Your Monthly Update - November 2015
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Fisher Funds TWO KiwiSaver Scheme
Your Monthly Update
November 2015
Feelings, nothing more than feelings
Are you feeling good after October’s market rally? You should September quarter was certainly extreme in terms of testing
be, because it was a decent bounce and it was pretty much the mettle of most investors.
across the board. Mind you, investors badly needed it after
One commentator recently wrote of some investors’
the bruising August and September endured by all. Those
tendency towards “breakevenitis”. This phenomenon occurs
two months were so bad for global share markets that the
following a period of fear or pain (such as falling markets)
September quarter earned the title of “worst quarter since
where the pain becomes etched in our minds, leading us to
the global financial crisis”.
expect more to come. When the fear or pain ends (e.g. when
Global markets climbed to near record highs in October the market rebounds) we breathe a sigh of relief, sell as soon
as central banks again worked to allay concerns about as prices get back to where they were before the pain, and
the health of the global economy. While the U.S. Federal thank our lucky stars that we “didn’t lose anything”.
Reserve had been heading towards a rate hike, it held off
But of course, in investing, it is dangerous to make such
in September which helped markets regain their poise after
forward-looking decisions based on backward looking
a horrible August. Mario Draghi, the head of the European
experiences or information. It is almost guaranteed to lead to
Central Bank, also helped to bolster sentiment by hinting
missed opportunities, and in investing, missed opportunities
at more quantitative easing to come, and the People’s Bank
often lead to money lost.
of China cut interest rates for a sixth time in just 12 months
which helped brace the critical Chinese economy. Regardless of how we feel about October’s bounce, there is
bound to be another period of volatility like we experienced
In stark contrast to earlier months, it was hard to ignore the
in the September quarter. While all investors like to believe
joie de vivre that took hold of markets in October. European
that we react rationally in our investment decisions, feelings
markets enjoyed their strongest gain since July 2009, lifting
do play a big role.
around 8% in October, and Japan’s Nikkei rose nearly 10%
which was its best showing for a couple of years. October It is important to understand the effect that our own
was the best month for US shares in four years, and the emotions (particularly fear and greed) can have on our
buoyancy was even felt down under with both Australasian investment choices. If we are relieved to have had the
markets bouncing from their lows (albeit slightly behind opportunity to sell in October, we might have allowed
other markets). ourselves to become too fearful. If we regret not buying in
early September, should we kick ourselves for not buying
Other positive drivers in October included a US profit
when prices were at their lowest before they rebounded? If
reporting season with few negative surprises. Excluding the
after October’s rebound we are feeling “pleased-but-not-
energy sector, 341 companies in the S&P500 Index reported
ecstatic”, in the realisation that more negative times might
an average profit growth of 6.1% and revenue growth of 1.5%
lie ahead, we’ve probably got it about right.
— not stellar, but not scary either. October was also a big
month for deal-making with $US544 billion worth of mergers Carmel Fisher
and acquisitions announced during the month, excluding the Managing Director
potential merger of Pfizer and Allergan which in itself could
be worth $US125 billion.
So, a good month and probably an overdue bounce given
that sentiment and confidence had plummeted to rock
bottom levels.
It may well be though, that a lot of the euphoria has gone
straight over the heads of many investors, who are still
smarting over the volatility of recent months. This is not
unusual; as humans we are conditioned to react in precisely
the wrong ways following extreme experiences. The
Your KiwiSaver portfolios
Highlights and lowlights
»» In New Zealand, Summerset again upgraded its earnings forecasts for the 2015 year on the back
of stronger than expected third quarter sales of new and existing occupation rights to units at its
retirement villages. Fisher & Paykel Healthcare had an investor day where it reiterated the strong
growth in its addressable markets for its innovative respiratory and sleep apnea products. The
share prices of both companies were up strongly during the month. Sky TV downgraded earnings
expectations for the 2016 year on the back of increased costs of delivery of its new services, increased
programming costs and the likelihood of increased churn of subscribers after the Rugby World Cup.
