Investment returns at 30 June 2020

Investment returns at 30 June 2020

The quarter ending 30 June 2020 saw a welcome bounce back to strong positive returns, following the initial global reaction to the COVID-19 pandemic in March. The positive were primarily influenced by investors around the world regaining confidence as governments delivered sizeable economic stimulus packages (like we have seen from the New Zealand government). The most recent announcement came from the European Union who announced a €750b COVID-19 recovery plan. Further packages are expected to be announced. Aiding the positivity is that several countries have made headway in containing the virus and that the development of a vaccine is well underway with some early trials showing promising results.

In addition to government spending, the positive outlook was also helped by the expectation that interest rates may remain low for years. Investors were prepared to look through some negative headlines (e.g. reported economic statistics and political developments) and instead focus on the potential for better economic activity particularly as several economies planned to re-open. The commonly quoted USA index the Dow Jones was up a staggering 18% in the quarter.

 

While we welcomed the rebound in the quarter, we remain focussed on the long term investment horizon for our members. Through Christian KiwiSaver Scheme’s cautious investment strategy (focussed, diversified and with capital preservation in mind) our members have been shielded from the recent extreme market movements to some degree. Going forward, in the short term at least, we expect that asset prices will remain volatile (i.e. go up and down).

Investment returns at 30 June 2020 (before fees and tax) were as follows:

Fund 3 months 1 Year (p.a.) 3 years (p.a.) 5 years (p.a.) 10 years (p.a.)
Growth Fund 9.3% 5.5% 9.2% 8.8% 8.7%
Balanced Fund 6.9% 5.0% 7.4% 7.3% 7.5%
Income Fund 2.6% 3.8% 4.0% 4.2% 4.6%

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Investment returns at 31 March 2020, before fees and tax

Investment returns at 31 March 2020, before fees and tax

What a quarter! It may be disappointing if your balance has declined with the negative investment returns, however, it should be remembered that the last quarter is just that – one quarter – and that your KiwiSaver account has benefited from an extraordinary run of positive quarters in recent years. In fact, returns for the last 12 months (and longer) across all our funds are positive. Nevertheless, it is timely to assess if your investment portfolio is aligned to your personal situation. We have a useful article on our website that may help you with this if you are unsure.

How did the markets react to Covid-19?

International markets were highly volatile throughout the last quarter due to the impact of Covid-19. As an indication of the large and sudden movements we saw across the last quarter, we have attached the following graph of the Dow Jones index (the commonly referred to USA equity index) which fell 27% from the end of February to late March i.e. in only about three weeks! It then rose by about 30% in the next three weeks. However, this was still about 15% below the December 2019 year-end level (The Dow Jones fell 23% in the quarter). A similar picture to the Dow Jones index has been seen across other markets around the globe.

What has the response been from Governments around the world?

We have seen a number of different responses from Governments around the world ranging from how quickly they reacted to addressing Covid-19 through to the type of level restrictions that they have adopted to fight the virus. Despite the different approaches in how they have handled lockdown restrictions, one thing that is being seen across the board is the large sums of money being spent by governments in an attempt to keep their economies turning over. This has been the case for the New Zealand Government with further announcements still expected.

When can we expect market volatility to stabilise?

Judging by the rebound in shares (at the time of writing April 2020), investors seem to think the worst has passed. It could be said lockdowns are easy to go into but very hard to come out of in terms of economic recovery. We think many uncertainties still remain and that there are probably more questions now than answers, not just with regards to the virus, but concerning the short term and longer-term economic impacts.

This health crisis is also an economic crisis. Will a successful treatment be developed, and when? How long might the lockdowns last? What steps need to be taken to get back to some normality? Will the new normal look different?  How will the debt that Governments are taking on be repaid?  Answers to these, and many questions, will be very relevant to investment decisions. Nevertheless, judging from history, the global economy will inevitably recover from this crisis.

We are constantly mindful of the environment in which we operate. As had been noted many times in the past within our commentaries, our investment strategy in recent times has been focused first and foremost on protecting your investment. Our experienced in-house investment team was already concerned about high share prices. Your funds will have benefited in the past quarter from this cautious approach.

You can rest assured that we are vigilantly monitoring the situation daily and managing your fund the best we can as we continue to navigate our way through these unique times.

Investment returns at 31 March 2020, before fees and tax:

Fund 3 months 1 Year (p.a.) 3 years (p.a.) 5 years (p.a.) 10 years (p.a.)
Growth Fund -9.6% 0.0% 6.0% 6.9% 7.4%
Balanced Fund -6.6% 1.4% 5.3% 6.1% 6.7%
Income Fund -0.8% 2.8% 3.4% 3.7% 4.3%