FirstChoice KiwiSaver Scheme Investment Review
The information below is an overview of what happened in the markets in which the FirstChoice KiwiSaver Scheme was invested over the quarter to 31 December 2011.
Market and Sector Performance
Growth assets such as shares and property rebounded in the quarter to 31 December 2011. This was largely driven by investors' anticipation of a resolution to the European sovereign debt crisis early in the quarter and improving economic data releases out of the US.
However, as the year came to an end, investors' confidence in European leaders' ability to stabilise the sovereign debt issues in the Eurozone began to subside once again. European politicians' proposal of giving the European Central Bank greater powers of intervention were supposed to restore confidence in the future of the Eurozone. However, investors remain unconvinced of the appropriate approach required to rectify the debt issues and competitive imbalances that have occurred since the introduction of the euro.
NZ Cash ?
The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged over the quarter at 2.50%. The rate has remained at its historical low since the RBNZ dropped it to that level in response to the February 2011 Christchurch earthquake. The RBNZ also continues to assess the situation in Europe and noted in its 8 December statement; "given the current unusual degree of uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent for now to keep the OCR on hold at 2.50%". A number of commentators don't expect any rate hikes for some time. There have been suggestions that a rate cut could be a possibility if the Eurozone crisis continued to worsen or if there was an emergence of a global recession. The consensus though is that interest rates look to remain low for some time yet.
NZ Fixed Interest ?
The ANZ NZ Government Stock Index returned 3.75% and the ANZ A-Grade Corporate Bond Index returned 2.05% for the December quarter. With the European sovereign debt crisis continuing to deteriorate, the NZ 10-year government bond yield recorded an all time low during the quarter. The NZ government bond market returned 13.30% over the past year and has been well supported in recent times by foreign investors as they are attracted by the relatively low level of net government debt to GDP in NZ.
World Fixed Interest ?
The Citigroup World Government Bond Index (100% hedged into NZ dollars) returned 1.34% for the quarter. Yields continued to fall as concerns around the Eurozone debt crisis continued to intensify. Leadership changes in both Greece and Italy provided support to bond markets. Bond markets were also supported with the anticipation of Europe falling into recession. As markets await further measures in the attempt to stabilise Europe, the underlying factors keeping bond yields low are likely to remain in place for quite sometime. Given the challenges facing Europe and the US, global government bonds will continue to be supported by periods of flight to safety by investors.
Global Property ?
The global listed property sector (50% hedged into NZ dollars) rose 7.13% in the December quarter. The property sector benefited from improving risk appetites amongst investors and improving sharemarket performance. The property sector is supported by forecasted earnings growth and the low interest rate environment. Property stocks with conservative balance sheets and high quality earning assets are expected to perform well in such an environment. However, volatility is expected to remain elevated in the foreseeable future.
Australasian Shares ?
The Australian market (as measured by the ASX200) ended the quarter up 5.55% while the NZX50 ended the quarter down 1.84%. The Australian market followed world markets higher supported by various announcements to stabilise the Eurozone. Although the Australian market recorded a positive performance over the quarter, it has underperformed relative to global markets over the past twelve months due to relatively higher interest rates, concerns about China's growth prospects and a stronger Aussie dollar hurting earnings growth. The Reserve Bank of Australia cut the cash rate twice by a total of 0.50% to 4.25%. Despite the NZ market falling over the quarter, it was one of the best performing developed world markets over the past year as defensive sectors such as listed property entities, utilities and infrastructure companies led the way.
World Shares ?
Improving investor sentiment contributed to world sharemarkets staging a recovery over the quarter as the MSCI World (ex Australia) Index (50% hedged into NZ dollars) rose 7.53%. Sharemarkets gained support from US data releases showing improving employment, manufacturing, housing growth and business confidence. The European sovereign debt crisis has resulted in the near-term outlook for shares being uncertain. Until policy makers formulate a credible long-term solution, sharemarkets are likely to remain volatile.
Hedging:
Some of the underlying sectors available through the FirstChoice KiwiSaver Scheme invest internationally. This means that currency movements will affect the performance of these investments. To reduce the impact of currency movements, the manager may hedge to NZ dollars from time to time in respect of the international investments.
Notes:
- NZ Government bonds are measured by the ANZ NZ Government Stock Index.
- NZ corporate bonds are measured by the ANZ A-Grade Corporate Bond Index.
- World bonds are measured by the Citigroup World Government Bond Index.
- Global property is measured by the UBS Global Real Estate Investors Index. The global property investments in the FirstChoice KiwiSaver Scheme are 50% hedged.
- Australasian shares are measured using the NZX 50 Index for NZ shares. The FirstChoice KiwiSaver Scheme uses the S&P/ASX 200 Index as its Australian shares benchmark for tracker funds and the S&P/ASX 300 Index as its Australian shares benchmark for active funds.
- World shares are measured using the MSCI World (ex Australia) Index.
This investment review is based on information obtained from sources believed to be reliable and accurate at the time of preparation, but the accuracy and completeness of the information is not guaranteed. The information in this investment review does not constitute personalised advice. Investors should seek independent investment advice. None of the Public Trust, ASB Group Investments Limited, ASB Bank Limited, their related companies, nor their directors, board members, officers or employees accept any liability whatsoever for any direct or indirect loss or damage of any kind arising out of the use of, or reliance on, the information provided in this investment review. None of the Public Trust, ASB Group Investments Limited, ASB Bank Limited and its subsidiaries (the "Banking Group"), the Commonwealth Bank of Australia, any other company in the Commonwealth Bank of Australia Group, nor any other person guarantees the securities referred to in this investment review (including any of the investments or returns made in respect of the securities). The securities referred to in this investment review do not represent bank deposits or liabilities of the Banking Group or any other party and are subject to investment risk including the loss of income and principal invested. The FirstChoice KiwiSaver Scheme is provided by ASB Group Investments Limited. A copy of the Investment Statement for the FirstChoice KiwiSaver Scheme is available here or by calling 0800 1ST CHOICE (0800 178 246).
