Your Monthly Update - March 2017
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Fisher Funds TWO KiwiSaver Scheme
Your Monthly Update
March 2017
Meeting expectations
Actress Pamela Anderson famously said “It’s great to be a blonde.
With low expectations it’s very easy to surprise people”. I can attest
to the fact that brunettes rarely get away with low expectations;
neither do redheads or chief executives of listed companies (most of Introducing
whom are grey haired these days).
Fisher Funds’
At this time of the year, managing expectations is what it’s all
about for listed companies, and it is always with a little trepidation new CEO:
that we await the profit reporting season. Have our companies Bruce McLachlan
done what they said they’d do? Have they communicated openly
to the investment community in the past six months to manage
expectations and guide profit forecasts to within cooee of actual
results? And are their outlook statements positive enough to prompt I was very pleased last week to announce the
analysts to raise expectations for the next round of profit results? appointment of Bruce McLachlan as our new Chief
Executive Officer, to take over the reins as I retire from my
Unfortunately, the job of chief executives has become even harder executive role. Bruce will be joining Fisher Funds from 18
in recent times because a) analysts remain fixated on the bottom April 2017 and I really am delighted as he has a wealth
line of company results even though earnings often tell only a partial of experience in the financial sector, and importantly, a
story and b) reactions are often outsized compared to results, such passion for client service.
as a 2% profit “miss” against forecasts resulting in a 10% plus share
price fall. When we began our search for a new chief executive,
we knew we wanted someone who understood and was
It’s fair to say that our expectations of our portfolio companies excited about maintaining and growing the wealth of
have not been dashed so far in the first two months of the year, but New Zealanders. We looked for someone who would
neither have we been blown away by companies over-delivering. We continue our longstanding performance record and our
fared well through the recent profit result round and have enjoyed commitment to exceptional client service. Bruce was an
exploiting opportunities when the market either had the wrong obvious choice for the role.
expectations or reacted inappropriately to what were actually
good results (as Terry discusses later). Bruce has been CEO of The Co-Operative Bank for
the past four years. Under his leadership, the bank has
Managing expectations is a year-round job for politicians and consistently achieved top rankings in customer satisfaction
central bankers. Talk of what we might expect from President Trump and client service. Previously, Bruce worked for 10 years
and, to a lesser extent, the Federal Reserve has been a significant at Westpac NZ, where his roles included leading both its
distraction and pastime for market participants this year. But a business banking and retail banking businesses; he was
distraction is all it is. also Westpac NZ’s acting CEO during 2008/9.
The economic and political environment has so far not proven I know that you will warmly welcome Bruce and we hope
contrary to expectations; the world is rolling along mostly as you will take the opportunity to meet him during our
anticipated, despite all the daily noise suggesting otherwise. Just roadshow in May/June (more details to come).
as company earnings should not be viewed in a vacuum (but in the
context of the underlying business fundamentals and long term Carmel Fisher
strategy) economic and political news needs to be considered in Managing Director
the context of the broad economic outlook which, so far this year,
remains positive and entirely consistent with expectations.
Fund Manager of the Year — Winner
Highlights and lowlights
A snapshot of the key factors driving the performance of markets and your portfolios last month
The New Zealand share market continued its strong run in February, with the S&P/NZX50
up 1.6%. EBOS was our top performer for the month, up 9.5%. The distributor of
healthcare and pharmaceutical products delivered strong interim results, driven by
good growth in both its Consumer Products and Animal Care businesses. The biggest
detractor from performance was Metro Performance Glass (-23%). Metro downgraded
its full year profit guidance due to challenges in efficiently scaling up production in the
buoyant construction market.
February was a busy month for Australian companies with reporting season. While
average earnings for the Aussie market were strong, the average disguised two very
different stories. Mining companies were very strong on the back of commodity price
rallies, and banks looked a little more positive. Other sectors of the market were not
nearly as strong. In this environment, 72% of our portfolio companies met or beat profit
expectations. The biggest contributors to the Australian part of the portfolio this month
were Seek and CSL both of which delivered better than anticipated first half earnings.
Tox Free Solutions was the laggard as its earnings from resources-related capital
expenditure continued to decline.
The International part of the portfolio had a strong return of 4.5% in February,
outperforming its benchmark by 20bps. Most of this outperformance came from
stock selection within a) the United States and b) the Financial sector both of which
rallied to new highs during the month.
