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Keeping up to date with your KiwiSaver account

17 May 2021 / Published in Your Money
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Market update - May 2021

When KiwiSaver balances dip, people usually look to the sharemarket for an explanation. All the ASB KiwiSaver Scheme funds apart from the NZ Cash Fund have exposure to both local and offshore sharemarkets, and sharemarket dips, like we saw around a year ago, can quickly flow through to investors' balances. The other thing that usually happens is that growth funds with the greatest exposure to shares normally dip the most, while the conservative funds tend to chug along with steadier returns. 

Looking at ASB’s KiwiSaver Scheme returns over the first quarter of 2021 shows a different story. The Growth and Balanced funds are up over the first quarter, but the Conservative and Moderate funds are down. 

This time around it’s mainly what’s going on in the bond, or fixed interest, markets that’s creating the negative returns; global sharemarkets actually performed well over the quarter. Long-term bond yields (the return that a bond pays over its life) have been on the rise as investors price in an improving economic outlook for 2021 and beyond. Investors are starting to think a bit more about the risks of inflation over the next few years as economies pick up too. 

Long-term bond yields in New Zealand, Australia and the US touched all-time lows in the third quarter of 2020 but lifted off those lows as sentiment improved over the fourth quarter of 2020 and the first quarter of 2021. Bond values move in the opposite direction to yields, so the lift in yield observed over the past two quarters has led to modest declines in the value of government bonds both here and offshore (Explained: if there are more sellers of a particular bond than buyers, that will mean the yield will increase and the price of it will decrease). 

Many corporate bond values have also dipped over the quarter due to rising yields. Diversified investments at the conservative end of the scale (Such as the ASB KiwiSaver Scheme’s Conservative and Moderate funds) have the greatest exposure to bonds, or fixed interest, and that’s why they are down (Explained: the decline in value for these parts of the funds is mainly due to bond values declining). 

Global shares are trading around all-time highs, and that’s been a positive offset to the above – and the reason why the Growth and Balanced funds have had a stronger start to the year. The local sharemarket however, was down over the first quarter, and that has also been a headwind for investors recently, along with what’s going on in the NZ and global bond markets.

The mixed returns from the local and global markets is the reason we diversify – the underlying assets we invest in don’t always go up (or down) at the same time. 

There's plenty of moving parts in the investment world these days. If you want to read more about some of these issues, check out the ASB Markets Monthly – we’ve just posted a new report for the month of April and it was pleasing to see the local sharemarket lift after the weakness at the start of the year. 

If you'd like to know more about the largest bond and company holdings for each of the ASB KiwiSaver Scheme funds, the best place to start is the quarterly fund updates found here

The slightly unusual mix of conditions and dips observed in the Conservative and Moderate funds doesn’t mean something’s wrong, or you necessarily need to do anything. As always, it’s important to make sure you are in the right fund for your circumstances and keep focused on your own savings goals, rather than react to short-term financial market movements. 

Written by: Chris Tennent-Brown, ASB Senior Wealth Economist

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This content does not have regard to the financial situation or needs of any reader. As individual circumstances differ, you should seek appropriate professional advice.

We believe that the information on this webpage is correct and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this document. Any opinions, conclusions or recommendations set forth in this document are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed elsewhere by ASB or Commonwealth Bank. We are under no obligation to, and do not, update or keep current the information contained in this document. No person involved in the preparation of this document accepts any liability for any loss or damage arising out of the use of all or any part of this document.

Interests in the ASB KiwiSaver Scheme (Scheme) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides Scheme administration and distribution services. No person guarantees interests in the Scheme. Interests in the Scheme are not deposits or other liabilities of ASB. They are subject to investment risk, including possible loss of income and principal invested. For more information, see the ASB KiwiSaver Scheme Product Disclosure Statement available from this website and the register of offers of financial products at www.disclose-register.companiesoffice.govt.nz (search for ASB KiwiSaver Scheme).

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