Auto Draft

Why are conservative funds losing money?

Some KiwiSaver investors who have their money in a conservative fund have been shocked by recent performance. Typically, these types of funds have been seen as “less risky”, but given their recent losses you too most likely want to know why these types of funds are losing money.

The performance of conservative funds are strongly linked with interest rates. If interest rates go up, as they have been recently, then the investments of the fund will generally go down in value (which leads to negative returns). However, if interest rates go down then the investments of the fund may go up in value (which leads to positive returns).


Why are interest rates going up?

Interest rates are increasing because our official cash rate (and many around the world) has been going up. The Reserve Bank of New Zealand (and other major central banks around the world) uses the official cash rate as a tool to set interest rates that try to fight inflation.

Their hope is that interest rate increases will lead to a slowdown in demand and therefore lower inflation. One example of this is that people may decide to spend less on products because of the higher interest rates. The idea is that there is a flow-on effect so that companies will begin to charge less for their products as they see people beginning to spend less.

The amount that we spend/purchase and the amount companies charge for their products are part of what affects whether interest rates go up or down. For instance, if demand does slow down enough then this might mean interest rates may not need to rise anymore.

Interest rates and inflation are not just influenced by what happens locally, but are also influenced by what happens around the world. In the recent past, we have had very low interest rates. Sudden big events, such as the war in Ukraine and COVID, may be part of the surprising inflation we are currently experiencing – and the big increase in interest rates we are experiencing now.

We at Christian KiwiSaver Scheme have certainly been doing our best to minimise these negative returns, however when the market has been performing this way it is sometimes difficult to do so.

Our investment style, with a focus on capital preservation and diversification, aims to reduce the losses that can prevail in these more uncertain periods.

Important requirements for our members

Important requirements for our members

We will be requesting some simple but important information from some of you in the next few weeks to help us fulfil our obligations under the Anti-Money Laundering legislation. This information will help us update your records to fulfil compliance requirements.

Meeting compliance obligations is of utmost importance for us here at Christian KiwiSaver Scheme so that your trust in us is unquestionable.

In the next few weeks, our Chief Executive will be sending some of our members emails (or, where we do not hold your email address, letters) asking you to provide us information to help us fulfil compliance requirements.

When you receive this communication, please complete the instructions. The whole process should be relatively easy and take less than a minute, but if you have any questions, including whether or not the email or letter you receive is legitimate, then please do not hesitate to contact us. If you do not hear from us, you do not need to do anything – your information is up-to-date.

Stay strong, do not panic (Psalm 31:24)

Stay strong, do not panic (Psalm 31:24)

It is potentially a confusing time right now for anyone with a KiwiSaver who is aware of how markets are currently performing. It may cause us to scramble and to think if there any quick decisions or actions we can make as a response. This is a message of assurance to not panic and that we are here for you.

What is important to remember is to stick with your plan and not to make sudden decisions like changing your fund as a knee-jerk reaction. Look at your own situation and determine whether you are in the right fund for your circumstances. If you need more information about our different fund types, click here.

Samantha Barrass, the Chief Executive of Financial Markets Authority New Zealand (FMA), recently spoke with NBR and reminded investors that markets do recover.

“If you’re investing for the medium to long term, it’s best you hold your nerve and not leap into more conservative funds because you will just crystallise your loss at the point… Hold the course, don’t panic”. (McNicol, 2022)

Recently, in June 2022, the FMA also published research around New Zealanders’ attitudes towards financial markets and investing. Here are some highlights which may help inform your thinking during this time:

  • “Eight in ten New Zealanders hold at least one investment product (82%). KiwiSaver is still the most commonly held among New Zealanders (64%).”
  • “Nearly three-quarters of investors (74%) feel slightly, fairly or very confident that New Zealand financial markets and financial service providers offer good long-term opportunities for investors.”

If you are interested in more information about this research from the FMA, click here. If you are seeking financial advice, we recommend you speak with a financial advisor.

Anglican Financial Care (AFC), the fund manager of Christian KiwiSaver Scheme, is an organisation with a long-standing experience. Established in 1972, AFC is celebrating 50 years of serving its members this year. We look forward to continuing to serve your KiwiSaver needs.

“Who is like you, Lord God Almighty? You, Lord, are mighty, and your faithfulness surrounds you. You rule over the surging sea; when its waves mount up, you still them.”

Psalm 89:8-9 (NIV)

 

Notes

McNicol, H. (2022, June 16). Biblical turbulence: Kiwis should hold nerve as confidence slips. NBR. Retrieved from https://www.nbr.co.nz

Investing ethically since 1972

Investing ethically since 1972

A KiwiSaver Scheme that invests ethically is important to many Kiwis. Christian KiwiSaver Scheme (CKS) has always had an ethical approach to its investments and is always seeking to participate in the good God is doing in the world.

In a recent survey, Consumer found that ethical investing is important to a large proportion of their respondents, “our survey found 45% said they wanted a fund that provides a good return and invests responsibly – both were equally important.” (Birdsey, 2022)

CKS has followed a robust ethical investing approach since its establishment in 2007 (shortly after the Government introduced KiwiSaver). Our ethical investing approach is at the heart of our investment activity, but did you know that our approach has existed since long before KiwiSaver was even created in Aotearoa?

Anglican Financial Care (AFC), the fund manager of CKS, has invested ethically since its inception in 1972 – that’s 50 years of investing with an ethical approach. In a sense, AFC boldly pioneered ethical investing in Aotearoa New Zealand long before other KiwiSaver Schemes. Other fund managers only started ethical investing in recent years.

As an overview, here are the sectors which our Ethical Investment Policy addresses:

  • Alcohol
  • Animal Welfare
  • Armaments and defence
  • Fossil fuels
  • Gambling
  • Pornography
  • Tobacco

To read more about our thoughtful approach to ethical investing please read our Ethical Investment Policy here.

We believe God is active in restoring the world and it is important for us to express this by way of investing ethically, while being responsible with your finances.

And whatever you do, whether in word or deed, do it all in the name of the Lord Jesus, giving thanks to God the Father through him.”

Colossians 3:17 (NIV)

 

Notes

Birdsey, N. (2022, June 8). KiwiSaver satisfaction survey 2022. Consumer. Retrieved from https://www.consumer.org.nz

A fierce storm (Mark 4:35)

A fierce storm (Mark 4:35)

It is typical for investments to go through changes, much like the fierce waters the disciples experienced in Mark 4:35 before Jesus calmed the storm. These different changes could be exciting, but can also cause a little uncertainty.

KiwiSaver is a savings scheme designed to help set you up for your retirement, as well as provide other member benefits such as helping you purchase your first home if you are eligible. For most people KiwiSaver is a long-term investment or a product you can invest in even after retirement.

It is important that whatever weather event you are experiencing, you focus on the long-term goals you have for your KiwiSaver. Remembering these goals may help avoid making snap decisions. It may also be useful not to look at your balance daily, bearing in mind that KiwiSaver is a long-term investment.

Some of the goals you have for your KiwiSaver may have been the initial reason you chose the type of fund you are currently invested in (based on your risk tolerance). Understanding the reason you chose that fund  may help determine whether your fund is still right for you.

In the past, we have written articles about KiwiSaver that may help inform you regardless of what weather event you are in:
• Different KiwiSaver scenarios for different life stages
• What is ‘investment risk’?
• Quick tips for your KiwiSaver

Here at Christian KiwiSaver Scheme we strive to help you feel supported as you think about your financial wellbeing. If you require professional financial advice for your situation, we always recommend you speak with an Authorised Financial Advisor.

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.