Your Monthly Update - April 2015
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Fisher Funds TWO KiwiSaver Scheme
Your Monthly Update
April 2015
A Market Unleashed
I love nothing more than throwing the ball for my dog Imagine the market’s confusion therefore when Yellen
and watching her run for it, legs scrabbling, hair billowing, said last month that a rate rise “could be warranted at any
tongue lolling from her mouth, unfettered by leash or meeting” and that any future decision would be based on
physical boundaries. While I would never laugh out loud, economic data? Hang on, how do we read that, where do
her ball chasing is particularly amusing when she is due for a we run, where is the ball going to land? What the Fed’s
groom and the wind doesn’t quite part her hair enough for congressional testimony basically means is that their target
her to get a good fix on the ball. Then she charges, stops, interest rate will be held at 0-0.25%. While they plot their
looks this way and that, charges forward again with real next move – and we will hear about that move along with
purpose ... only she hasn’t realised that she is still 20 metres everyone else – they will monitor inflation, jobs, global
away from her target. growth and financial markets, and keep a very close eye on
the two things they are supposed to be managing – inflation
I think I’ve just described world share markets over the and employment. They probably won’t lift interest rates
past three months! It has been exhilarating to watch them in April, but they might. In April, they will come out with
and sometimes the ball-catching prowess (or share price another opinion and it could well be different from how they
performance) has been stellar indeed. But the market are feeling today. And they could introduce yet another
definitely needs some help because for all its boisterous phrase that the market will interpret, and reinterpret and run
enthusiasm, the balls are being thrown all over the place off to chase.
and the big throw, the one markets are really waiting for –
rising US Federal Reserve interest rates – is just not coming. Whether US interest rates rise or not isn’t that important
in the scheme of things. What does matter is that they are
Honestly, markets have been just like my dog – running hard right for the conditions at hand. If they are increased too
in the direction they think the ”ball” will go, then retracing soon, then the burgeoning economic growth, consumer
their steps when they realise the ball hasn’t been thrown confidence and business certainty could be snuffed out and
yet. It has been a bit ridiculous frankly, reading headlines nobody in the world wants that. It is a fine balancing act and
explaining each day’s market movements with reference to I guess to some extent, it is understandable that without any
something the Fed said or inferred. other major distractions (positive or negative), markets are
focused unreasonably on every Fed move.
The biggest signal during March was the removal of the
reference to the word ”patience” by Janet Yellen, chair of But you know, even if I intended to throw the ball twenty
the Federal Reserve. Just to recap, for most of last year, metres to the North-West, and I yelled loudly “the ball’s over
Fed statements said interest rates would stay low for “a there!” the dog wouldn’t get it, would she?
considerable time” after quantitative easing had come
to an end. In December, the language was swapped out; Carmel Fisher
“considerable time” was replaced with a pledge to be Managing Director
“patient” in raising interest rates, and that was further
defined as a “couple of meetings” or two months. So most
market watchers assumed that come February/March, the
word patient would go, and the gradual rise in US interest
rates (which remember, are not a bad thing in their own
right) would begin.
Your KiwiSaver Portfolios
Highlights and Lowlights
»» We added two quality stocks to our international portfolios – Mastercard and Alibaba. Now
that the IPO hype has passed we have initiated a position at a more favourable entry point in
Alibaba after initially missing out on an allocation during the IPO.
»» Despite a flat March, the Australian market concluded its strongest quarter since the GFC.
Our Australian portfolios performed comparatively well on exceptional performances from
Bursons (investors recognising growth potential), ResMed (new product success and reduced
regulatory pricing pressure), Ansell (solid operating performance and attractive acquisition) and
CSG. Medibank drifted backwards as Australians bought cheaper health insurance with lower
coverage, while investors continued to express scepticism around Ingenia’s execution ability.
»» Our New Zealand portfolios underperformed the broader New Zealand share market
predominantly due to the share prices of our three biggest holdings falling. While Ryman
Healthcare and F&P Healthcare fell on no news, Mainfreight’s share price came under pressure
as the company lowered short-term earnings expectations for FY2015, but retains a positive
outlook for FY2016. While new online entrants revealed & revised pricing and content, Sky TV
was the Fund’s best performer over the month (and best for the broader NZ market) providing
total shareholder return of 8%.
Learning to love Banks
By Manuel Greenland
Senior Portfolio Manager, Australian Equities
We added ANZ and Westpac to our Australian portfolios
in March. In our stock-ranking process we look for
characteristics that allow a company to earn superior
profits over time. Typically bank profits follow general
economic conditions, and are vulnerable to cycles in
interest rates, income and inflation. So typically, banks
would not meet our investment criteria.
How come we’ve added them then?
