Welcome to the April edition of the Generate KiwiSaver Scheme Newsletter. March saw another month of healthy returns for our growth funds. The month also saw us pass a key milestone – that of 30,000 members! We thank you for your continued support.

Returns to 31 March 2017 (after fees* and before tax).

*except the $3 per member per month fee.

Note: Past performance is not necessarily an indicator of future performance.

Make sure you have contributed $1,042.86 or more for the year to June 30 so you will get the full benefit of the Member Tax Credit. If you do, the Government will credit $521.43 to your KiwiSaver account in July/August. For every $1 you save into your KiwiSaver account, the Government contributes 50c, up to a maximum of $521.43.

So any amount up to $1,043 the Government matches it for 50c in the $. Whether you’re working or not, if you’re aged between 18 and 65 you are eligible. If your spouse or partner is not working it is worth think about contributing to their account as well to double the Government’s contribution.

Login into your Generate account online to check. If you have not been with Generate since 1 July and you are not sure how much you have put in you can login at www.kiwisaver.govt.nz and go to MyKiwiSaver with your name and IRD number and view your PAYE transactions.

Stocks continued to benefit from one of the strongest starts to a year since 2012, driven by improving global growth and optimism that the US administration will keep momentum going (in the short term at least). For the month of March, the Focused Growth, Growth and Conservative Funds gained 1.37%, 0.75% and 0.08% respectively (after fees and before tax).

March saw an eventful calendar of deals which included BP’s partial sell-down of their stake in NZ Refining which was placed at a sizeable discount to the last traded price.

A noteworthy contributor this month was Infratil which hosted an investor day in Wellington on March 29. Infratil is our largest New Zealand equity holding across the three funds. The stock price benefited from the increased transparency across its subsidiaries and investments as key management presented their plans at what proved to be a highly informative session.

Positive global equity markets were once again a pleasing tailwind for our International Equities Managers (IEM). The Jupiter European Opportunities Fund delivered the largest gain this month as strong macroeconomic data in the Eurozone underpinned portfolio gains. Our more global focused managers, T-Rowe Price and Platinum also performed well in part due to emerging market strength which constitute a relatively sizeable part of their respective portfolios.

Encouraging economic growth across the US, Europe and Asia, combined with improving employment data and strengthening manufacturing conditions globally saw the MSCI All Country World Index continue its run of positive monthly returns. The index returned 1.0% in March, and was up 6.4% (total return, in USD) for the first quarter of 2017. 

Although optimism about the US administration’s ambitious agenda saw US equities start the month on a high, the lack of policy progress and mounting scepticism about President Trump’s ability to push through his pro-growth agenda was reflected in the increased market volatility and a modest pullback in US equity markets. The US Fed’s interest rate hike in mid-March, does seem to signal underlying confidence in the economic outlook and for the first quarter of 2017, the S&P 500 index delivered a robust 4.8% (total return, USD).

March saw positive returns for New Zealand Investment Grade bonds, up +0.6% taking the year-to-date (YTD) return to +1.8%. Bonds outperformed equities during the month with the S&P/NZX 50 Gross index returning +0.4% although equities have returned +4.6% YTD. The lack of new corporate debt issuance locally means that bonds remain relatively expensive as more funds continue to seek a limited number of bonds to invest in.

New Zealand equities continue to be well supported, but there are increasing signs that economic activity may be starting to plateau. While we do not have any exposure to the stock, March saw a shock profit warning from index heavyweight, Fletcher Building, after the outlook for its construction division deteriorated significantly.

Australian equities had a good month with the ASX 200 Accumulation Index returning 3.3% driven by gains in healthcare and consumer staples. Toll-road operator, Transurban was the best performer within our Australian holdings as the market continued to support high dividend paying companies that have earnings growth visibility.

We have completed investment due diligence on a new International Equity Manager (IEM) that we expect to invest into in the coming weeks. The Fund is mainly Australia focused and we like their cautious positioning at present. We believe the Fund offers good diversification benefits and should help provide protection in the event a more challenging market environment was to emerge. Since its launch in July 2014, the Fund has returned +46.7% to 31 March 2017 after fees and expenses and achieved 25 months of positive returns out of a total of 33.

After 50 years at the helm of Berkshire Hathaway (which is currently the largest investment for both of our growth funds) Warren Buffett has become widely regarded as one of the world’s greatest investors. In his annual letters to shareholders, and in various interviews he has given, he has shared many of the lessons he has learned during his career. This month:

“Home ownership is a wonderful thing. My family and I have enjoyed my present home for 50 years, with more to come. But enjoyment and utility should be the primary motives for purchase, not profit or refi possibilities. And the home purchased ought to fit the income of the purchaser.”

Warren Buffett made this comment in Berkshire’s 2008 annual letter and had Americans acted as he described the Global Financial Crisis may well never have happened.

Initial Public Offering

An initial public offering (IPO) is the first time that the shares of a private company are offered to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but they can also be undertaken by large privately owned companies wanting to become publicly traded or when a large shareholder, such as the Government, is looking to reduce their holding. In an IPO, the issuer obtains the assistance of an investment bank, which helps determine the offer price, the amount of shares to be issued and the best time to come to market.

As we go to press with this month’s newsletter we have just submitted bids for an IPO in Oceania Healthcare – an aged care company that is due to list on the New Zealand and Australian stock exchanges in early May.

Please log in to your account to see your full portfolio breakdown.

Magellan Global Fund       
 
Magellan Asset Management (‘Magellan’) is a specialist funds management business based in Sydney, Australia.

Magellan manages global equities and global listed infrastructure strategies for high net worth, retail and institutional investors. The principals, Hamish Douglass and Chris Mackay, are two of Australia’s leading investment professionals. Their long involvement in M&A activity and corporate advisory work has resulted in invaluable experience and expertise in valuing companies, as well as assessing the macro environment and risk management.

The Magellan Global Fund is a quality-focused, long-only unit trust that invests in a concentrated portfolio of global equities. The investment objectives of the Global Fund are to achieve attractive risk-adjusted returns over the medium to long term, while reducing the risk of permanent capital loss.

In a recent portfolio update that took place in early April, Hamish Douglass emphasised the Fund’s currently high cash weighting as a way to protect capital on the downside. Holding cash also allows Magellan to take advantage of opportunities when they present themselves.

As of March 31, 2017 the Magellan Global Fund had AUD$8.8 billion in funds under management and a 5 year return of 17.5% p.a. - outperforming its benchmark (MSCI World Net Total Return Index AUD) by 1.2% p.a. Some of its largest holdings were Apple Inc, Alphabet Inc, Visa Inc, and Wells Fargo & Co.

Next month: Platinum International Fund