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Newsletter April 2015

Welcome to the April Generate KiwiSaver Scheme Newsletter. During the month of March we hit a major milestone by reaching $50 million of funds under management. We thank you for entrusting us to manage your KiwiSaver account. It is a responsibility we take very seriously.

Get the most out of KiwiSaver

Introducing KiwiSaver HomeStart

The KiwiSaver HomeStart grant was introduced on 1 April 2015, replacing the KiwiSaver first home deposit subsidy. Like the KiwiSaver first home deposit subsidy, the KiwiSaver HomeStart grant provides eligible first-home buyers with a grant of up to $5,000 for individuals and up to $10,000 for couples to put towards the purchase of an existing/older home. In addition, the new KiwiSaver HomeStart grant also provides eligible first-home buyers with a grant of up to $10,000 for individuals and up to $20,000 for couples to help with the costs of buying a brand new home.

Changes to the KiwiSaver first home withdrawal were also introduced on 1 April 2015 allowing for all contributions - including member’s tax credits - to be withdrawn (with the exception of the Government $1,000 kick-start).

 To find out more go to www.kiwisaver-homestart.co.nz

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 he has shared many of the lessons he has learned during his career. This month:

'The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table.’

During the GFC Buffet put this philosophy to work and bought into a number of companies at distressed prices. These have turned out to be fabulous investments.

"Investing 101"

One of the benefits of making regular contributions into your KiwiSaver account is that you get to take advantage of dollar cost averaging (DCA). DCA involves buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. As a result more shares or units are purchased when prices are low, and fewer are bought when prices are high.

DCA reduces the risk of investing in a single investment at the wrong time.

For example, you decide to purchase $1000 worth of shares in company X for each of the next three months. In April, X is worth $30, so you buy 33 shares. In May, X is worth $25, so you buy 40 additional shares. Finally, in June, X is worth $20, so you buy 50 shares. In total, you purchased 123 shares for an average price of approximately $24 each - a much better result than if you had invested the entire $3,000 at $30 a share.

As demonstrated above DCA can lower an investor’s overall purchase price of a stock, as well as minimise the risks associated with market psychology – including market-timing and panic buying and selling.

A lot of KiwiSaver members were unaware they were buying shares at the height of the GFC - just like Warren Buffet was – and similarly those shares have - as a whole - turned out to be great investments.

March saw global share markets give back some of the strong performance seen in February as regional stock markets began to move out of sync. The MSCI World Index fell 0.7% - driven primarily by the weakness in US share markets after mixed data on the US economy, and on concern as to when the Federal Reserve will begin to hike interest rates.

European bourses continued to move higher amid the commencement of the ECB's quantitative easing (read ‘money printing’) program. The EuroStoxx 50 was up a tidy 2.7% for the month to push the index 17.5% higher for the March quarter.  >>MORE

In March the Conservative, Growth and Focused Growth Funds returned -0.07%, -0.56% and -0.91% respectively (after fees and before tax). The Funds enjoyed a solid March quarter returning 1.97%, 4.03% and 4.57% respectively (after fees and before tax).

The best performer in the month of March out of the funds’ property and infrastructure investments was Z Energy with an 8.0% return. The company’s shares were sold down in February to what we thought were attractive levels. Hence, we upped our stake in the company and it was particularly pleasing to see the strong rebound in March.  >>MORE

Top Holdings

Conservative Fund Growth Fund Focused Growth Fund
International Equities Managers
N/A Platinum International Fund Magellan Global Fund
N/A Berkshire Hathaway Platinum International Fund
N/A T Rowe Price Global Fund Berkshire Hathaway
N/A Magellan Global Fund T Rowe Price Global Fund
N/A Worldwide Healthcare Trust Worldwide Healthcare Trust
Property and Infrastructure
Infratil  Infratil  Infratil 
Ryman Healthcare Ryman Healthcare Ryman Healthcare
Summerset Group Summerset Group Summerset Group
Z Energy Z Energy Z Energy
Arivda Group Arivda Group Arivda Group
Fixed Income and Cash
Term Deposits Term Deposits Cash & Cash Equivalents
Cash & Cash Equivalents Cash & Cash Equivalents N/A
ANZ Perpetual Bonds Kiwi Property Group 2021 Bonds N/A
Fonterra Capital Notes Precinct Properties Dec 2021 Bonds N/A
Trustpower Dec 2021 Bonds Trustpower Dec 2021 Bonds N/A


International Equities Manager Spotlight

Montanaro UK Smaller Companies Investment Trust Plc (MUSCIT)

Montanaro – the manager of MUSCIT - was established in 1991. It has the largest and most experienced specialist team in Europe dedicated exclusively to researching and investing in listed European small companies.  They have around €3 billion of client assets under management.

MUSCIT was launched in March 1995 and is listed on the London Stock Exchange. The objective is capital growth by investing in quoted UK smaller companies and to outperform its Benchmark, the Numis Smaller Companies Index. As at Feb 28, 2015 MUSCIT had net assets of GBP 190 million and returned 15.2% p.a. over the last 5 years versus 10.4% for its benchmark (in local currency).

Next month:  Jupiter European Opportunities Trust Plc.