»» A positive month for the Australian portfolio as the broader share market followed commodity prices
upwards. Nick Scali showed strong same store growth and solid progress on new store openings, while
Domino’s Pizza upgraded their targeted number of European stores when they acquired Sprint in
France. ResMed’s run of healthy constant currency sales growth continued with a first quarter increase
of 15% but the headwind of adverse foreign exchange movements reduced its bottom line earnings by
3% on a year ago. Investors took a dim view of Credit Corp’s outlook as a global competitor entered
the Australian debt-ledger market, and peer Collection House started showing some signs of stress.
»» Our international portfolio enjoyed the broad based market bounce in October performing in line
with its benchmark. After a sustained period of out performance, our emerging markets exposure
underperformed over the month due to stock selection across several sectors.
»» The corporate bond market rebounded strongly in October, providing a solid boost to the returns of
our global.
Successful recipes for fast
food operators
By Murray Brown, Senior Portfolio Manager, New Zealand
Equities and Manuel Greenland, Senior Portfolio Manager,
Australian Equities
Over the last year we’ve added Restaurant Brands and
Domino’s Pizza to our New Zealand and Australian share
portfolios. While both have performed well, the fact that
they operate in the challenging fast food sector is where the
similarities end. The companies are pursuing quite different
strategies to grow their businesses.
For some time Restaurant Brands was heavily reliant on its
KFC store transformation process and other divisions (Pizza
In contrast, technology is the key to Domino’s Pizza success.
Hut, Starbucks and Carl’s Jr) were struggling. However,
One example is Domino’s new mobile app that allows
through strong and experienced management we identified
consumers to monitor the status of their online order as their
that Pizza Hut and Starbucks were being navigated towards
pizza is prepared and delivered. Engaging consumers with
a strong and sustainable lift in margins. The purchase of the
information helps them to make purchase decisions, so the
sole competing Carl’s Jr operator in New Zealand last year
app has increased sales volumes. In addition, the app allows
meant that it had a realistic chance of turning this operation
Domino’s management to monitor every step of the order-
around as well.
to-delivery process, and to identify opportunities to improve
Last month the company announced profit growth of 14% service levels and reduce wasteful expenses. This will enable
for the half year, with all four divisions making a positive Domino’s to deliver pizzas more quickly in the future, which will
contribution. Having transformed its current stable of brands, likely result in improved sales. While one might view Domino’s
the company is also examining other potential profit streams as a simple pizza business, technology is increasingly the
including Taco Bell, Asian fusion foods and possibly other core strength that is driving higher sales and lower expenses,
coffee chains to add to its portfolio over time. setting this successful company apart from its peers.
Fisher Funds TWO KiwiSaver Scheme
2 Monthly Update
This new cycle should not be frightening. In fact, history tells
us that financial markets are adept at taking these events
in their stride. In the year following the start of four of the
last five Fed hiking cycles, every major global asset class
registered strongly positive returns. The only exception was
in 1994 when an over-eager Fed caught investors off guard
with a premature move — something the Fed’s new forward
guidance specifically aims to avoid.
One small step back towards normality should be seen as
a leap in the right direction. The Fed’s decision to keep
lending rates at near zero in the aftermath of the financial
crisis did its job — it helped save the U.S. economy from
What’s all the worry about? collapse. But that economy is now growing at a respectable
By David McLeish, Senior Portfolio Manager — Fixed Interest 2.2% and there is simply no longer a need for this emergency
interest rate policy.
We all know that stories of doom and gloom sell newspapers.
But at the risk of registering my lowest readership on record, Those in favour of postponing a hike argue it is too risky to
I’m going to swim against the tide and suggest that if all forge ahead while the U.S. economy is still finding its feet
we have to worry about is whether the U.S. Federal Reserve and that recent emerging market turmoil has offered us a
(Fed) is going to raise its cash rate by 0.25%, then things glimpse into the future should higher U.S. borrowing costs
really can’t be all that bad. become a reality. But the truth is there is no such thing as
the perfect time for the Fed to act and setting policy for
Admittedly, it has been a while since the Fed embarked
someone else’s economy has never proved to be a wise
on a hiking cycle. Truth be told, the last time they did, the
decision.
smartphone was still years from being invented, John Paul II
was the Pope, and England held the Rugby World Cup! Embrace the now immortal words of All Blacks coach Steve
Hansen — worry is a wasted emotion.
