Bradley Nuttall Nelson Spring Update

BNL Nelson News

Investment Market Review

The majority of equity markets experienced solid gains for the quarter. Bolstered by strong returns from small cap and value shares over this period.

In country terms, New Zealand was again one of the top performing markets, while Australia also posted above average returns.

Emerging markets led all market sectors, gaining 7.03% for unhedged New Zealand dollar investors. Signs of greater stabilisation in the Chinese economy provided strong support for the regional markets.

With the US Federal Reserve still hinting at the prospect of a further rate hike in November or February, the global property sector was the only asset class in negative territory over the quarter. This was a notable departure for an asset class which has consistently been amongst the strongest performers over the past 3 and 5 years.

In contrast the Reserve Bank of New Zealand (RBNZ) reduced the Official Cash Rate by another 0.25% in August, citing weak global growth and that New Zealand’s relatively high interest rates were placing upward pressure on the exchange rate. In addition the RBNZ indicated further easing would be likely to ensure further inflation settles near the midpoint of the target range. In this environment, domestic listed property assets held up much better than their international counterparts with the S &P/NZX All Real Estate Index gaining 2.06%.

Similarly, the domestic bond market benefited from the moderating New Zealand interest rate outlook. The New
Zealand 10 year government Bond yield fell from 2.35% to an all-time low of under 2.2% resulting in strengthening demand for local bonds. The S & P/ NZX A- Grade Corporate Bond Index gained 0.96% for the month of July and collectively 1.61% for the September quarter.

International bonds markets were a little more variable with respect to interest rate movements, which was highlighted by the respective performances of major 10 year government bond yields. Through the quarter, US yields increased by 12.5 basis points with the Federal Reserve still pointing to future rate hikes, while comparable German yields were flat and UK yields fell by 12 basis points. In this environment the returns from international bond markets were a little more subdued than they had been for the first half of this year. The Citigroup World Government Bond Index (1-5) Years (hedge to New Zealand dollars) gained 0.55% for the quarter.

Overall investors with well diversified portfolios have benefited from attractive portfolio returns.

US Elections

What’s The Likely Implications Of The US Elections On The Financial Markets?

The US economy still sets the pace for the rest of the world – even with the rise of China and the growth of emerging markets.

Financial markets don’t like uncertainty and there is certainly heightening uncertainty as to who will win as we enter the closing stages of this protracted presidential election.

If Trump wins the election, it remains unclear, where he will drive economic policies in the coming years.

Trump appears to be joining an increasing number of politicians seeking to capitalise on disaffected

voters to revive protectionist policies seen after downturns in the 1930’s.

Top policymakers say a weak global economy, already blamed for creating the political environment that is reviving protectionism, could face a reversal of a half-century of global trade integration.”

The Wall Street Journal 10/10/16

What Insights Does History Provide For Financial Markets?

Interestingly, while many investors connect political alignment with equity
market returns, very few of these patterns hold up to scrutiny.

Historically, whether a Republican or Democrat occupies the White
House has had no statistically significant impact on U.S. equity markets.

Another bit of myth that does not survive close inspection is that markets do better under a divided government.

Interestingly, one political condition that does seem to matter for equity markets is the year within the election cycle. There is some evidence that markets generally perform worst during the first year of an administration and best during the third year.

For investors looking ahead to
2016, historical patterns don’t suggest either a positive or negative bias.

The markets are the markets .

Key Market Movements For The Quarter


New Zealand Shares
The local market continued its strong recent run in the third quarter of 2016. With local interest rates reducing in August, several of the higher dividend paying companies in the NZX experienced particularly strong demand. Leading performers were Heartland Bank +33.9%, Kathmandu +32.7% and Steel & Tube +30.0%.
Source: S&P/NZX 50 Index (gross)


New Zealand Fixed Interest
The RBNZ reduced the Official Cash Rate by 0.25% in August aligning with market expectations. The Governor Wheeler cited concerns about weaker global growth and New Zealand’s relatively high interest rates contributing to a high exchange rate. With interest rates declining across the domestic curve, the New Zealand Corporate A Bond Index delivered another solid result for the quarter.
Source: S&P/NZX A Grade Corporate Bond Index


New Zealand Property
The moderating domestic interest rate environment supported the performance of the domestic listed property sector, which registered its tenth positive return in the last 11 quarters. Precinct Properties (+5.9%) and Property for Industry (+5.8%) were the clear leading performers in the sector this quarter.
Source: S&P/NZX All Real Estate Index (gross)


