April 2014 Newsletter
We're pleased to confirm that we have been appointed by the government as a KiwiSaver default provider for the next seven years from 1 July 2014. Our appointment was the culmination of a comprehensive competitive process undertaken by the Ministry of Business, Innovation and Employment over the last few months that assessed our investment capability, governance processes, fee levels and focus on member education. Your KiwiSaver savings are in good hands.
Managing Director | Fisher Funds
At a Glance
As at 31 March 2014
It was another good month for your KiwiSaver Scheme Funds with all funds ending the month in positive territory. Looking out over the longer term (see the performance table) performance also looks healthy and reflective of the funds respective risk/return profiles.
While history will tell us that March 2014 was all about Russian tanks rolling into the Crimean peninsula (and causing investors to get a little jittery) there were plenty of other things for our investment team to focus on.
The New Zealand share market continued its strong start to the year outpacing most global markets with several factors buoying the share market and utility stocks in particular. The December quarter GDP number came in at +0.9% confirming that the economy had a strong finish to last year; strong demand for NZ dairy products led to a further record trade surplus (and continued upward pressure on the NZ dollar) and the most recent polls are still pointing to the likelihood that the National Party can govern alone.
A couple of star performers worth mentioning were Kathmandu (up 17.4%) and Ryman Healthcare (up 10.8%). Kathmandu's half year profit result bucked the industry backdrop of a tough retail environment by again posting strong same store sales growth – up 5.4% at constant currency, including Australia up 6.6%. The Australian performance was impressive, given the weak retailing marketplace. Net profit was up 11% on the first half of last year, but would have been up over 20% assuming a constant NZ$/A$ currency.
Ryman Healthcare has pleasantly surprised investors by again increasing its build rate to 850 units and beds per annum by 2017, compared to the current build rate of 700 units/beds per annum. Build rate is a key determinant of value as, over time, the new villages contribute to earnings and increase the 'wave of earnings' as the villages mature and units are re-sold.
We've been cautious on the prospects for the Australian economy for a couple of years now in light of the challenges it faces to transition away from the mining influenced boom of the last 20 years into new areas of economic growth. We've backed up this conviction by being underweight in our exposure to the Australian share market which has had a positive effect on returns for members.
It's important to balance this with the reality that there are still plenty of good reasons to invest in Australia. Over the very long-term (and we're talking the last 100 years) the Australian share market has actually been one of the best performing share markets around the world, and for good reason. Furthermore, the political and regulatory environment balances the interests of society, human capital is a strength (a well educated workforce and sensible immigration policies) and there is breadth and depth of investment opportunities to look at. There will come a point when we lift our weightings to Australia but that is still some way off. Until then we keep closely tracking the key economic indicators e.g. employment data, corporate earnings, consumer confidence levels – the list goes on - that will indicate when it's time to make the adjustment.
While we try and keep our communications simple to understand, sometimes investment lingo can sneak in. We continue our series breaking down some of that jargon.
A common question we get from members is "How is my KiwiSaver account taxed?"
The Fisher Funds TWO KiwiSaver Scheme is classified as a Portfolio Investment Entity (or PIE for short) for tax purposes. The PIE regime was introduced at the same time as KiwiSaver was launched providing a number of tax advantages for investors and making the administration of it all very easy.
Firstly, there is no tax on gains in New Zealand shares and certain Australian shares. Investments in companies outside that criterion are taxed as if they have earned 5% total income (regardless of how they have actually performed). Fisher Funds invests in growing companies which often have a low dividend yield and the majority of returns come from the increase in the value of the shares. This is a significant advantage for investors.
Secondly, investors are taxed at their marginal tax rate with a maximum of 28%. For investors on a top personal income tax rate of 33% this represents a 5% reduction.
Thirdly, the Scheme takes care of all tax obligations on behalf of investors so there is nothing to include in your personal tax return. As long as we have the correct tax rate (known as your Prescribed Investor Rate or PIR) for you then we claim a tax refund or pay your tax liability on your behalf and adjust your KiwiSaver account accordingly.
