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Fisher Funds TWO KiwiSaver Scheme
Your Monthly Update
June 2017
To the Finance Department, with love ...
It was great meeting so many Fisher Funds clients around The Financial Markets Authority (FMA) provides an excellent
the country at the recent investment roadshows. As your investor service by publishing warning notices, international
new Chief Executive, it’s been an excellent introduction to regulator alerts, businesses to be wary of and also a list of
the business; and everyone I have met so far has been very unregistered businesses. You can find these prominently
supportive and welcoming. Less welcome, however, were the displayed on the fma.govt.nz website under WARNINGS!
scammers that kicked into gear within my first two weeks in These are obvious businesses to avoid.
the role! Realistic looking, but fictitious, emails and invoices
were supposedly sent by me, as Chief Executive, to the But not all opportunities to avoid are either illegal or scams.
Fisher Funds Finance team authorising all kinds of payments Of as much concern is the legitimate, but risky, “investment
for all kinds of services. Fortunately, our team were onto the opportunities” that always appear in certain market
scammers quickly and both our reputation and bank accounts circumstances. Currently, the world is in a sustained historically
remain intact. low interest rate environment and that has driven many
investors on fixed incomes to chase yield. These so-called
In 2016, the US Federal Bureau of Investigation (FBI) warned opportunities are everywhere and are typically accompanied
about a dramatic increase in these so-called “CEO fraud” by words like Guaranteed or Secured. Having worked through
email scams — in which the attacker spoofs a message from quite a number of disastrous periods in the past of investors
the boss and tricks someone at the organisation into wiring getting burnt, it always amazes me that the basic fundamentals
funds to the fraudsters. At the time, the FBI estimated these of investing (like understanding risk) are quickly forgotten in the
scams had cost US organisations more than $2.3 billion in the search for apparent higher returns.
previous three years.
In this context I am very proud to be leading a reputable,
Typically in the US, after a company discovers that the wire responsible and successful funds management company
fraud was not a legitimate request from the real CEO, the that genuinely has the best interests of clients at the heart of
finance employee who wired the funds is often dismissed and everything we do. It is very important to me that we are active
the financial losses are reported internally. Investigations to fund managers that make well-researched investment decisions
identify the attackers are conducted, officials contacted, and not only based on the inherent quality of companies, but also
boards informed. Many companies are required to publicly screening via a thorough environmental, social and corporate
disclose their losses, and the revelations lead to damage in governance lens. The Fisher Funds model established by
brand reputation. Carmel, that will live on into the future, doesn’t blindly and
passively follow a notional index, but rather backs investing
This serves as a reminder that there are whole industries your money into investments with strong inherent value. And
employed to try and convince us all to part with our we are particularly careful at checking the validity of emails
hard-earned cash, by legitimate means or foul, but from the Chief Executive. You cannot be too careful these days!
most often not with our own best interests at heart.
Unfortunately, the investment world is also littered with
such people and industries. Bruce McLachlan
Chief Executive Officer
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 NZX50 continued its uninterrupted 5 month rally with a +0.5% move in May.
The market has regained almost all the ground it lost in September and October
of last year. Our New Zealand part of the portfolio was up 1.5%; outperforming
the market. Fisher & Paykel Healthcare was again our top contributor for the
month, up 6.0%. The portfolio’s best performing stock, Port of Tauranga, was
up 9% due to a strong rebound in log volumes through the port (+21% year to
date) and rising container volumes. Summerset was the largest drag on portfolio
performance, down 6%, as the market remains concerned about a possible peak
in house prices and the impact to earnings.
The Australian part of the portfolio was down 2.9% for the month, comparing
favourably with the Australian share market which fell 6.5% in New Zealand
Dollars; the worst month for the market since August 2015. With the exception
of the Industrials sector, which was buoyed by a small number of shares rallying
on very specific issues, all other sectors were down. Stock selection, reducing
exposure to mining and banking positions earlier in the year, and currency
hedging contributed to the outperformance of the market. Wisetech announced
a development partnership with global freight leader UPS, and AUB Group
continued a strong rally on expectations of rising insurance premiums.
The International part of the portfolio fell 1% in May which was in line with
benchmark returns during the period. Stock selection within the Real Estate
sector was the largest detracting factor from the portfolio’s performance. Positive
returns were primarily due to stock selection within the Healthcare Industry
and having less Energy stocks than the benchmark in our portfolio. We were
rewarded by overweighting Europe and hurt slightly by underweighting the
United States.
Top contributors included healthcare companies, GlaxoSmithKline Plc and
AstraZeneca Plc which rose 10% and 12.6% respectively. Tech giant Apple
reached a new one year high and ended the month up 6.3%. Financial stocks
had a tough month with Westpac, JPMorgan and Bank of America down
13.4%, 5.6%, and 4% respectively.
We have positioned our New Zealand fixed income portfolios to benefit from a
lowering of interest rates as we have long believed that acceleration in economic
activity, both here and abroad, was unlikely at this stage. This positioning again
provided the greatest boost to our portfolio’s outperformance this month, as it
has done since the start of the year.
Our global managers remain underweight in interest rate exposure in their
portfolios. As interest rates have fallen, this has been a drag on performance
relative to the market. However, strong performances elsewhere in their portfolios
have offset this, leaving overall returns broadly in line with that of their benchmark.
Fisher Funds TWO KiwiSaver Scheme
2 Monthly Update
Your KiwiSaver portfolios
ET TO GRAB
DON’T FORG
RS!
WHAT’S YOU
$521
Last few weeks to get your $521!
There’s still time to get your hands on the annual There is still plenty of time to top up your account. Read
government contribution (member tax credit or MTC) for more here about how to top up and make sure you do it by
your KiwiSaver account. In order to get the full amount of Tuesday 27 June 2017.
$521.23, you must have contributed at least $1,042.86 into
your account during the KiwiSaver year (1 July to 30 June). Last year, only 43% of eligible members received the full $521
payment; 29% received a partial payment; but 28% missed
Even if you aren’t able to contribute the full $1042.86, you out entirely — make sure you don’t miss out this year!
will still be rewarded for what you can save as for every
dollar saved, you’ll receive 50c up to $521.43. (The MTC is paid into your KiwiSaver account and is not a
cash or personal bank account payment.)
Three cheers for Simon Challies years. As our team recently
discussed Simon’s tenure
By Sam Dickie, Senior Portfolio Manager, New Zealand as Ryman CEO, words like
passion, honesty, good humour
At last month’s annual results briefing, Ryman Healthcare
and dedication came to mind.
Managing Director Simon Challies announced he’d be
Such qualities are consistent
standing down on June 30 for health reasons. Simon was
with the attributes Warren
diagnosed with Parkinson’s disease in 2011 but has continued
Buffett looks for when hiring
in the CEO role since then with the full support of the board.
CEOs to run his portfolio
Simon joined Ryman as Chief Financial Officer in 1999, and companies. We’ll leave the last
took over as Chief Executive in 2006 from Ryman co-founder word to him, quoting a ‘sermon’ that Buffett often gives to
Kevin Hickman. MBA students who are heading out into the workforce.
As many of you will know, Ryman Healthcare has been a “We look for three things when we hire people.
cornerstone investment for Fisher Funds and we’ve enjoyed Interestingly enough these things are a bunch of qualities
being shareholders of this extraordinarily successful New that are self-made. We look for intelligence, initiative or
Zealand company. energy, and we look for integrity. If they don’t have the
latter, the first two won’t be enough.
Under Simon’s leadership, Ryman’s portfolio of retirement
villages has grown from 12 to 31 and the company has won It’s not about whether you have the ability — lots of people
the Most Trusted Brand in the retirement village industry do. It’s not about how tall you are. It’s not whether you can
accolade three years in a row. Simon led the company run the 100 yard dash in 10 seconds. It’s not whether you’re
through the Global Financial Crisis, the Christchurch the best looking person in the room. It’s about how you’re
earthquakes (which destroyed their offices) and oversaw wired; it’s integrity, it’s honesty, it’s generosity, it’s being
its expansion into Melbourne. The company has been a willing to do more than your share, taking the initiative and
consistently high performer on the NZ Stock Exchange making things happen. That’s the person we’d hire.”
and was recognised for its growth strategy in the 2011
Simon, we think Buffett would quite like you!
Management Magazine Top 200 Awards, with Simon also
being recognised as an outstanding leader in 2014, winning Gordon MacLeod, Ryman’s Deputy Chief Executive and
the Deloitte top 200 CEO award. CFO, will take over as Chief Executive on June 30.
We want to pay tribute to Simon, a CEO who we admire, Simon will continue as an advisor to the Ryman board until
respect and have very much enjoyed working with over the December 2018.
Fisher Funds TWO KiwiSaver Scheme
Monthly Update 3
Investing responsibly by investing wisely
By Frank Jasper, Director
Imagine a company that dumps 200,000 tons of waste We have decided to add thermal coal producers to our list of
into its local rivers every day, systematically bribes local product exclusions. This is because of the impact of thermal
police forces, and shows utter disregard for the lives of the coal on man-made climate change.
indigenous people who live near it.
The second group of exclusions is for those companies
Not only is this a bad investment — abusing your that have exhibited widespread and severe corporate
stakeholders is rarely profitable in the long term — you misbehavior.
wouldn’t even want to be associated with it.
Freeport McMoran, the company referred to in the
Responsible investing involves avoiding these sorts of introduction, is an example of a company on our conduct
companies — selecting investments that generate sound exclusion list. Freeport has faced serious criticism over its
returns in a way that does not cause widespread harm to environmental practices at its Grasberg gold and copper
society or the environment. mine in West Papua, Indonesia. The company has also been
involved in widespread human rights abuses of the local
Fisher Funds is committed to investing your money indigenous populations.
responsibly — ensuring we all feel comfortable with the
investments you own. For us, responsible investing is more than just excluding the
worst companies. Whenever we look at a company, we look
at its financial performance, its strategy and the experience
We look at responsible investing of its management team. We also explicitly consider its
performance through a responsible investing lens. This
in two ways — avoiding the bad involves looking at its treatment of stakeholders, the
and embracing the good. environment and the sustainability of its business model.
Considering these factors in addition to the traditional
“Avoiding the bad” ensures we don’t invest in companies financial ones gives us a greater insight into the quality
that are poor performers from an environmental, social or of a company and makes us better investors. You will be
corporate governance (ESG) perspective. hearing more from us about our responsible investing policy
and how we’re applying it. In the meantime, know that we
We have, for some time, not invested in the tobacco industry are committed to investing your money responsibly; and
or in companies that manufacture weapons that cause therefore wisely.
indiscriminate and disproportionate harm. The rationale for
these exclusions is simple: these industries cause only harm Watch our video on our responsible investing approach.
and have no redeeming benefits. This includes not having fisherfunds.co.nz/responsible-investing.
investments in companies like Textron which makes land
mines, but also more well-known companies like Boeing,
which makes components used to produce nuclear weapons.
Fisher Funds TWO KiwiSaver Scheme
4 Monthly Update
Big bank tax is a tax on all Australians
By Manuel Greenland, Senior Portfolio Manager, Australia
The biggest news on the back of Australian Treasurer Scott
Morrison’s latest Budget was an unexpected tax on the big
Australian banks. The market value of the banks fell by A$14 billion
as sharemarket investors anticipated the negative effect of the tax
on banks’ profits.
The banks themselves cried foul. Head of Australia’s largest
bank, the Commonwealth Bank of Australia (CBA), said “this
is bad policy”; while NAB’s chief executive moaned it was
“very unfortunate”; and Westpac’s boss declared the move
“disappointing”. The Treasurer remained unsympathetic, saying the
interest rates at which the banks borrow depends on the financial
strength of Australia, so it was only right they should pay up to
support the Budget.
Earlier in the year we had noted increasing headwinds to bank
profits. In addition to the cost of their deposits rising, interest rates
in foreign markets — where the Australian banks borrow — had also
gone up. In an effort to strengthen the banks’ financial positions
regulators were pushing them to take on expensive long-term debt
and to hold higher levels of even more expensive share capital.
So the series of mortgage rate increases that banks had recently
implemented was not at all surprising; they were seeking to recover
rising costs through higher lending rates to borrowers. This extra
tax will now add more pressure on profits, and will likely be another
reason to raise interest rates.
What does it mean for Aussies?
Rising mortgages and weak income growth have left Australian
households with high levels of debt. Over the decade to 2016,
Australian housing debt almost tripled to A$1.4 trillion. Borrowers
have taken on this debt because of rising house prices and falling
interest rates; not because they are earning more. High debt levels
and weak incomes mean that household budgets will quickly
feel the impact of any increase in interest rates. An important
implication of this is that companies that sell products and services
to Australian consumers will suffer if households have to use more
of their income to service debt.
At the moment electoral polls in Australia are very close. As this
tax is pretty popular with voters, it is likely to be approved by the
major political parties. The tax is therefore a reality, and for all
their grumbling, the Australian banks are going to have to pay it in
addition to their other rising costs. In our view they will do so in part
by raising interest rates on borrowers, in part by reducing service
levels to customers to cut costs, and in part by reducing profits and
returns to shareholders. Borrowers, customers and shareholders will
all share the pain; many ordinary Australians are all three.