Recognising the quality of their risk management systems,
The four major Australian banks are far from typical. As a regulators allow the large banks to lend more per dollar of
group they are super-dominant in areas critical to banking invested capital, boosting profits and growth potential. As
success. They represent 80% of banking sector assets, 80% a result the major banks have earned significantly higher
of total deposits and 86% of sector profits. The four majors returns than competitors over time.
hold this share against 17 other Australian banks and 47
foreign banks! The major banks’ strengths are in some ways also their
risks. To some extent they have become victims of their
The major Australian banks enjoy significant strengths. own success as their dominant position and relevance
Their key advantage is their scale. They have large stable to the economy has made them subject to significant
bases of deposit accounts, giving them a cheap and regulatory oversight, and made their high profile brands
ready source of funds. This in turn supports their ability vulnerable to reputational risk.
to offer borrowers loans at attractive interest rates, while
still lending profitably and winning market share. Besides Nevertheless, we conclude that their key strengths explain
great lending businesses, they have diversified earnings by the superior performance of this exclusive club. To enable
developing considerable wealth management, advisory and our investors to participate in this success, we’ve selected
insurance enterprises. The big banks can also spread costs those banks with the best earnings prospects and most
over larger operations, resulting in superior cost efficiency. attractive long-term returns for our Australian portfolios.
Fisher Funds TWO KiwiSaver Scheme
2 Monthly Update
Sell the rumour, buy the fact
By Carmel Fisher, Managing Director
Many investors will have heard of the investing maxim
“sell the rumour, buy the fact”. The saying comes from the
phenomenon where buyers push a price up in anticipation
of a big news event and then (often) sell off immediately
after the announcement. Examples are most often seen in
technology stocks where “big” new products are rumoured We watched the share price rebound after our selling, and
to be released that will dramatically change the whole a number of our team scratched their heads as to why,
industry. Exact product details are not known, but the hype with no new information to digest, the market thought the
machine goes into overdrive and investors pile into the shares were worth more? There had been some solid profit
stock, sure that the new product will be a king hit. Once the results from other retailers and that might have led some
details of the product are actually revealed, the reaction can investors to think Kathmandu might redeem themselves
go one of three ways – the product is announced and it is – despite the company saying otherwise. Regardless, the
even better than expected, so the price goes ballistic; the company released its earnings result on March 24 saying that
product announcement is underwhelming and the share conditions remained tough, and the share price immediately
price collapses; or the product is good but only as good as retraced several weeks’ gains.
expected, and the price falls.
We have seen a couple of examples of this phenomenon
in the New Zealand share market recently. Our erstwhile
portfolio company, Kathmandu, warned late last year that
Christmas sales might be disappointing, and followed up We can’t buy on hope
with a shocker earnings warning in February. We had given
the company the benefit of the doubt in December, but or expectation; we
by February with a share price some 26% lower, we started
to sell our holding, having lost confidence in our ability to insist on buying on
predict the company’s fortunes with any certainty. We were
not alone in our selling – Kathmandu is dual listed and a knowledge and belief
number of Australian institutions were also quick to push the
Sell button. The share price hit a low of $1.39 on February 5
before rebounding 26% to $1.76 on March 19.
Why did the share price bounce, and should we have held Our approach is to ignore the rumour and act only on fact.
off our selling to enjoy this bounce? Of course it would have We will get stocks wrong from time to time; there is no
been nice to have sold at a higher price, but our investment doubt about that. But the only thing we have to base our
approach dictates that when we have lost confidence in the investment decisions on is our research. We can’t buy on
investment thesis of a company, we will sell immediately, hope or expectation; we insist on buying on knowledge
and look to reinvest the proceeds in a company for which and belief. They are different things.
we have a higher conviction.
Fisher Funds TWO KiwiSaver Scheme
Monthly Update 3
A bird’s eye view
Senior Portfolio Manager Roger Garrett tells us about well-known
consumer company Nike, which we have invested in through our
international portfolios since 2011.
Nike is a name that requires little introduction as Nike’s growth potential remains strong
the world’s largest sportswear company, designing, The business has an impressive pipeline of new
manufacturing and selling high quality footwear, apparel products that help sustain a competitive advantage as
and sporting equipment. Nike sells its products under a company of innovation – running shoes that change
the Nike, Jordan, Converse, Nike Golf and Hurley colour depending how far you run or basketball shoes
brands and is dominant in running, basketball, soccer that tell you how high you jump. At a regional level,
and men’s and women’s training. Additionally, Nike sells the fine tuning of their strategy in Western Europe and
its products in golf, cricket, tennis, lacrosse, volleyball, China, with a premium product focus, is starting to
American football and action sports. deliver results with Nike gaining market share in both
Number one for a reason regions. On the digital front, Nike is heavily involved in
the fitness monitoring area with running, fitness, soccer
Nike is the global leader in sports footwear and apparel. and golf apps and a close tie-up with Apple (Apple
This leadership is founded on superior technology and CEO Tim Cook is on the Nike board). This is potentially
product innovation with a key competitive advantage a huge growth area with the European Commission
coming from working closely with the best athletes estimating up to 1.5bln people could be using health
in the world. The insights they develop from these and fitness apps by 2017 – the basis for a significant
top athletes together with leading edge technology community of interconnected members.