Calculating your correct PIR
There are three PIR's available for individuals to choose from: 10.5%, 17.5% or 28%. The correct rate for you depends on your income. We have a simple diagram that helps you calculate the correct PIR for you.
Managing your KiwiSaver account
Make sure you get your Big Five Hundy!
Sorted have just launched a national campaign to remind eligible KiwiSaver members (those aged between 18 and the age when you can normally qualify to withdraw your KiwiSaver account – currently 65) that you can benefit from a $521 top up by the government to your KiwiSaver account.
As a reminder, for every $1 you contribute to your KiwiSaver account you'll receive 50 cents from the Government, up to a maximum of $521.43. This generous KiwiSaver incentive is known as the MTC.
To maximise your full MTC entitlement of $521.43 you need to have contributed at least $1,042.86 (the equivalent of $20 per week) into your KiwiSaver account. If you have not put in at least this amount, you can top up your KiwiSaver account for the current KiwiSaver year (1 July 2013 to 30 June 2014) before Monday 30 June 2014.
You can read more online about who is eligible for a MTC, how it is calculated and how to make a payment.
Getting to know Doug Booth
Doug is our Product Compliance Manager who looks after our two KiwiSaver schemes among other products in the Fisher Funds range. Doug joined us from TOWER Investments and cheekily suggests that when we 'bought him, we got the TOWER Investments business thrown in"! Doug is certainly a walking encyclopaedia on KiwiSaver having launched the ANZ and National Bank KiwiSaver Schemes while working at ANZ before moving to TOWER Investments and being responsible for compliance of the now Fisher Funds TWO KiwiSaver Scheme. Doug project managed our submission to be appointed as a KiwiSaver default provider over the last few months. We appreciated Doug throwing himself into the project, despite at the same time moving his family to Auckland and settling into a new office and a new home.
Doug was born and bred in the Hutt Valley and notes that he is one of a very small minority of Wellingtonians who move to Auckland for a shorter commute! His wife Morven and children Callum and Katie are loving the Auckland beaches and weather, as is Richie McCaw the (all) black labrador (who was destined to a name change had we lost the World Cup!). Doug has spent a bit of time outside New Zealand, travelling around Europe and the Middle East after university, before living in Scotland for several years working at Celtic Football Club as the club's Retail Operations Manager. Happily ensconced on the North Shore, Doug enjoys playing golf and watching most sport, and has had a stint coaching kids' athletics and football which he found hugely rewarding. Travelling is still a thrill; the photo is from a recent trip to Lake Garda in Italy.
Fund Performance (as at 31 March 2014)
|Fund After Fees & before-tax Returns||3 Months||1
|2 Years*||3 Years*||5 years*||Since Launch*|
|Preservation Fund||+ 0.7%||+ 3.1%||+ 3.3%||+ 3.1%||+ 3.1%||+ 4.1%|
|Conservative Fund||+ 2.2%||+ 4.9%||+ 6.8%||+ 6.2%||+ 8.0%||+ 5.1%|
|Balanced Fund||+ 3.1%||+ 8.2%||+10.0%||+ 7.2%||+ 9.7%||+ 4.7%|
|Growth Fund||+ 3.8%||+11.2%||+12.7%||+ 8.3%||+12.0%||+ 3.2%|
|Equity Fund||+ 4.7%||+13.3%||+12.9%||+ 6.5%||+12.0%||+ 0.5%|
|Cash Enhanced Fund||+ 2.0%||+ 4.2%||+ 6.0%||+ 5.7%||+ 6.4%||+ 5.0%|
* Annualised return before tax and after fees
The above returns are based on the percentage change in the unit price of the fund for the period specified, they are not the returns individual investors will receive as this will depend on the prices at which units are purchased on the date of each individual contribution. Changes in the unit prices reflect changes in the market value of the assets of the fund. The above returns exclude government contributions and no allowance has been made for monthly administration fees. Returns displayed are after management fees but before tax.