Top contributors to returns included Apple Inc. which was up 13% for the month,
continuing its strong run. The healthcare conglomerate Johnson & Johnson rose
8% in line with US pharmaceutical stocks being strong after rebounding from a weak
January. Unilever shares rose, fell, then stabilised to close the month up 20% after
Kraft Heinz abandoned its takeover bid to purchase the company which was flatly
rejected by Unilever.
The S&P 500 returning 4%, was one of the best performing indexes globally in
February. This is in comparison to the Developed World Index which rose 3.1% and
Emerging Markets which lagged, rising 1.75%.
Demand for fixed income assets continued to recover in February. This improving appetite
has meant that in order to secure an investment in these assets, investors have become
more willing to accept a lower level of future income from them. The result is bond yields
falling (and their price rising). Such is the optimism surrounding future growth at present
we saw particularly strong interest in many of our holdings in corporate-issued bonds.
Bonds like these typically perform best in periods of strong economic activity.
Inflation-protected fixed income assets gave back a small amount of their recent strong
performance this month. Despite this, our managers remain constructive on this asset
class, maintaining an overweight bias to them in our portfolios.
Fisher Funds TWO KiwiSaver Scheme
2 Monthly Update
Your KiwiSaver portfolios
Bringing back your Aussie Super is easier than you think
By Fisher Funds
If you have lived and worked in Australia at some point in
your life, you may have some superannuation that you can
bring back to your KiwiSaver account. Over the past couple
of years, we helped over 500 KiwiSaver members bring back
more than $10m.
Whereas once this may have seemed like too much hard
work, we can take care of the process for you. All we need is
your authority to kickstart things. Simply complete and return
this Aussie super Scheme Transfer Form to us, or give us a
call/email to discuss further.
We can think of some pretty compelling reasons for you to
bring your Aussie Super over and consolidate it with your
KiwiSaver account:
»» Lower fees — you are probably paying two sets of
administration fees. Consolidating your super into one Don’t know where your Aussie Super is?
KiwiSaver account may reduce the total cost of fees Lots of Kiwis have lost track of which provider their Aussie
Super is with. It’s estimated that AUS$5 Billion of “lost”
»» Visibility — it’s so much easier to see all your
super belongs to New Zealanders. Visit this page to find out
retirement savings in the one place
what to do.
»» Simplicity — making any changes to your account is
much easier when dealing with a local NZ team Or if you know your Australian Tax File Number (TFN) —
visit the Australian Taxation Office “Super seeker” site.
»» Certainty — having it all in one place gives you a
better idea of what you actually have in NZ dollars. Or talk to us about finding it for you.
Just like Snapchat’s photos, shareholder rights are disappearing too
By Mark Brighouse, Chief Investment Officer
What does US$24 billion buy you on the stock market these revenue is improving as user numbers increase but costs are
days? Based on Snap Inc.’s upcoming initial public offering, rising even faster. In 2015, the company lost $372 million; in
$24b buys you a company that specialises in disappearing 2016 it was up to $514 million.
photos, disappearing cash, and most concerning:
disappearing shareholder rights. We acknowledge that some companies with a poor profit
history turn this around and become great investments —
Snap Inc. is the company behind photo messaging app Amazon.com is a fine example of this. What we really object
Snapchat — set up for users to share photos that are to in this float are Snap’s nonexistent shareholder rights. This
self-deleting. is the first time in US history that a company has listed shares
with no voting rights. When we say no voting rights we
Snap has never made a profit; the company is burning mean none; no single right to influence the future direction
through cash at a rate of around $2 million per day. For every of the company in any way.
$1 it makes, it spends around $1.14 in cash. The company’s
Founders Evan Spiegel and Bobby Murphy will maintain
total control of the company through a unique share
class structure. This gives them control over “all matters
submitted to our stockholders”.
The ability of all shareholders to have some influence over
the executives and direction of a firm is fundamental in
ensuring that companies are run for the interests of all
owners, not just a select few. Snap has disregarded this
basic tenet of how public companies have been, and in our
view, should be run.
This is a dark day for corporate governance. We will not be
buying Snap shares.
Fisher Funds TWO KiwiSaver Scheme
Monthly Update 3
A Game of Thrones for Sky TV environments? And, how should we react as investors?
By Ashley Gardyne, Senior Portfolio Manager Because technology is disrupting an increasing number of
traditional industries, it is right to expect management to
As Game of Thrones fans eagerly await the release of the continuously review their strategy in response to emerging
seventh season later this year, we are witnessing our own epic threats. This means extra vigilance is required from investors
battle — Sky Television vs. Netflix. also. Discussions with management regarding their intended
responses are critical — along with close monitoring of delivery
More than two decades ago, Sky TV revolutionised TV by
against these promises.
introducing satellite technology and offering us a huge range
of content compared to TV1, TV2 and TV3. But fast broadband, In the TV industry, the ownership of compelling content has
combined with new ‘Subscription Video on Demand’ (SVoD) become critical. Netflix and Amazon are increasingly creating
platforms like Netflix, threaten to swamp Sky TV. their own Oscar-winning content, and production companies
can stream shows directly to viewers for just $15 a month. These
This battle raises two pertinent questions for investors: How do
trends have been playing out for a number of years and in this
we expect management teams to react to changing industry
context, Sky TV’s response has been disappointing.
Sky TV’s plan to latch onto Vodafone, as a potential lifeline, was
clever, albeit defensive and last-ditch. The proposed merger
would have allowed them to offer attractively priced mobile,
broadband and TV packages and slow the pace of subscriber
losses. The Commerce Commission’s rejection of the merger
took away this lifeline. While Sky TV may have a plan B, investors
are left pondering what this might be. This reinforces the
importance of investors (even long term investors like ourselves)
responding quickly when industry dynamics deteriorate.
Note, we have owned Sky TV in the past but chose to exit our
holding in our active funds in 2015.
Helping ourselves to another
slice of Domino’s
Terry Tolich, Senior Investment Analyst
You might think that share prices for large, well-followed
companies would be relatively stable over a short period of
time like a year, as investors would have a good idea of what the
businesses are worth. However, nothing could be further from
the truth. Over the past year, we have seen a swing of up to 55%
between the highest and the lowest prices of the stocks on the
ASX300 index.
In most instances, the underlying values of companies will
have changed by a far smaller amount. Much of the volatility in on the share price. In our view, however, Domino’s largely
share prices is due to investors focusing on short term factors allayed these fears with information accompanying the result.
that will ultimately have little impact on the long term value of We believe a lower than expected European sales growth rate,
a business. This means investors, like us, who take a long term versus their full year guidance, was the likely culprit for the
view, can take advantage of these price swings. share price slump.
Earnings reporting seasons are a rich source of short term noise Domino’s European team had a lot on its plate during the half
that can set share prices swinging. In the recent Australian including conversion of the acquired Pizza Sprint and Joey’s
reporting round, portfolio holding Domino’s Pizza provides a Pizza chains and the ongoing roll-out of Domino’s IT systems
stunning example. With a 14% share price drop on result day that have been integral to its Australian and New Zealand
you would be excused for thinking a disaster had befallen the success. Consequently, we see the latest European sales result
company rather than it reporting a 31% jump in first half earnings as nothing more than a blip in what remains a great long term
and raising its full year profit guidance to 32.5% growth. European growth opportunity.
In the weeks leading up to the result, concerns about the impact Our long term view of Domino’s value remains largely
on Domino’s franchisees of a pending new wage agreement unchanged — we were happy to take advantage of the
and allegations of franchisees underpaying staff had weighed market’s short term focus and weakened price.
Fisher Funds TWO KiwiSaver Scheme
4 Monthly Update
Furry children — the multibillion pets’ health, as owners want healthcare for their pets that is
almost as good as their own. It is now not uncommon for pet
dollar pet industry owners to spend thousands of dollars on their sick pet, even
Chris Waters, Senior Investment Analyst up to $10,000 for a hip implant.
Pets are now wholeheartedly considered part of the family Global pet ownership is increasing as both urban and
leading us to spend more on our furry family members to middle class populations grow and age. Again in Japan,
ensure they live better and longer. the number of cats and dogs now exceeds the population
aged under 15. This growth in spend, as well as ownership,
In Japan, the average life expectancy for pets is up nearly creates a great opportunity for companies catering to
100% in the past 25 years; while Americans spent $61 billion animal health. One such company in our international
on their pets in 2015, an increase of 25% from five years portfolio is Zoetis.
earlier. Back then our pets probably ate cheap canned food
and slept outside — now they dine on filet mignon and sleep Zoetis is the world’s largest producer of medicine and
in bespoke beds. We are certainly spending more on our vaccines for pets — ranging from flea treatments to products
for chronic pain and skin conditions. As it continues to invest
in research and development, this pipeline of medicines
should continue to grow.
Zoetis is also well placed to take advantage of another
growth trend; a rising middle class and changing diets,
especially in emerging markets, has increased demand for
animal protein. Limited usable land and water means it is
getting harder to meet this growing demand. Zoetis helps to
improve the health of farmed animals and thereby increase
the productivity of these farms that are the source of this
dietary staple.
So while we may not all be buying $2,000 gem studded
catflaps, we are spending more money on our animals so that
companies like Zoetis will remain an investor’s best friend.
LiveChat — talk to us without picking up the phone
By Fisher Funds
If you’re in a hurry or have a simple question regarding your LiveChat next time you have a question for us. We look
Fisher Funds investment, a quick and easy way to get help forward to chatting with you.
from us is to jump online and start up a LiveChat.
In the bottom right hand corner on any page of our
website is a “Hello How Can I Help You” message —
click on this and hey presto you will be connected with
someone from our client services team.
Rest assured, you won’t be talking with a “robot”– you will be
chatting with one of our helpful client advisers (Johnny, Miles,
Sophie or Sam) who will look after you over a keyboard chat.
Whether you want to check your tax rate, ask about your
investment options or update your details, we can cater for
all types of questions — we can help you with anything about
your Fisher Funds account.
We are always trying to improve our client service — the
more you use LiveChat, the faster and better we will be
at helping!
On our website, click to
LiveChat is available on your laptop, desktop, phone or
Sam
tablet. If you don’t see this message on your screen, it means
all of our LiveChat advisers are busy. chat with Johnny, Miles, Sophie or
Fisher Funds TWO KiwiSaver Scheme
Monthly Update 5
Fund facts
Fund performance to 28 February 2017
Fund after fees & Since
Unit price ($) 1 month 3 months 12 months 2 years* 3 years* 5 years* 7 years*
before-tax returns launch*
Preservation Fund 2,804.4102 0.2% 0.6% 2.3% 2.7% 3.0% 3.1% 3.1% 3.8%
Conservative Fund 1.6916 1.0% 1.6% 5.9% 4.5% 6.0% 6.4% 6.1% 5.4%
Balanced Fund 4,560.7820 1.6% 2.7% 9.2% 5.3% 7.4% 8.4% 7.3% 5.5%
Growth Fund 1.5994 2.0% 3.7% 11.7% 5.7% 8.1% 10.0% 8.2% 4.6%
Equity Fund 3,964.2021 2.8% 5.1% 14.9% 5.5% 8.6% 9.9% 8.1% 2.8%
Cash Enhanced Fund 1.6320 0.9% 1.4% 5.4% 4.5% 6.0% 6.0% 5.7% 5.3%
* 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 January 2017
Percentage of Percentage of
Preservation Fund Conservative Fund
fund net assets fund net assets
ASB Bank Ltd. Frn 06-mar-2018 6.4% Bayfair Mall 5.2%
Westpac New Zealand Ltd. Frn 16-mar-2018 6.3% Cash Deposit (ANZ Bank) 4.9%
Cash Deposit (ANZ Bank) 5.6% Government Of New Zealand 5.0% 15-mar-2019 2.6%
Top 10 Holdings 47.1% Top 10 Holdings 27.2%
Percentage of Percentage of
Balanced Fund Growth Fund
fund net assets fund net assets
Cash Deposit (ANZ Bank) 10.2% Cash Deposit (ANZ Bank) 7.2%
Bayfair Mall 5.8% Bayfair Mall 5.4%
ANZ — USD A/C — Current Accounts 2.1% ANZ — USD A/C — Current Accounts 3.1%
Top 10 Holdings 28.0% Top 10 Holdings 24.5%
Percentage of Percentage of
Equity Fund Cash Enhanced Fund
fund net assets fund net assets
Cash Deposit (ANZ Bank) 10.5% Bayfair Mall 5.2%
ANZ — USD A/C — Current Accounts 4.6% Cash Deposit (ANZ Bank) 4.9%
Mainfreight Limited 2.4% Government Of New Zealand 5.0% 15-mar-2019 2.6%
Top 10 Holdings 29.7% Top 10 Holdings 27.2%
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 a product disclosure statement for 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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