and research and development are at the heart
of their product development. Nike is recognised Clearly, Nike is a great company and a desirable
globally as an iconic sportswear brand through best investment. Nike certainly “walks the walk”. When it
in class technology, product innovation and style comes to innovation and when combined with its iconic
and is supported by sponsorship of premier athletes brand image and total customer focus, we believe Nike
and sporting organisations such as Roger Federer, is well positioned to maintain its market leading status.
Kobe Bryant, Christiano Ronaldo and Barcelona and Furthermore, they are shareholder friendly, returning
Manchester City football teams. Furthermore Nike virtually all cash flow back to shareholders via dividends
has huge scale, shifting over 900mln units of product and buybacks. We are confident our investment in Nike
through their supply chain of over 18,000 accounts and will continue to deliver strong returns over the medium
140,000 retail outlets. This network is a huge strength to long-term.
to their brand. Nike’s best in class status and total focus
on innovation allows the brand to command a price
premium over its competitors.
Fisher Funds TWO KiwiSaver Scheme
4 Monthly Update
KiwiSaver classroom
A common question from
members at this time of year
is “How is my KiwiSaver
account taxed?”
The Fisher Funds TWO KiwiSaver Scheme is
classified as a Portfolio Investment Entity (or PIE
for short) for tax purposes. The PIE regime was
introduced at the same time as KiwiSaver was
launched providing a number of tax advantages for
investors and making the administration of it all very Calculating your correct PIR
easy. The key advantages are: There are three PIR’s available for individuals to choose
from: 10.5%, 17.5% or 28%. The correct rate for you
Firstly, there is no tax on gains in New Zealand
depends on your income. To help calculate your PIR use
shares and certain Australian shares. Investments
the following chart:
in companies outside that criterion are taxed as if
they have earned 5% total income (regardless of
how they have actually performed). Fisher Funds
In either of the last two
invests in growing companies which often have a LOW
income years was your
low dividend yield and the majority of returns come
taxable income $14,000 or YES Your PIR
from the increase in the value of the shares. This is a
less and your total income
significant advantage for investors. is 10.5%
(including PIE income)
Secondly, investors are taxed at their marginal tax $48,000 or less?
rate with a maximum of 28%. For investors on a
top personal income tax rate of 33% this represents a
NO
5% reduction.
Thirdly, the Scheme takes care of all tax
obligations on behalf of investors so there is In either of the last two
nothing to include in your personal tax return. As MID
income years, was your
long as we have the correct tax rate (known as your taxable income $48,000 or YES Your PIR
Prescribed Investor Rate or PIR) for you then we claim less and your total income
a tax refund or pay your tax liability on your behalf is 17.5%
(including PIE income)
and adjust your KiwiSaver account accordingly. $70,000 or less?
NO
TOP
In all other cases
Your PIR
is 28%
If you need to change your PIR, simply download and complete our PIR form from
http://www.ff2kiwisaver.co.nz/resource-centre/kiwisaver-forms then return it to us.
Fisher Funds TWO KiwiSaver Scheme
Monthly Update 5
Managing your KiwiSaver account
Asset allocation changes
We have recently completed a review of the strategic asset
allocation of the Fisher Funds TWO KiwiSaver Scheme. This
is a practice our investment team undertakes every two years
to ensure we have sufficient flexibility in managing your
savings in light of the global investing environment.
The most notable change has been to increase the
weighting towards international shares in the Conservative
Fund, Balanced Fund, Growth Fund and Equity Fund while
at the same time reducing the exposure to Australasian
shares. This change ensures your Funds have better
global diversification and rely less on the relatively narrow
economies of New Zealand and Australia.
The changes are effective Monday 13 April. You can view
updated fund profiles including asset allocations in the latest
Investment Statement for the Scheme, which you can find
under Resources on our website.
Don’t miss out on your annual Government contribution!
Sorted have just launched a national campaign to To maximise your full MTC entitlement of $521.43 you
remind eligible KiwiSaver members that they can need to have contributed at least $1,042.86 (the equivalent
benefit from a $521 top-up by the government to their of $20 per week) into your KiwiSaver account. If you
KiwiSaver account. haven’t put in at least this amount already, you can top up
your KiwiSaver account for the current KiwiSaver year (1
As a reminder, for every $1 you contribute to your
July 2014 to 30 June 2015) before Friday 26 June 2015.