Fisher Funds TWO KiwiSaver Scheme
Monthly Update 5
There’s never been an easier time to travel
By Ashley Gardyne, Senior Portfolio Manager, International
If you’ve ever tried to travel with a group of friends, or like
me with young children (heaven forbid!), you’ve probably
realised the shortcomings of many hotels. Rooms that are
too small for port-a-cots and prams and have no shared
space to relax in — or if they do they can cost an arm and
a leg. Thankfully, yet again, the internet has saved the day
by providing a solution to this problem through online
villa and apartment booking platforms like Airbnb and
HomeAway (owner of NZ’s Bookabach).
HomeAway owned by our portfolio company, Expedia, is
a prominent example of the “sharing economy” in which
people rent beds, cars and boats from each other through
a mobile app. Finding a house to borrow for a holiday
used to be more trouble than it was worth (particularly in
a foreign location), but technology has made this much
easier, and possible, on a much greater scale. But it’s not
just families with kids that are increasingly flocking to
HomeAway for accommodation, recent data shows that
over 30% of US travellers now stay in this type of alternative the Hilton or Holiday Inn because they knew the level of
accommodation, up from less than 10% in 2010. service they were going to get. When you can review hotel
photos, amenities and maps online, and read countless user
It is not just where we stay that is changing, the way we generated reviews, the value and appeal of a hotel’s brand is
book our travel is also evolving and gradually moving reduced.
online with about half of travel now being booked online
rather than via offline travel agents like Flight Centre or Humans will always prefer having more choice and flexibility
by phone. This shift provides another leg of growth for than less. Regardless of how the sharing economy and online
Expedia as travellers embrace the more seamless booking shift impacts hotel chains and high street travel agents, we
experience and the broad choice of properties on its believe the level of choice that Expedia provides customers
platforms (Expedia, HomeAway, Hotels.com, Wotif.com positions them well to benefit from a growing travel market.
and Trivago). Expedia’s revenue model of clipping the ticket on every
night booked by travellers, combined with strong growth
These changes aren’t good for everyone however, and drivers and a business that requires limited fixed assets (they
hotel chains are coming under increasing pressure from manage websites, not properties) creates what we believe is
these trends. Travellers used to book at chain hotels like a compelling investment opportunity.
Fisher Funds TWO KiwiSaver Scheme
6 Monthly Update
Fund facts
Fund performance to 31 May 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 2,823.3113 0.2% 0.7% 2.4% 2.6% 2.9% 3.1% 3.1% 3.7%
Conservative Fund 1.7277 0.6% 2.1% 4.7% 5.1% 6.0% 6.5% 6.3% 5.5%
Balanced Fund 4,697.3867 0.5% 3.0% 6.7% 6.2% 7.3% 9.1% 7.6% 5.7%
Growth Fund 1.6553 0.3% 3.5% 8.1% 6.6% 8.0% 11.0% 8.7% 4.8%
Equity Fund 4,128.3170 0.1% 4.1% 9.4% 6.7% 8.5% 12.3% 8.7% 3.1%
Cash Enhanced Fund 1.6653 0.7% 2.0% 4.5% 5.2% 5.9% 6.1% 5.9% 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 April 2017
Percentage of Percentage of
Preservation Fund Conservative Fund
fund net assets fund net assets
ASB Bank Ltd. Frn 06-mar-2018 6.5% Bayfair Mall 5.2%
Westpac New Zealand Ltd. Frn 16-mar-2018 5.9% Cash Deposit (ANZ Bank) 3.5%
Auckland International Airport Limited Frn Government Of New Zealand 5.0%
4.8% 3.0%
11-apr-2020 15-mar-2019
Top 10 Holdings 46.9% Top 10 Holdings 27.5%
Percentage of Percentage of
Balanced Fund Growth Fund
fund net assets fund net assets
Cash Deposit (ANZ Bank) 8.1% Bayfair Mall 5.2%
Bayfair Mall 5.9% Mainfreight Limited 1.6%
Government Of New Zealand 5.0% 15-mar-2019 2.0% Fisher & Paykel Healthcare Corporation Limited 1.5%
Top 10 Holdings 25.3% Top 10 Holdings 17.1%
Percentage of Percentage of
Equity Fund Cash Enhanced Fund
fund net assets fund net assets
Cash Deposit (ANZ Bank) 10.8% Bayfair Mall 3.7%
Mainfreight Limited 2.3% Government Of New Zealand 5.0% 15-mar-2019 3.4%
Fisher & Paykel Healthcare Corporation Limited 2.3% Kiwibank Deposit A/C - Deposit Accounts 3.3%
Top 10 Holdings 27.3% Top 10 Holdings 27.5%
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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