MILFORD KIWISAVER PLAN MONTHLY REVIEW DECEMBER 2020
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Milford KiwiSaver Plan Monthly Review December 2020 Market and Economic Review November was a remarkable month for financial markets. The passing of two significant catalysts – the US election and evidence of effective COVID-19 vaccines, answered key questions for investors and set the stage for large share market rallies. Accordingly, Fund returns in November are broadly strong. The US election is largely resolved with a Biden victory, coupled with a likely Republican retention of the Senate (pending two run-off races in Georgia on the 5th Jan). This outcome should deliver reasonable fiscal support policies (e.g. wage subsidies) but importantly, less likelihood of market unfriendly tax policies and increased business regulation. The multiple phase III vaccine trial results released in the month indicate success in finding an effective COVID-19 vaccine. This encouraging news allows investors to focus on a timeline for the global economy to return to normal, breaking the link between virus cases and economic activity. The reduction in uncertainty has emboldened investors to buy shares, sending global sharemarkets up over 12% in the month (MSCI world) – the largest monthly performance in over 40 years. Local sharemarkets also fared well, particularly Australia – up 10.2% and NZ, up 5.7%. Our funds have been fully invested (holding minimal cash balances), helping capture these large upside moves in the month. Contemplating a post-Covid world has seen investors consider what type of companies might perform well during the economic recovery. The funds have been adding to ‘reopening’ stocks for a while and stocks like Kering (global luxury brands company), Safran and Transdigm (aeroplane parts manufacturers) and the Australian banks (particularly NAB) all performed well for our funds last month. Looking ahead, a vaccine enabled recovery is a story for the second half of 2021. Virus impacted economies such as Europe and the US should experience a significant activity boom, driven by pent up demand. However, the short-term picture is less rosy. Rising virus cases have curtailed economic growth in Europe and the US recovery is also at risk. The vaccine allows us to look through these issues, but we look for further fiscal support as well as progress on a global mass vaccination plan to further support investor confidence. Milford Asset Management Level 28, 48 Shortland Street, Auckland, 1010 Phone: 0800 662 346 Email: Info@milfordasset.com milfordasset.com
Milford KiwiSaver Plan Monthly Review as at 30 November 2020
KiwiSaver Cash Fund Actual investment mix 1
Portfolio Manager: Paul Morris
November’s Reserve Bank of New Zealand (RBNZ) Monetary Policy Statement (MPS) saw
the much-anticipated unveiling of its Funding for Lending Programme (FLP). The objective
of the FLP is to lower retail bank lending rates through reducing the need for banks to retain
more expensive forms of funding, namely term deposits and wholesale market funding.
The expectation of the FLP had already seen many banks reduce their term deposit rates but
we expect this trend to continue. The other note from the MPS was a downplaying of the
probability the RBNZ will cut the Official Cash Rate (OCR) into negative territory next year.
Effective Cash#
This combined with better than expected local economic outcomes (including a surging 20.00% Other* 0%
housing market) saw us change our base case for the OCR next year to unchanged. If realised New Zealand Fixed
Interest 80.00%
that should protect the Fund’s absolute return, however, we would still expect the impact of
# The actual cash held by the Fund is 20.00%.
the FLP and large cash balances in the banking system to mean a lot of money will be chasing Effective Cash reported above is adjusted to reflect
the Fund's notional positions (e.g. derivatives used
short dated assets. This is likely to further diminish the excess return over the OCR that the to increase or reduce market exposure).
Fund can generate medium term.
We would however reiterate that these developments have not changed the portfolio
management of the Fund which remains focussed on maintaining a low-risk strategy, built on
a diversified portfolio of cash, short dated debt securities and term deposits, to protect
capital.
KiwiSaver Conservative Fund
Portfolio Manager: Paul Morris
The Fund returned 1.6% in November. Positive vaccine news and a market favourable US
election outcome supported investor risk appetite in November. This benefitted the Fund's
increased share exposure, with notable gains from global and Australian shares, with NZ
shares lagging somewhat.
