Investment Returns at 31 March 2022

Investment Returns at 31 March 2022

Investment returns (before tax and fees) for the quarter ending 31 March 2022 are:

Fund 3 months 1 Year (p.a.) 3 years (p.a.) 5 years (p.a.) 10 years (p.a.)
Growth Fund -1.7% 9.2% 10.8% 10.2% 9.6%
Balanced Fund -1.8% 5.5% 7.7% 7.5% 7.7%
Income Fund -1.6% -1.3% 1.8% 2.4% 3.4%

The last quarter was all about the increase in uncertainty. Markets dislike when there is an increase in doubt. Uncertainties increased with the dreadful Russian invasion of Ukraine and with regard to the future level of interest rates. The outbreak of conflict only further inflamed inflation fears. Many central banks around the world (Japan excepted) raised their official overnight cash rate and inferred that further increases were likely. Talk of the unwind of policies that were implemented to counter the expected COVID impacts also spooked some market participants. All of this increased uncertainty led to falls in both share and bond prices (bond prices fell as interest rates rose) over the quarter.

What happens now very much depends on expectations with regards to the Ukraine situation and inflation. Central banks are expected to keep raising rates in an effort to control inflation. Inflation can have a nasty effect on the economy. The question then may become whether central banks have raised interest rates too far or too fast. Will this (raising of interest rates) lead to a slowdown in the economy, and by how much?

The International Monetary Fund (IMF) has downgraded its global growth forecast to 3.6% (from 4.4%) in response to the Ukraine situation and the lockdowns in China. The 2023 projection was lowered to 3.6%, from 3.8%. The IMF has also bumped up its inflation forecast for advanced economies to 5.7% and for emerging and developing countries to 8.7%.

As readers will be aware we have been cautious in recent times as we believed both share and bond prices may have been too high given the uncertainties that existed. However, we have and still remain cautiously invested and diversified. In this environment we held and continue to hold a higher than normal cash level. This cash will, and has been used as and when we see opportunities.

Investment Returns at 31 March 2022

Investment Returns at 31 December 2021

Investment returns (before tax and fees) for the quarter ending 31 December 2021 are:

Fund 3 months 1 Year (p.a.) 3 years (p.a.) 5 years (p.a.) 10 years (p.a.)
Growth Fund 4.0% 15.2% 14.3% 11.6% 10.4%
Balanced Fund 2.8% 9.8% 10.5% 8.7% 8.4%
Income Fund -0.2% -0.4% 3.0% 3.1% 3.9%

A positive quarter for funds, particularly those with exposure to shares. Long term returns were good across all the funds. COVID news continued to dominate but despite the markets being concerned at times shares carried on with their upward track, with some share performances in international equity markets performing strongly. Fixed interest (bonds) investments however were mixed with concerns around the inflation and interest rate outlook holding back returns in that sector.

Investment Outlook for 2022

Investment Outlook for 2022

The themes that may dominate in the next year (a continuation from late 2021) are inflation, interest rates and growth. Growth enhancing policies may recede, spare capacity in the economy is minimal and the re-opening growth surge is probably over. There is a lot of uncertainty as to how supply issues and labour shortages (and how long each may last) will affect outcomes. A fear is that labour shortages could result in wage growth which then results in higher inflation. These and other factors may determine how high inflation goes and how long it persists.

The inflation outlook may influence how quickly Government Central Banks raise official cash rates. Many expect major Central Banks to increase their respective cash rates this year. The level of interest rates in turn could impact on share prices (and other asset prices). We believe how far and fast interest rates rise will have a significant bearing on returns. Concerns around COVID continue to linger. Any geo-political developments could also surprise and affect returns.

The broad theme to start 2022 appears to be one of more optimism in the global economic recovery. Some research suggests the Omicron variant is much less deadly than Delta, giving markets confidence that the hit to growth from recently imposed COVID restrictions in some places (and more restrained consumer behaviour more generally) will be fleeting and the recovery will resume after a few months of disruption. There is little doubt though that whatever eventuates the markets could fluctuate, wildly at times. Rest assured, as we have mentioned previously, we are doing our best in these times of heightened uncertainty. The portfolios remain diverse and we focus on investments that we believe are more at the quality end of the spectrum.

