The great run continued into the last quarter of 2019. The return from shares was particularly good and led to solid Growth and Balanced Fund returns (given their preference toward shares). The quarter’s returns benefitted from the reduced concerns around trade discussions between the US and China, supported by earlier reductions in interest rates and a growing view that international growth may improve.
It should be remembered that the great returns ‘last year’ are flattered somewhat given the terrible last quarter of 2018 i.e. returns in the last year benefitted from the rebound / recovery from that quarter.
Shares prices continue to rise and interest rates remain at low levels. Your funds continue to participate in these performing markets. The funds remain diversified, emphasize quality, are cautiously invested and focussed on longer term returns.
Investment returns at 31 December 2019, before fees and tax:
The question on every investors mind is – what will returns be like in the future?
As the future is unknown all that one can do is try and prepare for it. And maybe learn from the past. Throughout history investors were concerned with the ‘topic’ of the time. No doubt some ‘topics’ had a major influence on short term returns at that time.
However long term returns have almost always been good. And whilst ‘topics /events’ will always happen one needs to remember that the influence from those events will eventually pass. Exactly how much the influence will be and for how long depends on the event.
With that in mind – What is troubling investors? What are those ‘topics’ now? As always, and depending on who you talk to, the list could be long. From our perspective that list could include (and in no particular order) international trade developments, unrest in the Middle East, politics, cyber-attacks, China and climate change etc. Some of these concerns may always be on the list. Combined with what are considered elevated asset prices at the moment (both shares and bonds) we, like many others, would not be surprised if future returns (short term, and at some point) are not as high as recent gains.
One should remember that sometimes the ‘event’ could be very beneficial to returns too.
That said – What can we can we do about it? No one can predict how any of these events will impact markets in the short term however markets tend to grind higher in the long term as the economy progresses. Short-term events and market movements are outside an investors’ control.
It is more important for investors to focus on what is in their control. An appropriate savings plan is an important part of that mix. Any savings should also be diversified (across different shares and bonds, and geographically) and in quality investments (as per in all our funds).
Managing an ethical investment portfolio requires constant care, awareness and analysis. A sector that has particular significance currently is energy. We strongly believe in a lower carbon future and that society needs to transition away from fossil fuels as quickly as possible, but reflecting this belief in our investment strategy requires a balanced and considered approach.
Our Chief Executive, Mark Wilcox, outlines our thinking around fossil fuels:
Anglican Financial Care (who manages the Christian KiwiSaver Scheme) has a policy on fossil fuels but this does not extend to full divestment.
First and foremost, we stand by biblical principles which infer creation is to be cared for and protected for future generations. In our opinion, the 2015 Paris Agreement targets infer risks to companies within the energy sector who don’t appropriately adapt their business models. We have elected to respond by excluding exposure to coal and tar sands companies and to rank other energy companies according to their extent of contribution towards a lower-carbon world.
We recognise that fossil fuel divestment is a matter of importance to the Church and that some of us share a sense of frustration with the lack of progress towards the Paris Agreement targets. However, while the future is renewables and green technology, and progress has been made, fossil fuels will still be the planet’s dominant fuel source for a long time yet (likely at least until 2050). Accordingly, there would be considerable financial risk to our members in taking a full divestment approach at this stage.
In recognition that part of the solution lies with alternative energy solutions, we have made a significant investment in a global alternative energy fund. We also have a long-standing forestry investment. We recently sold the cutting rights to the trees but has retained full ownership of the land and is currently re-planting.
For a more detailed analysis on investing towards a renewable and green technology future, we recommend this Wells Fargo white paper: It’s Not Easy Being Green—The Future of Fossil Fuels:
The bottom line is that our lives revolve around energy use, and lots of it. Fossil fuels generate most of that energy today. Recent progress in renewables and green technology has been made, and it is the future. The green movement has investors believing that fossil fuel use will soon die. We are doubtful. It takes energy to create energy, and green technologies often require fossil fuel use too. Additionally, emerging market energy use continues to climb higher. By 2050, the planet’s dominant fuel source will still likely be fossil fuels. For the planet’s sake, let’s hope that green progress has a higher gear still.