Near term offshore economies need to navigate new lockdowns but looking medium term a
likely vaccine deployment, combined with fiscal and monetary support, gave us confidence Effective Cash# 6.23% Australian Equities
4.81%
to increase share exposure. The improved outlook was a headwind for government bonds New Zealand Fixed
International Equities
Interest 23.81%
as markets contemplate an eventual, albeit distant, normalisation of monetary policy. The International Fixed
7.02%
Listed Property 3.19%
Fund's global bonds did however contribute a strong return as the corporate bond focus Interest 50.46%
New Zealand Equities Other* 1.64%
significantly outperformed government bonds. Its Australian corporate bonds also delivered 2.84%
a reasonable return but NZ corporate and government bond prices generally fell as # The actual cash held by the Fund is 4.83%. Effective
Cash reported above is adjusted to reflect the Fund's
expectations for a negative Official Cash Rate receded. notional positions (e.g. derivatives used to increase
or reduce market exposure).
Looking forward, the Fund's share exposure complemented by its corporate bond exposure
should support moderate returns but given prevailing valuations we would reiterate these
may be lower than in previous years. Valuations in corporate bonds are arguably fair but we
still see some attractive opportunities, especially in some lower-rated and subordinated
bonds. Valuations in parts of the equity market appear stretched but there remain myriad
sectors (e.g. some income shares) were we believe they remain attractive and likely to benefit
from the vaccine.
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.
Milford KiwiSaver Plan Monthly Review as at 30 November 2020
KiwiSaver Moderate Fund Actual investment mix 1
Portfolio Manager: Mark Riggall
The Fund returned 2.9% in November with positive vaccine news and a likely market
favourable US election outcome supported investor risk appetite. The Fund has increased
exposure to shares and the rally in sharemarkets in the month benefitted the Fund
accordingly.
We have particularly increased exposure to Australian shares and shares of companies that
might benefit as global economies return to ‘normal’ – once a vaccine has been deployed.
The improved outlook was a headwind for government bonds as markets contemplate an
Effective Cash# Australian Equities
eventual normalisation of monetary policy. The Fund's global bonds did however contribute 12.67% 8.17%
a strong return as the corporate bond positions significantly outperformed government New Zealand Fixed International Equities
Interest 13.47% 16.31%
bonds. Its Australian corporate bonds also delivered a reasonable return, but NZ corporate International Fixed Listed Property 4.94%
and government bond prices generally fell as expectations for a negative Official Cash Rate Interest 34.85%
Other* 1.51%
New Zealand Equities^
receded. 8.08%
Looking forward, the Fund's share exposure complemented by its corporate bond exposure # The actual cash held by the Fund is 10.20%.
Effective Cash reported above is adjusted to reflect
should support moderate returns but given prevailing valuations we would reiterate these the Fund's notional positions (e.g. derivatives used
to increase or reduce market exposure).
may be lower than in previous years. Valuations in parts of the equity market appear stretched
but there remain myriad sectors (e.g. some income shares) where we believe they remain
attractive and likely to benefit from the vaccine.
KiwiSaver Balanced Fund
Portfolio Manager: Mark Riggall
The Fund returned 4.4% in November, bringing one year returns to 9.0%. November removed
two key issues that had kept us from investing more aggressively. The resolution of the US
election and news of an effective COVID-19 vaccine now clears the path to think about how
economies and profits might fare going into next year.
We added to investments over the course of the month to capture this upside, helping deliver
the strong positive returns this month. A vaccine sets the stage for the global economy to Effective Cash# 9.25% Australian Equities
12.51%
return to normal sometime next year. The outlook for retailers, airlines and tourism stocks New Zealand Fixed
International Equities
Interest 4.92%
just got a lot brighter. We had considered this outcome ahead of the vaccine news and began International Fixed
27.39%
Listed Property 7.11%
investing in 'reopening' beneficiaries such as Spanish airport operator Aena (up 18% in Interest 22.99%
New Zealand Other* 1.58%
November). Post the vaccine news, we continue to rotate the Fund to geographies and Equities† 14.25%
companies that will benefit. With a brighter profit outlook, the Fund has been increasing # The actual cash held by the Fund is 5.56%. Effective
Cash reported above is adjusted to reflect the Fund's
exposure to shares over bonds and cash. Further allocations into Australian shares have been notional positions (e.g. derivatives used to increase
made. Although the Australian market has been a laggard this year, we like exposure to or reduce market exposure).
cyclical companies such as banks and retail REIT's and there are plenty of high-quality stocks
of this type to choose from in that market.