Population growth or productivity?
China’s dilemma
By Mark Brighouse, Chief Investment Officer
Last week Chinese officials announced the impending
removal of the one child policy which was introduced as a
temporary measure back in 1979. While China is the world’s
most populous country, its population is forecast to decline
from 2030 onwards.
This might seem a long way off but the composition of
China’s population is already creating challenges. Due to low
birth rates over the past 35 years the number of people in
the 25 to 49 year old category is also forecast to decline from
next year, placing greater pressure on income earners. So achieving population growth can sometimes come at the
expense of productivity and may not be the panacea that
In 2013 the government partially relaxed the one child policy policy makers hope. Nevertheless, share market investors
by allowing two children per family if one of the parents is have been looking ahead at least nine months and thinking
an only child. The jury is still out on whether a change in about companies that stand to benefit from this change.
behaviour has resulted and the reasons why remain relevant. The share prices of property development companies and
companies providing any of the various paraphernalia of
It appears that as incomes rise the cost of staying at home raising children have seen their share prices rise.
goes up. It is not uncommon for three generations of
families to live together supported by the youngest. When Only time will tell whether this policy change addresses
one partner stops work to raise children there is an effect the decline in population as desired; however, it should
on lifestyle and Chinese couples are in no hurry to do mean some improvement in the outlook for New Zealand’s
that. The country might get some population growth but key exports: dairy and tourism. China is our largest trading
it might come with a reduction in the workforce and lower partner and we know that small changes in their demand can
household incomes. have a big effect on New Zealand exporters.
Fisher Funds TWO KiwiSaver Scheme
Monthly Update 3
What we’re reading ...
Rather than sharing what we have been reading, we’ve
gone to the Oracle himself and listed 10 must-read
books as recommended by Warren Buffett.
When Warren Buffett started his investing career, he would
read up to 1,000 pages a day. Even now, he still spends about
80% of his day reading.
He once said in an interview that “My job is essentially
just corralling more and more facts and information, and
occasionally seeing whether that leads to some action. We
don’t read other people’s opinions. We want to get the facts,
and then think.”
To give an inkling of some of Buffett’s reading highlights,
we’ve listed 10 of his book recommendations over 20 years
of interviews and shareholder letters.
The Intelligent Investor by Benjamin Graham. The Outsiders by William Thorndike Jr.
1 When Buffett was 19 years old, he picked up a copy of
6 In his 2012 shareholder letter Buffett praises this
this book and said it was one of the luckiest moments “outstanding book about CEOs who excelled at
of his life, because it gave him the intellectual capital allocation.”
framework for investing.
Business Adventures: Twelve Classic Tales from
Security Analysis by Benjamin Graham and 7 the World of Wall Street by John Brooks.
2 David L. Dodd. Buffett sent Microsoft founder, Bill Gates his
Buffett said this book gave him “a road map for personal copy of this “favourite book”, a collection
investing that I have now been following for 57 years.” of New Yorker stories by John Brooks.
Common Stocks and Uncommon Profits Where are the Customers’ Yachts?
3 by Philip Fisher. 8 by Fred Schwed.
Buffett liked that in this book Fisher emphasises that In 2006, Buffett described this as “the funniest
fixating on financial statements isn’t enough — you book ever written about investing. It lightly delivers
also need to evaluate a company’s management. many truly important messages on the subject.”
Stress Test: Reflections on Financial Crises The Little Book of Common Sense Investing
4 by Tim Geithner. 9 by Jack Bogle.
Buffett says that the former Secretary of the In his 2014 shareholder letter, Buffett
Treasury’s book about the financial crisis is a recommended reading this book over listening to
must-read for any investor. the advice of most financial advisors.
Jack: Straight from the Gut by Jack Welch. Poor Charlie’s Almanack edited by Peter
5 In his 2001 shareholder letter, Buffett endorsed
10 Kaufman.
this memoir of longtime General Electric executive This collection of advice from Charlie Munger,
Jack Welch. vice-chairman of Berkshire Hathaway Corporation,
got the ultimate shout-out in Buffett’s 2004
shareholder letter.