If you would like to check for yourself how Christian KiwiSaver Scheme investments mitigate the impact of climate change or to see – as ethical investors – what we do invest in, visit our website or call us on (0508) 738 473.
The quarter had another positive performance with both shares and bonds (fixed interest securities) performing strongly in the quarter. Longer term returns are also positive with growth assets (with their higher weighting toward shares) outperforming the more conservative income assets (and their weighting toward bonds). The positive returns continued despite the many uncertainties in the quarter e.g. ongoing US and China trade tensions, talk of US presidential impeachment, Hong Kong riots, Brexit developments and the attack on Saudi oil production.
No doubt some of this uncertainty weighed on investor minds and led to a softening in the growth outlook. Central Banks (Government owned banks but independent) indicated further easing (i.e. lower interest rates), trying to offset the reduced growth outlook.
Despite the many uncertainties the funds continue to achieve good gains. Whilst investor sentiment could affect short term returns we continue to invest (cautiously) focussing on long term performance.
Investment returns at 30 September 2019, before fees and tax:
Your KiwiSaver scheme has an interest in the Hapua Forest. 100,000 seedlings were planted this winter in the forest in the Hawkes Bay. This is the second of three plantings. Last year 62,500 seedlings were planted. Radiata pine is a versatile wood that’s easy to slice, mould, plane, glue, stain and paint. It is the world’s most widely planted softwood plantation tree and grows really well in New Zealand.
The 2019 planting happened over five days in winter and involved a crew of 36 on-site each day. The seedlings were around 30 cm tall at the time of planting. Depending on the terrain there were 750 to 950 planted on each hectare, and 117 hectares were planted. These seedlings will take up to 25 years to mature into trees for harvest.
The seedlings were provided by a family business that’s been around for decades. Growing their seedlings sustainably has been a focus for Murrays Nurseries Woodville since the nursery started. The business takes pride in investing heavily in research and development in a number of key areas to increase productivity while remaining environmentally conscious. Part of their research is into the reduction in the use of fungicides and fertilisers.
Because trees can store carbon, radiata pine plantations are useful ‘carbon sinks’. About 50% of the dry matter in the wood is carbon – largely cellulose (about 65%) and lignin (about 30%). Depending on growth rate and wood density, a hectare of pine trees locks up 4–7 tonnes of elemental carbon per year, which is equivalent to 15–26 tonnes of carbon dioxide absorbed from the atmosphere. A 1,000-hectare forest can absorb 15,000–26,000 tonnes of carbon dioxide per year.
When burnt as fuel in a car engine, petrol releases 2.62 kilograms of carbon dioxide per litre. On this basis, a typical car produces 1 tonne of carbon dioxide for every 5,555 km driven or 3 tonnes for an average year’s driving (16,666 km). This is equivalent to the amount of carbon dioxide that 33–60 pine trees absorb in one year.
Read more about Hapua Forest in our February 2019 article.
The Encyclopaedia of New Zealand https://teara.govt.nz/en/radiata-pine/page-1
All funds had very pleasing returns for the June quarter with strong contributions from both shares and bonds.
Sharemarkets have been supported by lower interest rates and the prospect of global central bank easing. Shares have been recently trading at record highs despite evidence of a slowdown in global growth. Sharemarkets, however, remain sensitive to future developments.
The International Monetary Fund (IMF) nudged down its global growth forecasts in July to 3.2% for this year and 3.5% for 2020, citing the potential for adverse developments including further US-China trade tariffs, US auto tariffs, or a no-deal Brexit as items that could “sap confidence, weaken investment, dislocate global supply chains, and severely slow global growth below the baseline”.
Boris Johnson’s win in Britain’s conservative party leadership race did not erase concerns around the future of Britain (i.e. Brexit). The looming Brexit deadline (31 October) will no doubt come increasingly into focus.
The funds remain diversified, emphasise quality, and are cautiously invested with a focus on longer-term returns.
The investment returns (before fees and tax) to 30 June 2019 were: