I would like to share this blog post by AMP Capital New Zealand, Four pillars for generating income | AMP Capital, which looks at the four main pillars of an investment framework to deliver a stable and sustainable level of income over time. The Post challenges some of the conventional wisdoms underpinning the management of traditional portfolios. The basis of the framework is a goal orientated investment approach. For those wishing to understand more around Goal Based Investing, this Wikipedia page, which I have contributed to, Goal-based investing may be of interest. The Wikipedia page inclu ..read more

We need to change the conversation on investment management fees.  The debate on fees needs to be based on facts rather than myths. Despite often being framed in this way, the debate on investment management fees is not black versus white. What matters is not the fee level, but the manager’s ability to deliver a satisfactory outcome to investors after fees. Either way, it is no good paying high fees or the lowest possible fees if your investment objectives have not been achieved. Therefore, amongst the key questions to ask are, are you satisfied with the investment outcomes after the ..read more

Active engagement and stewardship have leapt in importance as a way for asset managers to drive sustainable change. This is a key conclusion of a study undertaken by Schroders in 2020.  Schroders conclude “The results suggest that engagement and voting are now increasingly being viewed as an important aspect of achieving change, rather than simply divesting.” Their study found that nearly 60% of “institutions said active company engagement and stewardship was a key approach to integrating sustainability.” This is a significant rise on 38% a year ago. The survey also highlighted: ESG ..read more

Global Economic Risk The greatest risk to the global economy is that economic activity surprises on the upside in 2021. Currently consensus forecasts are for the global economy to grow 5.8% in 2021, lead higher by the US 5.7%, China 8.5%, and India 9.4%. Global economic consensus forecasts are likely to move higher as the year progresses, reflecting: economic activity surprises on the upside post COVID-19 vaccination reopening, which will be supported by very low interest rates and the expected continuation of accommodative policy by central banks for some time to come, and the very larg ..read more

A review of KiwiSaver Balanced Funds, which are soon to become the Default Option, highlights: A heavy reliance on equities to drive return outcomes – there are few return engines outside of equities. Limited portfolio diversification – likely resulting in higher levels of portfolio volatility across a full market cycle (which could be dampened down for the benefit of investors). A high allocation to Fixed Income – which is a concern in the current market environment. By comparison, Australian Super Funds with similar return objectives to a KiwiSaver Balance Fund have lower allocations to eq ..read more

There are several options available for investors who are relying on fixed income investments to generate income in the current extremely challenging environment – characterised by low short-term rates and rising longer-term interest rates. Short-term fixed income funds and private debt funds are two examples.  Both seek to deliver a healthy return above cash and term deposits.  They achieve this in a variety of ways, chiefly by gaining exposure to different investment risks. In addition, active management is an important source of return from short-tern fixed income funds.  And ..read more

Amongst the strategies to employ for the current interest rate environment is a Liability Driven Investment (LDI) approach.  LDI provides a framework for managing retirement income outcomes in what is likely to be a rising interest rate environment over the years ahead.  LDI places retirement planning goals at the centre of the investment approach leading to several key benefits: More stable level of income in retirement; More efficient use of capital – potentially need less retirement savings; and Better framework to make trade-off between allocation to equities and the retirement ..read more

An analysis of KiwiSaver Conservative Funds identifies a variation in underlying asset allocations, despite there being a generic look at a higher level (Income / Growth split). The area of most pronounced difference is within the Income asset class allocations: Cash, New Zealand Fixed Income, and International Bonds.  There are also nuances within each of these asset classes, particularly level of benchmark duration risk. These differences will drive performance outcomes, having nothing to do with active management skill and very little in relation to fees paid. Portfolio performance is ..read more

The most recent Monthly Financial Markets Commentary and Performance is for March 2021. David vs Goliath GameStop dominated headlines over the last week of January and distracted market participants from key fundamentals. In a sign of our times, encouraged via social media platform Reddit retail investors brought into GameStop, one of the most heavily shorted stocks in the market.  This led to a “short-squeeze”.  As the stock price of GameStop rose, rising by over 1,500% in January, short-sellers had to buy back the stock to cover their loses, pushing the stock price higher.  L ..read more

Key Developments over the Quarter Regulatory approval of Covid-19 vaccine and commencement of global immunisation program Democrat Party’s eventual control of Presidency, Senate, and House of Representatives will provide further support to the US economy from an increase in government spending US Federal Reserve’s decision to adopt a more flexible “average inflation targeting” policy In recent months there has been a tug of war between rising Covid-19 infections and the development, approval, and initial distribution of a Covid-19 vaccine. Increasingly the roll out of the vaccine will win th ..read more