Investment Returns at 31 March 2022

Investment Returns at 30 September 2021

Investment returns (before tax and fees) for the quarter ending 30 September 2021 are:

Fund 3 months 1 Year (p.a.) 3 years (p.a.) 5 years (p.a.) 10 years (p.a.)
Growth Fund 2.3% 17.4% 11.2% 11.4% 10.2%
Balanced Fund 1.4% 11.5% 8.3% 8.5% 8.3%
Income Fund -0.2% 1.1% 3.3% 3.2% 4.1%

A mixed quarter as the economies continued to recover around the globe (albeit unevenly). Shares generally performed better than fixed interest investments (in an environment where there was some pressure on interest rates). COVID-19 and vaccine rollout progress continued to make headlines.

Markets reacted or were concerned about many things during the quarter including the outlook for inflation, the rate of China’s growth, volatility in energy and commodity prices.

The ongoing nature of US debt ceiling negotiations added to the uncertainty. In addition, government central banks shifted to a generally less supportive stance.

When news broke that the Chinese property developer Evergrande might be in trouble, tremors rippled through the markets. In this (more uncertain than usual) environment, we remain cautiously invested. We are invested, but diversified, across both share and fixed interest investments.

Understanding the Income Fund

Understanding the Income Fund

In a previous article we discussed what we mean by investment risk in a general sense. You can read that article again here. Understanding how much risk you are willing to take is usually a good way to figure out which KiwiSaver fund is right for you.

We continue this series of helping you get to know your KiwiSaver better. Let’s now look at our Income Fund.

This Fund invests in cash, term deposits, NZ bonds, overseas bonds and mortgages. Traditionally, this type of fund has been seen to be a lower risk investment with lower long-term returns.

The Income Fund is usually suited for members who need access to their money fairly soon or for those who prefer a somewhat consistent performance (rather than “bigger” increases/decreases in performance).

There are factors which affect the performance of this Fund which include:

  • Interest rates: This is the chance that changes in interest rates will affect an investment’s value. In the case of bonds, an increase in interest rates mean that the capital value of the bond will decrease.
  • Inflation: This is the chance that if returns are below the inflation rate, meaning the “purchasing power” of the money will decline.
  • Foreign exchange rates: This is the chance that the movement of the NZ dollar against other currencies will affect an investment’s value.
  • Costs: This is the chance that the cost of managing an investment could significantly affect the return from the investment.
  • Solvency/default: This is the chance that the financial institution or borrower is unable to repay some or all of the investment.

While the Income Fund is our lowest risk option, it does not mean that it is immune to negative returns. There can be occasions when a negative return is produced, particularly around interest rate changes. Historically, negative returns for the Income Fund happen less frequently than with the higher risk funds.

For more information about our Income Fund you can read more here. If you have specific financial questions or need financial advice, we encourage you to seek out a financial advisor.

Keep an eye out on our future newsletters as we continue to unpack your questions about KiwiSaver and help you get to know more about your investment.

Investment Returns at 31 March 2022

Investment Returns at 30 June 2021

Investment returns (before tax and fees) for the quarter ending 30 June 2021 are:

Fund 3 months 1 Year (p.a.) 3 years (p.a.) 5 years (p.a.) 10 years (p.a.)
Growth Fund 4.7% 18.7% 11.8% 11.6% 9.8%
Balanced Fund 3.3% 13.0% 8.9% 8.8% 8.1%
Income Fund 0.7% 2.5% 3.6% 3.5% 4.1%

This was another quarter of good returns with shares again putting in solid performances. As economies reopened and combined with positive economic news globally (though it was uneven across regions) many share markets continued to climb higher.

In addition, most Government owned central banks indicated that interest rates would remain low into the foreseeable future (but some added the proviso that their targeted short term cash rates may need to be raised sooner than first thought by them).

The solid rebound or growth was generally better than expected but considered by some to have been the result of significant Government support during the pandemic.

This had some investors concerned that continued large spending plans may lead to an overheated economy and or inflation. Despite the continued rollout of vaccinations around the globe concerns remain.

We continue remain invested and diversified. At the same time, we remain cautious given how fragile markets seem to us (i.e. the elevated nature, relative to historical records, of both share and bond prices).