Bradley Nuttall Nelson Autumn Update

Bradley Nuttal Nelson News

Investment Market Review

We are pleased to report that, once again, the markets delivered another strong start to the year. This being the eighth year in a row, since the Global Financial Crisis, where January to March quarters have performed favourably.

Despite the heightened geopolitical uncertainty, markets appear to have been remarkably benign over this quarter.

In fact we can quantitatively demonstrate that markets were “calm” through CBOE Volatility Index (the VIX – a measure of implied U.S. share market volatility), showing the past 12 months.
More than anything else, share markets love stability and predictability.
Whilst a gain of 5.08% would normally place the New Zealand share markets among the better performing markets, for this quarter a number of foreign share markets eclipsed this in what proved to be a rewarding period for the equity markets.

More than anything else, share markets love stability and predictability.

The Australia share market performed very well in New Zealand dollar terms assisted by a softening New Zealand dollar, with the S&P/ASX 200 returning 9.95% for the quarter. In local currency terms the quarters return was 4.8%.
International share market returns were generally strong as well. Looking at a number of the indices that make up the Morgan Stanley Capital International Index, returns in local currencies indicate leading nations similarly performed well. The USA up 6.2%, Germany gaining 7.0% and France 5.9%. Even the UK, with the Brexit cloud still hanging over it rose 3.8%. The exception and in fact the only developed market to dip into the negatives for the quarter was Japan -0.03%.

Returns across the emerging market regions were on average stronger than developed markets. In local currency terms, China jumped 13.0% India 12.1%
Korea 8.2% and Brazil 7.7%. On the other side of the equation the Russian
market eased -10.6% in part reflecting the falling oil markets.

Global listed property markets along with our local listed property companies recorded modest returns, 0.7% and
1.6% respectively in New Zealand dollar terms. High property valuations
coupled with the expectation that interest rates will rise, contributed to real estate
being among the lowest returning asset classes.
Completing the quarters roundup local bond markets, as measured by the S&P/NZX A-Grade Corporate Bond Index recorded 1.75%, more than regaining the lost ground from the previous quarter.
Global bonds delivered positive results with the lack of significant new information contributing to a relatively modest quarter for fixed interest markets.

International yield curves were little changed. With US and UK long term rates trending slightly lower whilst German and Japanese yields trended slightly higher, albeit off very low bases. In aggregate, it meant the returns to bond investors were related more to the income component of bond returns than capital gains or losses. For the quarter the Citigroup World Government Bond Index 1-5 Years hedged to NZD returned 0.58%.
Although the European Central Bank and Bank of Japan continue to maintain accommodative monetary policy settings, the Us Federal Reserve followed its December rate rise by lifting the target for the federal funds rate by another 0.25% on 15 March, moving the federal funds target to between 0.75% and 1.00%. At the same time maintaining their forecast to make a further two or more increases during 2017.
It will be interesting to see what transpires. US rates could be hiked faster if the massive tax cuts and infrastructure spending promised by President Trump were to fuel higher inflation, but details and timing of these proposals remain unclear. In the meantime Trump’s administration failure to find a compromise on the Obamacare repeal has provided an early reminder that talk is cheap and market expectations based on campaign rhetoric may need to be adjusted downwards. These are all questions that will be answered in the course of time.

Intrigue in a Tree

Wanaka at Dusk

Wanaka at Dawn


The cover picture, as many of you will recognise is taken at Wanaka.
The tree in the foreground is known as the “lone tree of Lake Wanaka” and is said to be one of the most photographed trees in New Zealand.
We learnt of the trees existence when returning from a wedding in Queenstown, while staying with friends for a night in Wanaka.
Their house is very close to “the Tree” by Wanaka Station Park. We were amazed by the number of people taking photos of the tree set in a stunning landscape.
It was fascinating seeing the crowds lining up to take photos of the semi submerged tree. So we decided to take a couple of photos of people taking photos!
The tree started its life some 78 years ago as a fence post. Gwenda Rowlands remembers when the willow “post” formed part of a fence line in 1939. At the time just big enough to hold fencing wire with some tension on it.
The reason for the fence being to prevent sheep from walking into town.
While its initial purpose is no longer relevant, this branch from nearby willows now serves as a symbol of determination being enjoyed by many.
Intriguing how a “fence post” can become such a tourist attraction.

Key Market Movements


New Zealand Shares
The local market bounced back to start the year on a positive note from a weak final quarter in 2016. Strong underlying international growth flowed over to the New Zealand markets. Leading performers included Tower +50.9%, A2 Milk while Fletcher Building informed the market of a $110 million in expected profits saw its share price fall -18.9% for the quarter Source: S&P/NZX 50 Index, gross with imputation credits


New Zealand Fixed Interest
The Reserve Bank of New Zealand maintained the Official Cash Rate at 1.75% through both its 9 February and 23 March meetings. The market continues to expect the next rate move will not be before 2019. This steady-as-she goes approach and a far less threatening international outlook, saw a small rally in the local bond bounce back. Source: S&P/NZX A Grade Corporate Bond Index


New Zealand Property
The domestic listed property sector experienced a modest rebound over January to March. Two considerations over the previous 9 months drove property values down. Rising interest rates expectations and the lowest building capitalisation rates recorded by some 0.5%. Low capitalisation rates elevate property values. The prospect of improving yield opportunities offshore, the domestic real estate index delivered a useful, if subdued, result. Source: S&P/NZX All Real Estate Index, gross with imputation credits


Australian Shares
The Australian share market performed well for the second quarter in a row and a weaker New Zealand dollar (versus the Australian dollar) further enhanced returns to New Zealand investors on any unhedged holdings. Value companies fared the best delivering a return of 34.0% followed by large capitalisation companies 19.7% and small companies 13.7%. These returns are in New Zealand dollars. The S&P/NZX 200 Index return in AUD’s for the period was 9.8%. Source , with the S&P/ASX 200 Index (total return).

+5.89% (hedged to NZD)

5.29% (unhedged)

International Shares
With global economic data remaining supportive and the US Federal Reserve content to maintain a measured path to increasing US interest rates, investors continued their enthusiasm for risky assets and developed market shares performed well over the quarter. Commodities generally performed well. A slightly stronger New Zealand dollar against the basket of global currencies comprising the MSCI World Index saw reported returns from unhedged equities outperforming the comparable returns from hedged investments. Source: MSCI World ex-Australia Index (net div.) Source: MSCI World ex-Australia Index


International Fixed Interest
The US Federal Reserve delivered on a well-signalled rate rise in March by lifting the US Federal Funds rate by another 0.25%. More pertinently, they maintained expectations of two further rate rises in 2017. With little change to accommodative policies internationally and the US meeting market expectations, global yields remained tightly range-bound. This contributed to a relatively benign bond market environment over the quarter. Source: Citigroup World Government Bond Index 1 – 5 Years (hedged to NZD)


International Property
International property similarly took second place to equity markets over the quarter. Again for this asset class anticipated rising interest rates and relatively low capitalisation rates contributes to a modest quarters returns. The S&P Developed REIT Index returned +1.58% in US dollar terms, while the Australian listed property sector was down, with the S&P/ASX 300 A-REIT Total Return Index dipping -0.08% in Australian dollar terms.
Source: S&P Developed REIT Index


Emerging Market Shares
Increased global confidence was also favourable to emerging share markets in the first quarter. Emerging market fortunes, which are often linked to commodities markets, regained investor interest and benefited from strong capital inflows. Aside from Russia, which battled against the headwind of a lower oil price, the other main emerging markets delivered impressive local currency returns, with China +13.1% and India +12.1% leading the way. Source: MSCI Emerging Markets Index

All returns are expressed in NZD. It is assumed that Australian shares and international property are invested on an unhedged basis and therefore returns from these sectors are susceptible to movement in the value of the New Zealand dollar.

The Importance Of Grandparents

The importance of grandparents in the lives of children is a well-known fact. A generation or so ago it was common place for children to grow up surrounded by extended family, including one or both sets of grandparents who were an integral part family life.

Interestingly this trend seems to have become more common again, at least in the US, with some 18% of households now living in multi-generational situations. This is double the number living under these circumstances in 1980.

So why are grandparents Important?
According to Cornell University research, the relationship between grandparents and their grandchildren is second in emotional importance only to the relationship between parent and child.

Below we have listed a few important reason as why grandparents are so important:

Grandparents make good confidants

Grandparents are in a somewhat unique position with grandchildren often feeling more comfortable discussing personal concerns because they feel their grandparents will be more understanding and non-judgmental than their parents.

Grandparents are knowledgeable

All grandparents have a wealth of real life experience that can’t be learnt out of textbooks, online or from T.V. Grandparents have hobbies, interests and sports that they
have the opportunity to introduce to grandchildren. Sharing these with grandchildren may lead to interests that can be enjoyed for the rest of their lives.

Grandparents give their grandchildren undivided attention

Grandparents have the opportunity to give grandchildren their undivided attention…no matter how tiring that may be. While parents are often so busying bringing up a family and meeting ongoing demands, that quality time with their children is limited. Grandparents often have less demanding schedules so they can give their undivided attention.

Grandparents are a direct link to the history of the family

Grandparents are a direct link to the “family history” and have the opportunity to share, embellish stories about their parents, share family history and time honoured traditions.

According to a recent survey 70% and more of grandparents “think being a grandparent is the single most important and satisfying thing in their lives”.
What are your thoughts on the subject?

If you would like to know more about this, please get in touch!

This document has been provided for general information purposes only. The information is given in good faith and has been prepared from published information and other sources believed to be reliable, accurate and complete at the time of preparation but its accuracy and completeness is not guaranteed. Any information, analysis or views contained herein reflect our opinion at the date of publication and are subject to change without notice. To the extent that any such information, analysis, views or opinions may be construed as advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised advice under the Financial Advisers Act 2008, nor do they constitute advice of a legal, tax, accounting or other nature to any persons. Past performance is not indicative of future results and no representation or warranty, express or implied, is made regarding future performance. To the maximum extent permitted by law, no liability or responsibility is accepted for any loss or damage, direct or consequential, arising from or in connection with this document or its contents.