KiwiSaver account you’ll receive 50 cents from the
Government, up to a maximum of $521.43 each You can read more about who is eligible for a MTC, how it
KiwiSaver year. This generous KiwiSaver incentive is is calculated and how to make a payment online at
known as the MTC. www.ff2kiwisaver.co.nz/about-kiwisaver/member-tax-credits.
Changes to KiwiSaver first
home buyer rules
As explained in last month’s newsletter, changes to
the way you can use your KiwiSaver account to help
buy your first home came into effect on 1 April 2015.
The changes potentially make it easier to buy your first
home. Check out www.ff2kiwisaver.co.nz to see how
your KiwiSaver account may give you a helping hand
into your first home.
Fisher Funds TWO KiwiSaver Scheme
6 Monthly Update
Fund Facts
Fund Performance to 31 March 2015
Fund after Fees & 12 Since
Unit price ($) 1 month 3 months 2 years* 3 years* 5 years* 7 years*
before-tax Returns months Launch*
Preservation Fund 2665.3285 0.3% 0.8% 3.6% 3.3% 3.4% 3.2% 3.7% 4.0%
Conservative Fund 1.5566 0.4% 2.6% 8.9% 6.9% 7.5% 6.6% 6.0% 5.6%
Balanced Fund 4120.5048 0.2% 3.1% 10.3% 9.3% 10.1% 7.5% 6.2% 5.5%
Growth Fund 1.4302 -0.1% 3.3% 11.1% 11.1% 12.2% 8.3% 5.9% 4.2%
Equity Fund 3540.3670 -0.6% 3.5% 11.8% 12.6% 12.6% 7.7% 4.6% 1.9%
Cash Enhanced Fund 1.5007 0.5% 2.5% 8.8% 6.5% 6.9% 6.1% 5.7% 5.5%
* Annualised return before tax and after fees
The above returns are based on the percentage change in the unit price of the fund for the period specified, they are not the returns individual investors will receive as this
will depend on the prices at which units are purchased on the date of each individual contribution. Changes in the unit prices reflect changes in the market value of the assets
of the fund. The above returns exclude government contributions and no allowance has been made for monthly administration fees. Returns displayed are after management
fees but before tax.
Biggest Holdings as at 31 December 2014
Percentage of Percentage of
Preservation Fund Conservative Fund
fund net assets fund net assets
Cash - ANZ Bank 9.13% Cash - ANZ Bank 6.28%
Westpac 2015 FRN bonds 8.47% NZ Govt 2019 5.00% bonds 4.25%
Fonterra 2017 FRM bonds 7.50% Bayfair Mall 3.83%
Total value of 10 highest value assets as a Total value of 10 highest value assets as a
66.39% 31.26%
percentage of fund net assets percentage of fund net assets
Percentage of Percentage of
Balanced Fund Growth Fund
fund net assets fund net assets
Cash - ANZ Bank 7.09% Cash - ANZ Bank 6.13%
Bayfair Mall 4.29% Bayfair Mall 4.14%
Cash - Westpac Bank 2.89% Cash - Westpac Bank 3.27%
Total value of 10 highest value assets as a Total value of 10 highest value assets as a
26.79% 28.28%
percentage of fund net assets percentage of fund net assets
Percentage of Percentage of
Equity Fund Cash Enhanced Fund
fund net assets fund net assets
Cash - ANZ Bank 8.11% Cash - ANZ Bank 6.98%
Fletcher Building 4.30% NZ Govt 2019 5.00% bonds 5.07%
Ryman Healthcare 4.08% NZ Govt 2021 6.00% bonds 4.19%
Total value of 10 highest value assets as a Total value of 10 highest value assets as a
36.18% 34.24%
percentage of fund net assets percentage of fund net assets
Further information about your KiwiSaver portfolios (including a full breakdown of the portfolio holdings and investment
team profiles) can be found at www.ff2kiwisaver.co.nz.
The information and any opinions herein are based upon sources believed reliable, but the Company, its officers and directors make no representations as to its accuracy or
completeness. All opinions reflect our judgement on the date of this report and are subject to change without notice. The information contained in this publication should
not be used as a basis for making an investment decision about any particular company. Professional investment advice should be taken before making an investment. Past
performance is not a reliable guide to future performance. For an investment statement on any of our funds, please go to our website or call us on 0800 20 40 60.
To find out more about us or the Fisher Funds TWO KiwiSaver Scheme, contact us at:
Phone: 0800 20 40 60 | Fax: 09 489 7139 | Email: kiwisavertwo@fisherfunds.co.nz | Web: www.ff2kiwisaver.co.nz
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