Investment Market Review
While market events do not often fit neatly into calendar demarcations, the December quarter rather neatly provided a set of results in stark contrast to what investors will have grown accustomed to over the previous quarters.
A significant feature has been the losses faced by fixed income investors as bond yields were repriced higher in the US on Donald Trump announcing that significant capital would be expended on infrastructure projects. Higher yields lead to losses on bonds with the Dimensional Five Year and Global Bond Funds easing by -1.0% and -2.4% respectively over the quarter.
While these fixed interest rate returns for the quarter were disappointing, the longer term returns have remained favourable.
Another notable reversal of an established trend was the relative performance between the New Zealand and Australian share markets. Over the quarter, the New Zealand share market gave back a significant proportion of its previous gains. This, too, was largely driven by bond yields with the desirability of New Zealand shares strongly linked to their relatively high dividends. So, as bond yields rise, investors leave our share market and return to bonds.
In contrast, the Australian index rebounded largely due to its high weight to banking shares (banks benefit from higher interest rates) and mining shares (commodity prices increased with the higher inflation expectations).
The New Zealand dollar did rise slightly (2.0%) against its Australian counterpart, which meant that unhedged investors faced a headwind. But nevertheless, the returns over the year are now similar across the two share markets. The NZX 50 returning 10.1% while the ASX 200 9.2% (NZ dollar terms).
However the Australian share market does have some way to go to catch up with the NZX. The International share markets performed well over the
quarter generally benefitting from an increased investor appetite for risk assets. Economic data, particularly for the US and China, continued to exceed expectations, and the additional economic stimulus anticipated under the Trump administration proved to be positive for US shares in particular. Commodity prices also strengthened, with the oil price lifting further after OPEC announced production cuts.
The majority of equity markets experienced solid gains for the quarter. Bolstered by strong returns from small cap and value shares over this period.
As for 2016, the table below summarises the key asset class returns in a little more detail by highlighting the performance of a major market index in each asset class. All returns are gross and from a New Zealand investor’s perspective (in New Zealand dollars):
As can be seen growth asset classes generally performed the best. International shares (hedged to NZD) was the best performing asset class, closely followed by Australasian shares and emerging market shares. At the other end of the spectrum New Zealand property, which was one of the darlings in 2015, only returned a little more than fixed interest in 2016.
Outlook for 2017
Looking ahead to 2017 we see as much uncertainty as ever. If 2016 was the year of upsets and surprise results (Trump and the British vote to leave the European Union), 2017 may well be the year that policymakers need to navigate a much more complex, divergent and fragile global economy.
When faced with such uncertainty, investors need to keep their ultimate objectives front-of-mind and ensure that the decisions they make align with their goals. Where an investor’s objectives are long-term in nature, they should avoid reacting to short-term market noise. The best response to uncertainty is to ensure that one’s portfolio remains well diversified to mitigate a wide range of market outcomes.
Key Market Movements For The Quarter
+5.27% (hedged to NZD)
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.
Families need to get together more often
I was recently reminded at a family get-together and recent family reunion, celebrating 150 years in New Zealand, that such events have a very important place in family life, especially in today’s times when people are very busy in their daily life due to professional and work-related matters.
“The more opportunity you have to spend together, the better chance you have of sharing quality experiences.”
Spot the odd one out
Family get-togethers / reunions mean different things for different people. For kids it is time to have lots of food and have fun playing with their cousins. Young kids also get the chance to meet with their relatives.
For older ones, a family reunion is a chance to see their children and grandchildren in a comfortable and stress free environment.
For the younger lot it is a chance to mingle with relatives of a similar age group and because they are of the same age group they can gain a sense of being part of a larger “whanau” or caring family community.
Knowing and understanding each other can help each other personally as well as professionally.
“Our family puts the ‘fun’ into the word dysfunctional!” – Unknown
Some relationships lose their charm either due to some misunderstanding or due to lack of communication. Potentially a family get-together is a chance to clear misunderstandings and the opportunity to enhance relations with a new perspective.
“Family is not an important thing. It’s everything.” -Michael J. Fox
So if you have the opportunity in 2017 to attend or participate in arranging a family get-together or reunion we encourage you to participate in any way you can.
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.