Australian Shares
Like most international markets, the Australian share market enjoyed a sizable post-Brexit recovery in July. Although the Reserve Bank of Australia cut its Official Cash Rate in August, which signalled a temporary lull in proceedings, the market closed strongly in September. The ASX 200 produced an attractive +5.8% return (in New Zealand dollars) driven by strong performances from metals and mining companies. Small capitalisation companies delivered a considerable return premium over the quarter with the S&P/ASX Small Ordinaries Index returning +9.2%.
Source: S&P/ASX 200 Total Return Index

+5.23% (hedged to NZD)

+2.75% (unhedged)

International Shares
Developed market shares performed well in the third quarter. This was largely due to the significant bounce-back in sentiment that occurred once the initial fears about the impact of the UK’s vote to exit the European Union had receded. US second quarter earnings announcements were higher than expected and this helped support international indices, and even British and European markets moved higher over the quarter. A stronger New Zealand dollar saw reported returns from hedged equities outperforming the comparable returns from unhedged investments.
Source: MSCI World ex-Australia Index (net div.)


Emerging Markets Shares
This was the leading asset class over the three months to September as the pendulum swung firmly back in favour of risky assets. Signs of greater economic stabilisation in China and additional stimulus from global central banks outweighed previous concerns about the projected pace of future US interest rate hikes. Although Egypt was the best performing single country in the emerging markets this quarter, it was the double digit returns from leading constituents China and Brazil which supported the strong overall performance of the region.
Source: MSCI Emerging Markets Index (gross div.)


International Fixed Interest
It was a much less eventful quarter in international bond markets. US ten year bond yields inched 12 basis points higher over the quarter as the Federal Reserve continued to hint at a potential additional rate hike before the end of 2016. However, comparable global yield curves exhibited mixed behaviour, with German ten year yields effectively flat for the quarter and UK yields falling by 12 basis points. Overall, it was a relatively benign quarter for this asset class, which is reflected by the return of the reference index
Source: Citigroup World Government Bond Index 1-5 Years (hedged to NZD)


International Property
The ongoing messaging coming out of the Federal Reserve in support of a further interest rate hike was enough to dampen investor enthusiasm for global listed property assets. The S&P Developed REIT Index was flat in US dollar terms, however, a general appreciation in the value of the New Zealand dollar during the quarter dragged the return to unhedged investors into the negatives. The Australian listed property sector was also in the red for the quarter, with the S&P/ASX 300 A-REIT Total Return Index shedding 1.88%% in Australian dollar terms.
Source: S&P Developed REIT Index (total return)

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.

Asking Engaging Questions

I recently read an article about asking great questions and how this helps when getting to know people in a much more meaningful way.

The article got me thinking about how I communicated in general, with friends, colleagues and those you meet for the first time.

The article was thought provoking and I hope that you find the points below of interest.

“Think about an occasion when you met someone for the first time, it’s gone really well, and you’ve genuinely wanted to see them again.

The chances are they asked you questions which showed they were interested in you, your thoughts, and what you do.”

Below are some different types of questions that you might consider asking and some practical examples that you may consider to engage in better conversations.

Start with simple questions

It’s quite a good idea to start conversations with simple opening questions like “How are things going for you?”. Importantly their response gives a quick insight as to where they
are at, at that point in time. “fantastic” verse “measured”.

Ask follow-up questions

It’s quite disconcerting when you are having a conversation with someone and share something personal and they totally disregarded what you’ve just said …

As with all questions, listening to and understanding the persons responses is key to good communication

Avoid one-way streets

We’ve all experienced when conversations are moving along well bit you’re stuck on one subject.

Provide the opportunity to change the conversation perhaps saying “I’m sure you don’t want to hear about that so what about …. how’s that going?”

Try changing it up.

Naturally pick your timing, but think about asking more meaningful questions whether it be with family, close friends and grandchildren.

Often we pick up on fears, passions, concerns and frustrations somewhat by osmosis from body language and the way people speak without ever asking or giving them permission to

speak, in some depth, on what’s important to them.

Below are some example questions that may be helpful in building meaningful conversations.

• How did those changes impact you?

• What is one of your best memories from childhood?

• In an ideal world what would you like to do that’s a little out of the ordinary over the next couple of years?

• What are you passionate about?

• What really gets under your skin and frustrates you the most?

• What are some of your personal limiting beliefs?

• What is the most valuable life lesson you’ve ever learned?

• What’s on your bucket list?

• If you could change something in the world what would it be?

There are literally thousands of meaningful conversations you can have.

Hopefully on reading this article you too will be encouraged to think about the conversations that you regularly have and take the opportunity, at an appropriate time, to have more meaningful and rewarding conversations, through asking engaging questions.

Get in touch to find out more about Bradley Nuttal Nelson

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.