With high valuations and already low interest rates, the longer-term outlook for shares in
general is lacklustre. However, we think careful selection of companies and markets will help
deliver reasonable returns on investment going forward.
^Includes unlisted equity holdings of 0.12%.†Includes unlisted equity holdings of 0.19% *Other includes currency derivatives used to
manage foreign exchange risk. 1The actual investment mix incorporates the notional exposure value of equity derivatives and credit
default swaps, where applicable.
Milford KiwiSaver Plan Monthly Review as at 30 November 2020
KiwiSaver Active Growth Fund Actual investment mix 1
Portfolio Manager: Jonathan Windust
The Fund rose 4.7% in November as share markets performed strongly in response to the
Biden presidential win and very positive news around potential vaccines. This news
significantly reduced uncertainty over the outlook for economies and company earnings.
Key positive global companies included those that had been hit by the virus including Virgin
Money (+35.8%), LLoyds (+27.1%) and JP Morgan (+20.2%) and Spanish Airport operator
AENA (+18.2%). Banks benefitted from solid earnings results, lower potential bad debts and
the possibility of restarting dividends. In NZ Fletcher Building (+36.6%) was a key
Effective Cash# 3.49% Australian Equities
performer with a strong earnings upgrade due to a significant improvement in margins as a 15.17%
New Zealand Fixed
result of better activity and cost reductions. During the month, we increased investment in Interest 0.83%
International Equities
36.44%
companies that will benefit from an economic recovery including Australian miner BHP. We International Fixed
Listed Property 6.70%
Interest 11.32%
believe BHP is attractively valued and will continue to benefit from strong demand and high New Zealand Other* 1.74%
prices for the commodities it produces. Equities‡ 24.31%
# The actual cash held by the Fund is 3.43%. Effective
Share markets remain supported by very strong stimulus measures from central banks and Cash reported above is adjusted to reflect the Fund's
governments. Whilst COVID-19 cases remain high, the vaccine news has allowed markets to notional positions (e.g. derivatives used to increase
or reduce market exposure).
look through any short-term economic weakness. The key headwind for shares is high
valuations although relative to low rates these look more attractive. Given reduced
uncertainty and strong stimulus we have increased our weight towards shares and reduced
cash. The strategy of the Fund is to remain active to isolate those companies which we
believe offer attractive risk adjusted returns.
KiwiSaver Aggressive Fund
Portfolio Manager: Stephen Johnston
The Fund gained 5.9% in November and is up 18.6% in the last year. Global markets surged
in November driven by positive vaccine news and reduced political risks with the US election
behind us. There was a notable market rotation during the month, as investors took profits
on working from home beneficiaries, and invested into more economically sensitive areas
such as industrials, financials, and commodities.
Key positive contributors included Indian private bank HDFC Bank (+20.1%), backing up the Effective Cash# 1.10% International Equities
70.41%
strong gains in October. The economic backdrop in India has improved materially with some New Zealand Equities Listed Property 3.43%
economists now expecting double digit economic growth in 2021. French aerospace 6.16%
Other* 2.15%
Australian Equities
company Safran (+35.1%) was another stand out, as positive news on a COVID-19 vaccine 16.75%
increases the likelihood of a gradual return to leisure and business travel sometime in 2021. # The actual cash held by the Fund is 7.09%. Effective
Cash reported above is adjusted to reflect the Fund's
Detractors from performance included Alibaba (-13.6%), giving back recent gains on notional positions (e.g. derivatives used to increase
or reduce market exposure).
disappointment over the suspension of the Ant Group IPO and the potential for new
regulations for platform companies like Alibaba. The rotation away from quality businesses
into more cyclical companies led to weakness in healthcare companies Danaher (-2.1%) and
also Thermo Fisher Scientific (-1.7%). Despite the short-term weakness, the long-term outlook
for both companies remains favourable.
Positive contributors in Australasia included National Australia Bank (+25.5%) and iron ore
producer BHP Group (+12.7%). Key detractors were Pushpay (-22.2%) and Gold company
Saracen Mineral (-16.5%).
We are more optimistic on the outlook given the positive vaccine developments, which
provide light at the end of the tunnel. Incrementally, we have been allocating to more
cyclically exposed companies as we expect the recovery to gather steam in 2021.
‡Includes unlisted equity holdings of 1.40% *Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.
Milford KiwiSaver Plan Monthly Review as at 30 November 2020
Fund Performance
Since Fund
Past month 1 year 3 years (p.a.) 5 years (p.a.) Unit price $ Fund size $
inception (p.a.)
KiwiSaver Cash Fund 0.04% — — — — 1.0026 18.4 M
KiwiSaver Conservative Fund 1.65% 5.69% 5.82% 6.58% 8.75% 1.9521 183.0 M
KiwiSaver Moderate Fund 2.85% — — — — 1.1367 27.4 M
KiwiSaver Balanced Fund 4.35% 9.00% 8.77% 9.27% 10.24% 2.7211 501.1 M
KiwiSaver Active Growth Fund^ 4.73% 9.38% 10.44% 10.67% 12.56% 4.4260 1,900.7 M
KiwiSaver Aggressive Fund 5.94% 18.64% — — 17.16% 1.2333 254.6 M
For details of how investment performance is calculated, and returns at each PIR please see www.milfordasset.com/funds-performance/view-performance#tab-
performance.
Performance figures are after total Fund charges* have been deducted and at 0% PIR.
Please note past performance is not a guarantee of future returns.
*Total Fund charges do not include the $36 p.a. Administration and Registry fee.
Inception dates for the Funds: KiwiSaver Active Growth Fund: 1 October 2007, KiwiSaver Balanced Fund: 1 April 2010, KiwiSaver Conservative Fund: 1 October 2012,
KiwiSaver Aggressive Fund: 1 August 2019, KiwiSaver Cash Fund: 27 March 2020, KiwiSaver Moderate Fund: 27 March 2020.
^This is based on the performance of the AonSaver AMT Milford Aggressive Fund until 31 March 2010 and the Milford KiwiSaver Active Growth Fund from 1 April 2010.
Key Market Indices
Past month 1 year 3 years (p.a.) 5 years (p.a.) 7 years (p.a.)
S&P/NZX 50 Gross Index (with imputation credits) 5.68% 13.52% 16.98% 17.10% 16.29%
S&P/ASX 200 Accumulation Index (AUD) 10.21% -1.98% 6.94% 9.05% 7.31%
S&P/ASX 200 Accumulation Index (NZD) 8.69% -2.51% 5.03% 8.01% 6.31%
MSCI World Index (local currency)* 11.97% 12.13% 9.34% 10.32% 9.69%
MSCI World Index (NZD)* 6.06% 4.60% 8.65% 9.45% 11.21%
S&P/NZX 90-Day Bank Bill Rate 0.03% 0.74% 1.48% 1.81% 2.25%
Bloomberg Barclays Global Agg. Bond (USD-Hedged) 0.57% 5.04% 5.12% 4.36% 4.29%
S&P/NZX NZ Government Bond Index -1.79% 4.38% 5.43% 4.97% 5.53%
*With net dividends reinvested
Milford KiwiSaver plan is the proud winner of multiple awards:
Milford KiwiSaver Plan Monthly Review as at 30 November 2020 Top Security Holdings (as a percentage of the Fund’s Net Asset Value) KiwiSaver Cash Fund KiwiSaver Conservative Fund KiwiSaver Moderate Fund Westpac 32 Day CMD 2020 10.37% Scentre Group 5.125% 2080 1.43% Scentre Group 5.125% 2080 1.25% Kiwibank 0.6% 2021 8.49% NZLGFA 1.5% 2029 1.17% Spark New Zealand 1.19% Meridian CD 2021 5.98% Housing NZ 3.36% 2025 1.13% Fisher & Paykel Healthcare 1.16% ANZ 1.15% 2020 4.47% NAB Float 2030 1.11% Contact Energy 1.05% Port of Tauranga CD 2020 4.46% NZLGFA 3.5% 2033 1.07% NAB Float 2030 0.72% NZLGFA 0% 2021 4.46% Westpac 2.22% 2024 1.06% AusNet Float 2080 0.71% Genesis Energy 0% 2021 4.46% IBRD 0.625% 2027 0.99% Woolworths 0.67% Contact CD 2021 4.46% AusNet Float 2080 0.95% Telstra Corp 0.65% ANZ 0.45% 2021 3.57% Transpower 1.735% 2025 0.92% NZLGFA 1.5% 2029 0.64% Housing NZ 0% 2020 3.57% ASB Bank 1.83% 2024 0.91% a2 Milk Company 0.64% Note: Fixed interest securities are reported in the following format: Issuer name, interest (coupon) rate, maturity year, size of fund holding (as % of total portfolio). KiwiSaver Balanced Fund KiwiSaver Active Growth Fund KiwiSaver Aggressive Fund Fisher & Paykel Healthcare 2.32% Fisher & Paykel Healthcare 4.86% Alphabet 2.59% Spark New Zealand 1.88% Spark New Zealand 3.85% Amazon 2.39% Contact Energy 1.53% Summerset Group Holdings 2.67% Microsoft Corp 2.23% a2 Milk Company 1.22% a2 Milk Company 2.10% Intercontinental Exchange 1.97% Scentre Group 5.125% 2080 1.18% Dr Horton 2.01% HDFC Bank 1.91% Alphabet 1.08% Contact Energy 1.82% Visa 1.83% Microsoft Corp 0.99% EBOS Group 1.74% Ametek 1.83% Woolworths 0.94% Scentre Group 5.125% 2080 1.56% Mastercard 1.67% Telstra Corp 0.93% Alphabet 1.50% Transunion 1.58% Amazon 0.92% Kiwi Property Group 1.43% Martin Marietta 1.53% Note: Fixed interest securities are reported in the following format: Issuer name, interest (coupon) rate, maturity year, size of fund holding (as % of total portfolio). Milford staff have approximately $13.4 million invested in the Milford KiwiSaver Plan as at the end of November 2020.
Milford KiwiSaver Plan Monthly Review
Investment Highlight - Atlas Arteria
Australian investors have two domestic stocks available to them in the
toll-road sector. Transurban (TCL) is a market darling with a market cap
of A$40bn, that owns roads in Sydney, Melbourne, Brisbane, and North
America. The other is the less familiar Atlas Arteria (ALX), with a market
cap of A$6bn, with roads in France, Germany, and the US. ALX has a raft
of complexities that make analysis difficult, but we believe this complexity
plus a COVID-19 overhang, has created an attractive investment
opportunity.
ALX is less well known than TCL in part because of its size, but also
Dan Simmonds because it has no Australian assets, meaning domestic investors have less
Portfolio Manager “road-feel” for the assets. ALX’s main asset is APRR in France, a 2,318km
road network connecting Paris to Lyon, which we estimate makes up ~90%
of the intrinsic value of its share price.
With France returning to lockdown, traffic levels are tracking down 40% November vs. last year. We have
seen that traffic levels are quick to recover post lockdowns, e.g. traffic was down 80% for APRR in March/
April but recovered to flat vs. 2019 in the summer months. So, there is a light at the end of the tunnel.
