December Wrap Up – Time to reflect and look forward

Just like any good festive season Secret Santa event, December produced a mixed bag of returns for different asset classes. Growth assets were modestly higher, especially emerging markets, while bond prices ticked slightly lower despite a rate cut by the U.S. Fed in December. Ultimately though, global markets once again wrapped up a very strong year.

Spending time away from work and the start of the new year can offer room for reflective thinking. We call out two key themes for investors to consider for the year ahead. First, staying focused on the goal at hand and looking through the short-term headlines and pronouncements. Those who followed this in 2025 were rewarded. Secondly, last month we talked about the diversification mirage; this month, we turn that lens on ourselves as investors, and what that means for our own situations. 

In the meantime, we hope you had (or are continuing to have) a relaxing summer period, and we look forward to navigating 2026 with you. 

At the start of a new year, it's a fitting moment to reflect on the investment journey we've taken through 2025. It was a period marked by rapid change, featuring both expected and unexpected turns across the local and global economic landscapes.

We navigated an almost bear market in U.S. shares, saw continued interest rate cuts in most countries (including lower than predicted at the start of the year), interest rate hikes in Japan – a major rarity – ongoing geopolitical conflicts, conversations on AI every five minutes, and even tariffs placed on islands only inhabited by penguins. 

However, amidst this volatility, the same long-term trends (or mega forces as our partner BlackRock calls them) have remained at the forefront of markets. The artificial intelligence and automation build-out, the climate and energy transition, and ongoing geopolitical fragmentation and its impact on supply chains have once again shaped investment decisions – and favourable investment outcomes for ASB Funds and our clients.

Last month we outlined some of the key themes that will influence investments in 2026. This month, in true New Year’s resolution style, we thought it was right to turn our gaze inwards somewhat. Following events with clients around the country in the final months of 2025, we offer two of the most important themes for investors to ponder during the summer break.

From a technical perspective, sorting signal from noise means separating meaningful, relevant data (the signal) from irrelevant, random interference (the noise), to improve clarity and make better decisions. 

2025 certainly did its best to produce as much noise as possible.

Applying this to investing involves focusing on long-term, fundamental drivers of value or return, while ignoring those short-term, emotional distractions or random (but regular) market fluctuations. 

2025 threw up so many headlines and market events that had the potential to stop investors in their tracks. March and April’s U.S. tariff announcement period at one point saw the U.S. S&P 500 Equity Index down almost 16% on the year – only for it to finish up on the year by almost 17%. Investors in diversified funds like ASB’s who were able to ignore this – or if they were following it, separate this noise from signal – finished the year with healthy gains.

Some signals to focus on remain those that never change – including your goal(s), risk tolerance, and diversification (more on that later). Then there are signals that are external to you but capture key trends or shifts you can point yourself towards. The clearest of those are BlackRock’s mega forces.

Another example is sifting through the signal and noise on interest rate movements. There is so much noise around which way they could move and how fast – and it can be paralysing trying to pick a bottom or top to best suit your lending or saving needs. The better signal is that rates will always be moving around, and as an individual it’s highly unlikely any of us will have perfect foresight. So perhaps it’s better to accept this and diversify exposure across different rates and time periods. 

There is nothing to suggest that 2026 will produce any less noise than the past 12 months. We continue to believe that investors who are able to look through this will be well served over the long term.

Last month we talked about the value of diversification, and how it is at the heart of the active approach to building ASB portfolios.

But there’s another side to diversification that is not talked about enough – how diversified are we personally, when it comes to our wealth and incomes?

We all love New Zealand. The landscapes, the lifestyle, the people, the weather (sometimes). There are a whole host of reasons why we choose to live, work, raise families, and invest here. The same can be said for people in other countries, who centre their whole lives in a favoured town, city and country.

But it’s worth checking whether this approach quietly produces concentration risk that we just can’t see.

For the majority of New Zealanders, income risk is the largest and least diversified part of their financial picture. That income is typically derived from a single employer, based in New Zealand, dependent on the local economy. This is coupled with the house we all live in – again, based in a single city, within New Zealand. 

Clients we have been spending time with around the country have shared stories of property portfolios they have created – often in a single city – or fantastic businesses they have built, once again based on a single industry in, you guessed it, little old New Zealand.

This ‘diversification mirage’ as we are calling it has really given clients of ASB something to ponder. True diversification is considering options across different asset classes and countries that complement the existing assets you’ve built up to date, including your career. This is one of the real benefits of diversified, managed funds.

One of the key things we do for clients of ASB Funds is to bring themes like these to their attention and provide guidance on how to make the right decisions. We look forward to doing this again throughout 2026.