The market delivered strong investment returns in September with the S&P 500 hitting record highs during the month. This came as a relief, as September is often one of the worst months for investment returns. However, this year the ‘September Effect’ failed to materialise due to interest rate cuts by the US Federal Reserve (Fed) alongside stimulus in China. 

Investors celebrated after the Fed reduced its key interest rate for the first time since March 2020. Fed Chair, Jerome Powell announced that the reduction heralded the start of a new rate cutting cycle, though the US economy remains in good shape. The 0.50% reduction was larger than normal, prompting global shares1 to finish the month up 2%, driven higher by US shares.  

Emerging markets2 performed well, gaining around 6% as Chinese shares3 surged 21% after Beijing announced comprehensive stimulus to shore up the economy in response to the country’s sluggish economic growth and weak housing market. 

Closer to home, Australian shares4 rose by around 3%, propelled by the resources sector, which stands to benefit from Chinese stimulus.  Unfortunately, the story in New Zealand wasn’t as positive, with the NZX 50 falling slightly over the month. Capital raisings by market heavyweights, Fletcher Building and Auckland International Airport, weighed on market returns. 

September saw domestic and international bonds perform well with prices generally rising on the back of Fed rate cuts, particularly for shorter-term maturities. Bond prices and yields have an inverse relationship, so when prices rise, yields fall. As a result, yields on the US 2-year Treasury bonds fell to 3.7%, while 2-year NZ Government bonds yields declined to 3.8%. 

The differing fortunes of various asset classes are shown in the chart below. 

Returns of selected major markets for the month ended 30 September 2024

Note: Returns are in local currency terms.  

 

What this means for your funds over the September quarter 

The chart below highlights returns for all funds in the MAS KiwiSaver Scheme. Returns for comparable funds in the MAS Retirement Savings Scheme and MAS Investment Funds5 are very similar. 

Growth assets (shares) outperformed income assets (bonds) over all periods in the chart. As a result, more growth orientated funds have outperformed more conservative funds over the period. 

MAS KiwiSaver Scheme Fund returns 30 Sept 2024

* Returns are after total annual fund charge and before tax 

 

The outlook 

As we approach the end of the year, several issues remain forefront for investors. Previous concerns over inflation have now been replaced by worries about slowing economic growth. Central banks in the US, Europe, China, and NZ are now clearly responding to these headwinds. 

In the US, the fabled ‘soft-landing’ for the US economy remains very much alive. In fact, we believe the odds of a soft-landing occurring have risen now that the Fed has begun to cut interest rates, and recent data suggests that the labour market is bending, but not breaking. 

In China, authorities have announced a smorgasbord of stimulatory measures aimed at stabilising the economy and property market. Whether these succeed at reflating the economy in the face of ongoing structural challenges is questionable, but we believe the support can help reduce economic risks in the short term.  

Our overall view is that the global economic outlook is becoming more positive. While we have been hopeful that a soft landing could be engineered, historically achieving this has been challenging. However, policy support and US economic resilience have reduced economic risks and the odds of a sharp downturn in share markets. As a result, we no longer believe a modest underweight to international shares is warranted and are moving to a more neutral footing.  

While risks have reduced, they haven’t disappeared. We continue to monitor several key factors that could create volatility in the months ahead. These include geopolitics, elections, the potential for earnings and economic growth disappointments, or even a resurgence of inflation. In addition, some equity markets (especially the US) appear to be fully priced. This is why we are shifting the Schemes’ exposure to international shares to a neutral, but not overweight, setting.   

 

We have useful online tools to help you:

If you decide to change your Fund after reviewing your risk profile or meeting with a MAS Adviser, you can make a switch via the MAS Investor Portal, or alternatively you can complete an investment strategy change request form. There is no fee for switching. Links to the relevant forms are below.     

You can see weekly updates on fund unit prices and returns on our website:  

1 As measured by the MSCI All Country World Index

2 As measured by the MSCI Emerging Markets Index

3 As measured by the CSI 300 Index

4 As measured by the S&P/ASX 200 Index

5 MAS Investment Funds have an inception date February 2024. 

This article is of a general nature and is not a substitute for professional and individually tailored advice. Medical Funds Management Limited, JBWere (NZ) Pty Ltd and Bancorp Treasury Services Limited, their parent companies and associated entities do not guarantee the return of capital or the performance of investment funds. Returns indicated may bear no relation to future performance. The value of investments will fluctuate as the values of underlying assets rise or fall.  

MAS is a financial advice provider. Our financial advice disclosure statement is available by visiting mas.co.nz or by calling 0800 800 627.

The Product Disclosure Statement for the MAS KiwiSaver Scheme is available: KiwiSaver – MAS  

The Product Disclosure Statement for the MAS Retirement Savings Scheme is available: Retirement Savings Scheme – MAS  

The Product Disclosure Statement for the MAS Investment Funds is available: Investment Funds – MAS

Medical Funds Management Limited is the issuer and manager of the Schemes.  

More news

MAS supports Māori medical practitioners

30 October 2024 - MAS was proud to sponsor and present 2 awards at this year’s Te Ohu Rata o Aotearoa - Māori Medical Practitioners conference in Rotorua.

Medical students pull off pandemic-era conference

18 July 2022 - The organisers of the 2022 New Zealand Medical Students’ Association Conference believe the experience has taught them skills that will be invaluable to their medical careers.