September 2014 Newsletter
You have no doubt noticed the increasing exposure that KiwiSaver is receiving in the media as the retirement savings plan becomes more ingrained in the lives of New Zealanders. With more than 2.2 million Kiwis now enrolled in a KiwiSaver scheme, there are bound to be plenty of opinions expressed about KiwiSaver and how it operates. Media coverage of KiwiSaver has ramped up in recent weeks, because once again politicians have sought to make KiwiSaver a political play-thing leading up to the election. We're tired of continual changes to what is supposed to be a long term savings scheme, but that's politics for you! Rather than sing the merits of one party's policy over another, we've outlined each of the major party's superannuation and KiwiSaver policies so you know what you're voting for on September 20.
Managing Director | Fisher Funds
At a Glance
As at 31 August 2014
While August may be remembered more for an awesome All Blacks victory over the Wallabies and "dirty politics", it was a memorable month for our New Zealand investment team. August is a really busy month with a large number of our portfolio companies in New Zealand updating the market and reporting their latest profit results.
Earnings season was perhaps more important than usual this year because to date investors have taken the economic recovery on trust and needed to see earnings growth that would justify the market's continued optimism. Markets are discounting mechanisms designed to price in tomorrow's reality today. Given that markets have priced in so much to date, the latest result season was important because if earnings had failed to show up, share prices would have been left high and dry.
We were generally pleased with the earnings results from our New Zealand portfolio companies. Most came in line with expectations, with Freightways and Sky TV earnings results coming in slightly above expectations while Summerset came in below. All other New Zealand companies posting results in the portfolio increased their dividends pointing to strong balance sheets and increasing profitability.
Attention now turns to the upcoming New Zealand general election. There are some clear differences in economic policy between the major political parties that will have major effect on individual sectors and listed companies - more so than in other elections.
Nowhere is this more obvious than in the electricity sector where the Labour / Greens coalition policy is to adopt a single buyer market which will have major implications for the incumbent listed 'gentailers' Contact Energy, Trustpower, Mighty River Power, Meridian Energy and Genesis Energy. While details are vague, the single buyer model is expected to have major negative implications for their earnings, particularly those that make most of their earnings from hydro-generation.
In the month's video, we share some thoughts about the political landscape and how as an investment manager we're approaching it. Watch the video here.
On the international front the US and Eurozone continue to chart very different courses. US economic data continues to improve after a troubled start to the year. In particular, the pickup in housing activity is gaining momentum and unemployment continues to fall. The US share market hit an all-time high in August, with the S&P500 index lifting above 2,000 for the first time.
In contrast, economic data from the Eurozone was disappointing in August. The regional economy stagnated in the second half while the German and Italian economies actually contracted.
Stock selection within the utilities and telecoms sectors helped returns while our cash weighting and slightly underweight exposure to the strong US share market were detractors from performance.
Summary of the major political parties superannuation and KiwiSaver policies
The following commentary reflects proposed changes to how superannuation and KiwiSaver operates today should each party come to power.
- Replace the KiwiSaver First Home Deposit Subsidy with a KiwiSaver HomeStart Grant, doubling the potential support for buying a new home from $5,000 to $10,000 per person
- Increase house price limits for the HomeStart Grant to $550,000 in Auckland, $450,000 in Wellington, Christchurch, Hamilton, Tauranga, Western Bay of Plenty, Kapiti, Porirua, Hutt City, Hutt Valley, Tasman, Nelson, Selwyn District, Waimakariri and Queenstown, and $350,000 for other areas
- Enable larger KiwiSaver First Home withdrawals by including the member's tax credit (meaning first home buyers will now be able to withdraw all of their KiwiSaver savings except the $1000 kick-start)
- Expand eligibility for Welcome Home Loans by aligning the house price caps with the new KiwiSaver HomeStart Grant
- Gradually increase the age of eligibility for New Zealand superannuation to 67 by 2032, starting in 2020
- Make KiwiSaver universal - auto enrol all employees aged 18 to 65 (some exceptions apply) in October 2015
- Increase the employer and employee minimum contribution rates gradually by 0.25% a year for six years (from 3% each currently to 4.5% in 2021)
- Use variable KiwiSaver contributions (adjust contribution rates up or down) as a tool to control inflation rather than just relying on using interest rates
- $1,000 kick-start to be paid over five years
- Introduce a “public option” default provider in addition to existing default providers. They will examine the option of making the public fund the sole default provider
- All babies born in New Zealand would automatically be registered for a KiwiSaver account and receive a $1,000 kick start from the government
- Allow withdrawals from KiwiSaver accounts to be used for tertiary education fees
- Introduce Kiwi Fund – a state run government guaranteed KiwiSaver provider replacing all current KiwiSaver schemes
- Introduce "flexi-super" – allowing people to access the pension from age 60 at a reduced rate or up to age 70 at a higher rate
- Make KiwiSaver compulsory
- Raise the age of eligibility for New Zealand superannuation to 67 over several years
- Lower the eligibility age for New Zealand superannuation for groups with lower life expectancy - such as manual labourers
Sources: Political party websites and publicly available information
Getting to know Murray Brown
|Murray Brown, Senior Portfolio Manager getting involved in the planking craze!|
We have been remiss in not introducing Murray Brown to you earlier. As Murray reminded us, he is Fisher Funds' ninth longest serving employee and has seen more than 60 newsletters published, yet it's only now that we've asked him to tell us his life story! All we can say is, it was worth waiting for!
Murray is the Senior Portfolio Manager responsible for our New Zealand share funds and our Property & Infrastructure funds. He is a veteran investor with more than 30 years experience and has been recognized in industry awards as a top rated analyst. Company executives have admired Murray's professionalism and rigour as he has sought to understand all aspects of their businesses to determine whether they make the grade as portfolio investments.
Murray is a Wellingtonian, living by the sea in Paremata in his youth where he learned to sail. He won the Starling class national champs when he was still at school and has retained his love of sailing and all things aquatic, including diving with sharks (great whites and whale sharks) both with and without cages!
Murray has a private pilot's licence and is an enthusiastic cyclist, having completed the 160km Around Taupo bike race six times, with a seventh event scheduled for later this year. Murray has been happily married to Mandy for 30 years and one of his two children (son Hayden) has obviously been so impressed by Dad's stellar career that he is following in his footsteps and entering the capital markets industry.
Fund Performance (as at 31 August 2014)
|Fund After Fees & before-tax Returns||3 Months||1 Year||2 Years*||3 Years*||5 years*||Since Launch*|
|Preservation Fund||+ 0.9%||+ 3.3%||+ 3.3%||+ 3.2%||+ 3.2%||+ 4.1%|
|Conservative Fund||+ 1.5%||+ 8.6%||+ 7.0%||+ 7.4%||+ 6.8%||+ 5.2%|
|Balanced Fund||+ 1.7%||+ 11.8%||+ 10.8%||+ 10.0%||+ 7.8%||+ 5.0%|
|Growth Fund||+ 1.6%||+ 13.8%||+ 14.1%||+ 12.6%||+ 9.0%||+ 3.5%|
|Equity Fund||+ 1.8%||+ 16.0%||+ 16.4%||+ 13.8%||+ 8.8%||+ 1.0%|
|Cash Enhanced Fund||+ 1.5%||+ 8.0%||+ 6.2%||+ 6.5%||+ 5.8%||+ 5.2%|
* 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.