Fisher Funds TWO KiwiSaver Scheme
4 Monthly Update
Managing your KiwiSaver account
$1,000: the magic number?
Over the years when we’ve asked people how much money
they think they need to live on in retirement the most
common answer we hear is $1,000 per week. It’s a nice,
round number. It feels like a good amount of money to
have at your disposal. But have you stopped and thought
about what it actually takes to achieve that?
If we consider the example of someone retiring today
who is single and living alone, they will receive $355.68
per week (after paying tax of 17.5%) from NZ Super. That
leaves a shortfall of $644.32 to fund from their savings and
investments.
At today’s interest rates (we’ve assumed a flat 4% which is
at the high end of what’s currently available) they would
need approximately $1,015,000 of savings in the bank to
generate income of $644.32 per week.
Not only does this example reinforce just how much of a
difference the regular, guaranteed pension payment makes Saving a million dollars may sound daunting at first but as
to our income in retirement, it highlights how much you the table below illustrates, from a little comes a lot. You
may need to save for the retirement lifestyle you desire. can change your contribution rate at any time by simply
We’re obviously at a low point in the interest rate cycle so notifying your employer.
this will move around over time.
Age Income (before tax) Savings at 65 (in today’s dollars) based on contributions of
3% 4% 8%
20 $45,000 $341,154 $392,835 $619,348
30 $100,000 $407,404 $480,714 $788,899
40 $125,000 $287,633 $339,503 $558,418
These examples are simulated. Employer contributions of 3% are made and subject to contribution tax at current rates. Member tax credit contributions of $521.43 per year
are received throughout the saving period and no withdrawals are made. Returns of 5% after fees and tax each year are assumed. Inflation of 2% is assumed.
2015 Investment
Roadshow highlights
For those of you who couldn’t make it along
to one of our roadshows, or you enjoyed it so
much you want to watch again, highlights of
the key topical segments are now available to
view online at www.fisherfunds.co.nz/roadshow
Fisher Funds TWO KiwiSaver Scheme
Monthly Update 5
Fund facts
Fund performance to 31 October 2015
Fund after fees & 12 Since
Unit price ($) 1 month 3 months 2 years* 3 years* 5 years* 7 years*
before-tax returns months launch*
Preservation Fund 2717.4850 0.2% 0.7% 3.4% 3.3% 3.4% 3.3% 3.3% 4.0%
Conservative Fund 1.5902 1.6% 0.7% 6.5% 6.7% 6.5% 6.3% 7.2% 5.5%
Balanced Fund 4210.2477 3.3% -0.1% 7.4% 7.9% 8.8% 7.5% 8.1% 5.4%
Growth Fund 1.4593 4.7% -0.8% 7.8% 8.4% 10.6% 8.5% 9.2% 4.2%
Equity Fund 3576.8778 6.5% -2.3% 7.3% 8.6% 11.9% 8.0% 9.0% 1.9%
Cash Enhanced Fund 1.5336 1.2% 0.8% 6.4% 6.6% 6.1% 6.0% 6.2% 5.4%
* 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 30 September 2015
Percentage of Percentage of
Preservation Fund Conservative Fund
fund net assets fund net assets
Cash - ANZ Bank 7.6% Cash - ANZ Bank 6.5%
ASB 2018 FRN 7.2% NZ Govt 2023 5.50% bonds 3.9%
Rabobank 2016 FRN 6.4% Bayfair Mall 3.8%
Total value of 10 highest value assets as a Total value of 10 highest value assets as a
56.2% 28.9%
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 6.8% Cash - ANZ Bank 6.4%
Bayfair Mall 4.1% Bayfair Mall 4.1%
NZ Govt 2023 5.50% bonds 2.5% Merivale Mall 1.7%
Total value of 10 highest value assets as a Total value of 10 highest value assets as a
23.4% 21.2%
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 5.0% Cash - ANZ Bank 5.2%
Fisher & Paykel Healthcare 2.3% NZ Govt 2023 5.50% bonds 4.2%
Auckland International Airport 2.2% NZ Govt 2021 6.00% bonds 3.8%
Total value of 10 highest value assets as a Total value of 10 highest value assets as a
21.5% 28.7%
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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