A September and October tide that lowered boats

06 December 2021 / Published in Your Money

They say a rising tide lifts all boats. Well, as you might have noticed, investors saw the opposite effect in September.

Just about every equity market in the world showed poor performance, and almost all KiwiSaver accounts and investment funds in the market suffered as a result – including ours, once again reminding us of the ebbs and flow of investments. However, in times like this it’s important to remember that one month’s worth of poor performance, will have minimal impact on your long-term investment performance.

The fundamentals of performance

Different funds are designed for different investors and their savings goals and as a result, they provide different outcomes. Past, or short-term performance, is no indication of future performance – last year’s (or month’s) winner is very rarely the winner twice in a row.

Therefore, while performance is very important, the first thing to get right is making sure you are in the right fund type for your savings goal and timeframe.

While short-term performance can be an interesting thing to watch closely, it’s no different to the short-term value of a house. A house’s value goes up and down every day, depending on valuations and sales of surrounding properties; the main difference – a house’s value is not on-show every day, or in real-time.

Investing is a long-term game – making decisions based on short term performance can typically result in worse outcomes down the road. As we say above – the two most important things that ASB believe is making sure you are in the right fund and having access to professional advice, so you achieve your goals.

New approaches from BlackRock

Our goal at ASB is to try and get the best investment outcomes for our customers and keep them one step ahead. That’s one of the reasons we’ve brought on board BlackRock*, the world’s largest investment management firm to manage the asset allocation process (how and where we invest) for all of our managed investment schemes. 

Since the ASB and BlackRock partnership in July, following the recommendations provided from BlackRock we have made further improvements to our funds:

Upweighting International Equities

  • We currently have a considerable exposure to Australian and New Zealand shares. With the instruction from BlackRock, we’re shifting some of that allocation to other developed and emerging markets. 
  • BlackRock expect to see higher earnings growth from these international markets over the next few years. 
  • We’ll still have a strong holding of Australasian equities, and BlackRock’s recommendation was for ASB Group investments to increase New Zealand’s share of those equities to 70%.
  • BlackRock will also be supporting us in reducing the number of hedged foreign currency funds, helping us increase exposure in international equities. They’ve seen that this gives us more diversification, as our exchange rate tends to outperform a hedged fund during periods of economic stress.

Shifting to New Zealand Government Bonds

  • BlackRock feels we should reduce our exposure to New Zealand corporate bonds and international government bonds and recommends we replace some of them with New Zealand Government bonds instead.
  • They feel the longer interest rate terms will give us better diversification if growth assets fall in value.

Reducing cash holdings

  • We always hold some cash in reserve to allow for investors selling units and for extra ballast. BlackRock has recommended us to reduce the amount of cash we hold a little, to put more of the funds into action. 

How has the ASB KiwiSaver Scheme been performing?

Almost all of our investors saw negative returns for the month, including those in our lower risk funds. The majority of funds have still been growing our members savings considerably over 3, 6 and 12-month periods.

An unexpected double-whammy for conservative investors

If you’re in our lower risk funds, like the Conservative and Moderate Funds, you will have been seeing somewhat flat returns recently.

These lower-risk funds have a higher proportion of bonds (also known as income assets) which are usually very stable. They tend to hold their value, and cushion your fund against market movements.

But rising interest rates can reduce the value of bonds – and October saw a lot of interest rate increases around the world, including New Zealand where we saw the Reserve Bank of New Zealand (RBNZ) lift the Official Cash Rate (OCR)  for the first time in seven years.

If you’re keen to understand a bit more about why this is happening, our recent podcast episode offers a great explanation.

Looking ahead

So, while September was not a great month, it pays to recall that particularly for the more growth orientated strategies, returns over the past year have been strong. For lower risk portfolios, where the negative performance of bonds has weighed this year, there’s now a much higher path of interest rates already priced into markets – especially here in New Zealand.

If you’d like to discuss your KiwiSaver account or managed investments, remember you can always contact the ASB Wealth team. For the ASB KiwiSaver Scheme, call 0800 272 738, or for ASB Investment Funds call 0800 108 084. You can also request to be called back here. The team is happy to help, and their advice is totally free.  

Otherwise, use the ASB KiwiSaver Scheme Calculator, to see what your KiwiSaver savings could look like at retirement, or for your first home withdrawal.

* BlackRock Investment Management (Australia) Limited (BlackRock) is a wholly-owned subsidiary of BlackRock, Inc. BlackRock, Inc is based in the US and is a leading global provider of investment management services with over US$9.5 trillion in assets under management as at 30 September 2021.

Returns are a reflection of past performance and are not a guarantee or indication of future performance because returns fluctuate (move up and down). Returns can be negative and you may receive back less than the total amount of your contributions.

Interests in ASB KiwiSaver Scheme and ASB Investment Funds (Schemes) are issued by ASB Group Investments Limited, a wholly owned subsidiary of ASB Bank Limited (ASB). ASB provides Schemes administration and distribution services. No person guarantees interests in the Schemes. Interests in the Schemes 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 and ASB Investment Funds Product Disclosure Statements available from ASB’s website and the register of offers of financial products at www.business.govt.nz/disclose (search for ASB KiwiSaver Scheme or ASB Investment Funds).


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