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Newsletter September 2015


Welcome to the September edition of the Generate KiwiSaver Scheme Newsletter. August was a tough month for equity markets the world over with concern about the state of the Chinese economy reigning supreme. More on this later.

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:

“Of all the securities listed on the stock market the chance that the offer in your inbox is the best opportunity is virtually nil.”

Here Buffett encourages investors to do their homework on prospective investments. With investing you often have to ‘turn over a lot of stones” before you find a compelling opportunity. If you don’t have the time to do this then you are likely to be better off leaving it to someone who does.

"Investing 101"

Geared investments can increase gains AND losses

A ‘geared’ investment is another way of saying that the amount invested has been ratcheted up by getting a loan. The word 'gearing' can be understood in a similar way to how gears work on a bike — whereby a small effort on the pedal turns into a bigger physical force on the wheel.

Borrowing money will increase the amount you can have invested, and naturally amplifies potential gains as there is more of a capital base on which to earn returns. The flip side of this, of course, is that it can also magnify losses.

Geared investing played a big part in the Chinese share market rally earlier this year but has similarly played a large role in its decline. Geared investors often become forced sellers in a declining market when the level of equity in their investment falls below a certain level. Unless they can inject fresh equity they have to sell their investment and crystallise the loss.

Stock market nervousness turned into a panic in August with the MSCI All Country World Index dropping 6.8% during the month (in local currency). Concerns over China’s economic growth were at the epicentre of the global stock market rout. When China depegged the value of the renminbi from the US dollar on August 11, it sent ripples through currency markets and ultimately found its way into other markets as investors rushed to reduce risk as many feared that the move by the Chinese authorities was due to their concern about the state of the local economy. The sell-off spread from China (down 12.5%) to the emerging markets (MSCI Emerging Markets down 6.7%) and onto developed equity markets (MSCI Developed Markets down 6.8% in August).. >>MORE

For the first time since March of this year the Funds posted negative returns over the month. The Conservative, Growth and Focused Growth Funds returned -0.79%, -2.95% and -3.83% respectively (after fees and before tax). Year to date the Funds have posted returns of 5.04%, 8.90% and 10.31% respectively (after fees and before tax).. >>MORE


Top Holdings

Conservative Fund Growth Fund Focused Growth Fund
International Equities Managers
N/A T Rowe Price Global Equity Fund Berkshire Hathaway
N/A Berkshire Hathaway Platinum International Fund
N/A Platinum International Fund T Rowe Price Global Fund
N/A Magellan Global Fund Magellan Global Fund
N/A Worldwide Healthcare Trust plc Worldwide Healthcare Trust plc
Property and Infrastructure
Infratil  Infratil  Infratil 
Ryman Healthcare Ryman Healthcare Ryman Healthcare
Contact Energy Contact Energy Contact Energy
Summerset Group Summerset Group Summerset Group
Arvida Group Arvida Group Arvida Group
Fixed Income and Cash
Term Deposits Term Deposits Cash & Cash Equivalents
ANZ Perpetual Bonds Cash & Cash Equivalents N/A
Contact Energy May Kiwi Property Group 2021 Bonds The Warehouse Jun 2020 Bonds N/A
The Warehouse Jun 2020 Bonds Kiwi Property Group 2021 Bonds N/A
Cash & Cash Equivalents Contact Energy May 2020 Bonds N/A


International Equities Manager Spotlight

Platinum International Brands Fund

Platinum Investment Management Limited is an Australian based fund manager, which specialises in investing in international equities. Platinum currently manages around A$25 billion.

The Platinum International Brands Fund's investment objective is to provide capital growth over the long-term by investing in companies around the world with well-recognised consumer brand names.

Successful brand management allows a company to earn superior profits from what otherwise might be a commodity. This process entails the creation of an emotional bond between the consumer and the product/product provider, which allows the latter to charge a premium price. As such, successful brand owners have a tendency to achieve superior growth and profitability (than purveyors of commodities).

The concept behind the Fund is that the process of globalisation, which involves the removal of impediments to ownership, international trade and promotion, will see the emergence of “mega-brands”. Companies with these strong positions are likely to be able to augment the growth in their relatively mature but stable home markets by tapping faster growth in emerging markets, which are experiencing rising living standards. Alternatively, powerful regional brands can expect to enjoy strong growth and profitability and may even be taken over by global operators on account of the regional brand's local dominance.

The Portfolio will ideally consist of 40 to 80 securities that Platinum believes to be undervalued by the market. Cash may be held when undervalued securities cannot be found. Platinum may short sell securities that it considers overvalued.

As of 31 August, 2015 the Fund had A$1.2 billion under management and a return of 13.0% compound p.a. since inception in 2000 (in local currency). This compares with a return of 1.8% compound p.a. for the Fund's benchmark index (the MSCI All Country World Net Index in A$).

Next month: Berkshire Hathaway Inc.

Contact us

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