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Newsletter November 2015


Welcome to the November edition of the Generate KiwiSaver Scheme Newsletter. October was a great month for Generate and our members. First - our Funds rebounded strongly over the month after two down months. Second - in the latest Morningstar KiwiSaver Survey Generate’s Funds were number one for performance in all three of their categories on a one year return basis. This is something that we are very proud of!

Warren Buffett Wisdoms

After 50 years at the helm of Berkshire Hathaway (which is currently one of our largest investments for both of our growth funds) Warren Buffett has become widely regarded as the world’s greatest investor. 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:

“We derive no comfort because important people, vocal people or great numbers of people agree with us. Nor do we derive comfort if they don’t. A public opinion poll is no substitute for thought.”

Here Buffett describes how Berkshire Hathaway refuses to let their investment decisions be swayed by outside influences. Buffett’s long-time deputy Charlie Munger has spoken about how rationality is a person’s moral duty and that their company is “sort of a temple of rationality.” Making rational, well researched decisions allows investors to capitilise on the market when it is overly greedy or fearful.

“Investing 101”

Bond prices and yields move in opposite directions

When a bond is first sold as a part of a new issue, its price is fixed. From then on, the price of a bond moves up or down in relation to changes in interest rates. When interest rates rise, the price of a bond goes down because its coupon rate (the fixed, periodic payment) becomes less desirable than the higher rates of newly issued bonds of a similar quality. If interest rates fall, the bond's coupon rate becomes more attractive to investors, which drives up the price. If the yield to maturity (i.e the rate at which the bond could be sold in the secondary market) is greater than the coupon rate the bond will sell at a discount to its issue price. If the yield to maturity is less than the coupon rate, the bond will sell at a premium to its issue price.

The longer the maturity of a bond, the greater its price will be affected by changes in interest rates. For example notice what happens to the price of these different bonds when interest rates fall from 6% to 5.5%.

2 yr bond, 6% coupon 100.00 100.93 101.88
10 yr bond, 6% coupon 100.00 103.80 107.79


If the months of August and September were characterised by the extent of the sell off in share markets then the month of October should be warmly remembered as being the polar opposite. Share markets came roaring back with the MSCI All Country World Index ending the month up 7.5% (in local currency terms). Of interest, the VIX - a measure of market turbulence - posted its biggest monthly drop ever in October. >>MORE

The Funds experienced strong gains in October although the gains were tempered by a rising New Zealand dollar over the month. For example the NZD/USD gained 5.8% over the month thus reducing the performance of our USD denominated assets.

The Conservative, Growth and Focused Growth Funds returned  1.55%, 3.44% and 3.80% respectively for the month (after fees and before tax). Year to date the Funds have posted returns of 6.61%, 10.16% and 11.02% respectively (after fees and before tax). >>MORE


Top Holdings

Conservative Fund Growth Fund Focused Growth Fund
International Equities Managers
N/A Berkshire Hathaway Platinum International Fund
N/A Platinum International Fund T Rowe Price Global Fund
N/A Worldwide Healthcare Trust Berkshire Hathaway
N/A Magellan Global Fund Magellan Global Fund
N/A T Rowe Price Global Equity Fund Worldwide Healthcare Trust
Property and Infrastructure
Infratil  Infratil  Infratil 
Ryman Healthcare Ryman Healthcare Ryman Healthcare
Summerset Group Summerset Group Summerset Group
Contact Energy Contact Energy Contact Energy
Arvida Group Arvida Group Arvida Group
Fixed Income and Cash
Term Deposits Term Deposits Cash & Cash Equivalents
Cash & Cash Equivalents Cash & Cash Equivalents N/A
ANZ Perpetual Bonds Port of Tauranga Jan 2021 Bonds N/A
The Warehouse Jun 2020 Bonds The Warehouse Jun 2020 Bonds N/A
GMT Bond Issuer Sep 2017 Bonds Fonterra Feb 2022 Bonds N/A


International Equities Manager Spotlight

Worldwide Healthcare Trust Plc (WWH)

WWH offers a UK listed opportunity for capital appreciation through a diversified portfolio of worldwide biotechnology, pharmaceutical, healthcare equipment, healthcare technology and healthcare services companies. To maintain its large cap focus, at least 60% of the portfolio must be invested in stocks with a market cap over USD$5 billion. As a counterweight up to 10% of assets can be invested in unquoted companies. Orbimed Capital, the New York based manager of WWH, is the largest independent specialist investor in the biotechnology and pharmaceutical sectors in the world. It employs over 70 investment professionals and has offices in New York, San Francisco, Tel Aviv, Shanghai and Mumbai. Orbimed has assets under management of approximately USD$15 billion. As at 30 September, 2015 WWH had net assets of GBP 856 million and had returned an average of 21.5% p.a. over the last 5 years (in local currency).

Next month: Polar Capital Technology Trust Plc.

Contact us

If you have any questions after reading your newsletter, give us a call on 0800 855 322 or email us at info@generatekiwisaver.co.nz and we would be more than happy to help.

We thank you for your support.

Kind regards,

The Generate Team