Some further complexity is added through the ALX ownership structure. ALX owns 31.14% of APRR and the
asset is therefore not consolidated in ALX’s financial accounts. Further, a dividend paid by APRR must pass
through several trust entities with layers of debt, interest and management fees paid along the way, before
ALX are paid their share.
While still complex, CEO Graeme Bevans has made significant improvements to the holding structure since he
joined in April 2019. ALX raised equity of A$1.35bn in Nov 2019 and A$495m in May 2020, with the funds used to
remove fee leakage paid to external consultants, improve governance and pay down A$603m of debt.
With regards to valuation, ALX has a 2022 consensus dividend yield of 6.1%, while TCL’s equivalent yield is
3.7%. But this is not comparing apples with apples, since ALX has a longer license to operate the roads and
tolls than TCL. We estimate that ALX offers a high single digit internal rate of return which we see as attractive.
There may also be upside from concession re-negotiations with the French government and from the US asset
Dulles Greenway.
ALX is an example of the type of company we find attractive in the global real asset space. A high-quality
monopolistic asset with stable future cashflows, that is currently trad ing at a d epressed share price. The
complexity of the organisation makes the stock somewhat difficult to understand but the steps the CEO is
taking to simplify the structure should help to add value over the long term.
Disclaimer: This article is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as
investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser. Past performance is not a guarantee of future performance.Milford KiwiSaver Plan Monthly Review
Ensuring your KiwiSaver member experience
is Outstanding
2020 has been another excellent year for Milford , capped by our
success at various industry and consumer awards on both sides of the
Tasman.
While it is satisfying to be recognised by the investing public and by
the industry, our greatest satisfaction comes from ensuring our
KiwiSaver members have the best experience we can provide.
This year we have introduced a number of new features and services.
As we approach the end of a year none of us could have predicted I Murray Harris
thought it would be worth recapping some of these developments.
Head of KiwiSaver & Distribution
• The Milford Mobile App – allowing you to keep track of your KiwiSaver fund balance,
performance and where your money is invested, at your fingertips.
• KiwiSaver Assisted Advice – access to our KiwiSaver Advisers to help you set and achieve your KiwiSaver
goals, be that purchasing your first home or saving for retirement.
• KiwiSaver Digital Advice – an online, personalised, goals-based advice service available 24/7 via your Client
Portal.
• Forecast My Balance – a tool that lets you see what your KiwiSaver balance may be at age 65 and how much
you could spend in retirement.
• Spend My KiwiSaver (coming soon) – this online tool will be available to members from age 65, to show
how much you could spend from your KiwiSaver account each year and to set up payments to your bank
account.
• Client Portal - enhancements allowing you to transact on your account at your convenience.
• Regular Investor Insights - in the form of our fund and market commentaries, videos and blogs.
• KiwiSaver Video Series - d uring lockd own and the accompanying COVID-19-d riven market volatility,
answering your questions and (hopefully) calming your nerves.
• Livestream events - bringing you the latest thinking from the investment team on how they are managing
your money and insights from the KiwiSaver team about how to maximise your KiwiSaver.
• Two new funds – suitable for more conservative members – the KiwiSaver Cash and Moderate Funds.
• Reducing your Member Administration Fee - On 1 December 2020, the Milford KiwiSaver Plan annual
member ad ministration fee was red uced from $36 to $18 per year. Members aged und er-21 or 65 and
old er will continue to pay no Administration Fee. We regularly review our fees to ensure they represent
good value for you.
It has been a very busy year in more ways than one. We have more exciting initiatives planned for next year
to ensure your KiwiSaver experience is the best it can be.
Thank you for entrusting Milford with your retirement savings, we wish you and your families a happy and safe
Christmas and New Year. Roll on 2021!
Disclaimer: The Milford Monthly Review has been prepared by Milford Funds Limited. It is based on information believed to be accurate and
reliable although no guarantee can be given that this is the case. No reproduction of any material either in part or in full is permitted without
prior permission. For more information about the Funds please refer to the Product Disclosure Statement or the latest Quarterly Fund
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