Investment returns at 30 September 2024, before fees and tax

It’s been another quarter of positive performance by each of the funds. Long term returns (see the Last 3 Years column), particularly in income funds, will continue to reflect the low interest rate environment that existed around the pandemic. Hopefully the pandemic effect remains a thing of the past.

Our view of the markets has not changed. We still believe (and maybe even more strongly now) that major sharemarkets reflect an optimistic outlook. It is generally believed that the high point in inflation has been seen, that interest rate reductions will continue and that corporate earnings will not be greatly affected. Most central banks have already reduced their country’s official cash rate.

We disagree with the optimistic view currently being reflected in most sharemarkets. Whilst headline reported inflation is in no doubt reducing, the central banks (rightfully, in our view) remain concerned about domestic inflation. Central banks have less influence on certain domestic factors, e.g. council rates, insurance premiums and energy costs. We question whether interest rates will fall as quickly as expected by some, and what might happen to corporate earnings. Will central banks cut aggressively because they see a risk to the economy (and hence corporate earnings)? Will investors continue to pay higher amounts for the same level of corporate earnings? We think that there is a risk that interest rates don’t fall as fast as expected, that corporate earnings disappoint and, in those environments, investors pay less for prospective earnings.

Thus we remain cautious on the investment return outlook.

Geopolitical uncertainty (e.g. ongoing US / China tensions, ongoing conflicts in the Middle East, the war between Russia and Ukraine and possible fall-out from the US election), coupled with monetary policy uncertainties, continues to add to market volatility (ups and downs).

As such, in this environment we remain wary of asset prices. We remain cautiously invested, diversified, and continue to hold higher than normal amounts in cash.

Investment returns as of 30 June 2024, before fees and tax

We’re pleased to report that all our funds have shown positive performance this quarter.

While the long-term returns for our Income Fund have been influenced by the low-interest rate environment during the pandemic, we remain committed to navigating these challenges with prudence and care.

Market Insights: Navigating Uncertainty

The current market sentiment is largely optimistic, with many believing that inflation is under control, interest rate reductions are imminent, and corporate earnings will remain robust. This has led to several central banks lowering their official cash rates.

However, we adopt a more cautious stance. While headline inflation is indeed decreasing, central banks remain concerned about ‘sticky’ inflation, which includes factors like council rates, insurance premiums, and energy costs. This type of inflation is less responsive to traditional monetary policies, which could mean that interest rates might not decrease as swiftly as the market anticipates.

We also question whether corporate earnings will meet current expectations. If central banks cut rates aggressively due to economic risks, it could signal underlying vulnerabilities that might affect corporate profitability. Consequently, investors may become hesitant to pay higher prices for anticipated earnings, potentially leading to market corrections.

Our Strategy: Cautious and Diversified

In light of these uncertainties, including geopolitical tensions and domestic growth fluctuations, we remain cautious about the investment return outlook. Our strategy emphasises cautious investment, diversification, and maintaining higher-than-normal cash reserves to help navigate potential market volatility.

At the Christian KiwiSaver Scheme, our priority is to grow your investments responsibly. We continue to monitor market conditions closely, ensuring that our investment decisions align with our commitment to your financial well-being.

Stay tuned for more updates, and as always, thank you for entrusting us with your KiwiSaver investment. Together, we navigate the path to a better financial future.

Investment returns (before tax and fees) for the quarter ending 31 March 2024 are:

All our funds performed well in the quarter ended 31 March 2024.

The investment markets had a positive quarter thanks to strong economic data, especially from the US, and signs of slowing inflation. This boosted hopes for a “soft landing,” where the economy grows slowly without falling into a recession. Both the stock and bond markets saw gains.

However, not all developed markets are the same. During the COVID pandemic, economies shrank and central banks lowered interest rates in a similar way worldwide. Now, as time passes, economies and central banks are starting to go their separate ways. In Europe, for example, rate cuts are expected by mid-year due to weak industrial production, low retail sales, and low consumer confidence.

Investment markets are expecting a cycle of rate cuts to begin later this year, though the timing will vary by region. They also expect companies to continue showing positive earnings growth. Despite this, we remain cautious about the investment return outlook. We believe the market might be underestimating the economic risks from recent interest rate hikes.

Geopolitical uncertainty, such as tensions in Ukraine, the Middle East, and between the US and China, continues to cause market ups and downs. This has become a bigger factor in the global market compared to a decade ago.

In this environment, we remain cautious about asset prices. We stay diversified and keep higher-than-normal amounts in cash to manage risk effectively.

Investment returns (before tax and fees) for the quarter ending 31 December 2023 are:

All funds have performed remarkably well in the quarter that ended on December 31, 2023. This is due to the increasingly positive perception with regards to the interest rate outlook, which investors believe may have peaked and are on their way down. This perception has led the share and bond markets to respond positively, with inflation appearing to have been beaten or falling rapidly. Investors also hope for an economic soft landing, where growth slows but avoids a recession and unemployment remains low.

However, it is important to note the make up of the reported inflation declines. While international inflation saw a decline, domestic inflation saw a lesser decline. This puts central banks in a challenging position, where they must choose between cutting interest rates early and risking
re-igniting inflation or delaying cuts and risking a growth slowdown (or recession). Moreover, central banks had recently announced that interest rates would remain at these current higher levels for longer. 

We do not believe that there is potential to cut interest rates sooner than expected. We acknowledge the risks to company earnings due to increased costs. In particular, the high share prices of some stocks pose a risk of a fall in all share prices. 

Several factors influence market performance, and actual performances are rarely achieved in a straight line. Therefore, we recognise that there can be many bumps within a performance period, such as geo-political events like the ongoing Russia and Ukraine conflict, Israel and Gaza conflict, and the Red Sea crisis. Ongoing tensions between China and the USA can also impact the market, and further disturbances are expected, such as the upcoming USA elections and the development of the China and Taiwan relationship.

Given this environment, we believe it is essential to remain cautious of asset prices. We continue to hold higher-than-normal amounts in cash and remain cautiously invested and diversified. However, we also recognise that there are several opportunities to be explored, and we are actively seeking new investment avenues to ensure that our clients’ portfolios continue to grow and perform well in the long run.