but then when Trump won both the Presidency and Congress investors started betting on the ‘reflation trade’ (that Trump is going to stimulate the economy via tax cuts and deregulation). >>READ MORE

Generate’s growth funds had a positive month in November largely on the back of higher global share markets. However, the “perfect storm” seen in October continued on for the Conservative Fund in November with interest rates rising further and the local share market having another down month. >>READ MORE

Top Holdings as of 30 November 2016

Conservative Fund	Growth Fund	Focused Growth Fund
International Equities Managers
N/A	Berkshire Hathaway	Berkshire Hathaway
N/A	T Rowe Price Global Equity Fund	Magellan Global Fund
N/A	Magellan Global Fund	T Rowe Price Global Equity Fund
N/A	Platinum International Fund	Platinum International Fund
N/A	Polar Capital Technology Trust	Polar Capital Technology Trust
Property and Infrastructure
Infratil	Infratil	Infratil
Arvida Group	Arvida Group	Arvida Group
Contact Energy	Contact Energy	Contact Energy
Z Energy	Ryman Healthcare	Z Energy
Ryman Healthcare	Z Energy	Ryman Healthcare
Fixed Income and Cash
Term Deposits	Cash & Cash Equivalents	Cash & Cash Equivalents
Cash & Cash Equivalents	Term Deposits	N/A
Kiwi Income Property Aug 2021 Bonds	Rabobank Nederland Perpetual Securities	N/A
ANZ Perpetuals	Kiwi Income Property Aug 2021 Bonds	N/A
Chorus May 2021 Bonds	Fonterra Oct 2021 Bonds	N/A

International Equities Manager Spotlight

Polar Capital Technology Trust

Polar Capital Technology Trust Plc (PCT) aims to maximise capital growth for shareholders through investing in a diversified portfolio of technology companies around the world.

Managed by a team of dedicated technology specialists, PCT has grown to become a leading European investor with a multi-cycle track record.

PCT believes that “we’re in the midst of a new technology cycle, driven by cloud computing, internet applications and mobility.” The Company seeks to capitalise on such cycles, by gaining exposure to exciting emerging themes and harnessing potential returns through investing in companies believed to have the highest growth potential from across the global technology spectrum.

As at 30 September 2016 PCT managed GBP1,087 million of total net assets and had returned an average of 20.1% p.a over the last 5 years (in GBP).

Next month: Jupiter European Opportunities Trust Plc.

The Generate member newsletter is taking a break in January - returning in February.

We wish you a happy and safe holiday season.