Welcome to the spring issue of Investor News. In this edition we share news about changes we’re making to some of our portfolios and how we’re making it even easier to join the MAS KiwiSaver Plan. You’ll also learn about investment returns during the September quarter and our investment managers tell us what their outlook for financial markets is.
We’re making some changes to our investment portfolios
From 1 December 2018 we plan to make some changes to the investment portfolios of the MAS KiwiSaver Plan and MAS Retirement Savings Plan that we believe will improve the long-term outcome for Members, provide more transparency and make it easier for Members to make marketplace comparisons.
The key changes are summarised below.
| Change | Rationale |
|---|---|
| The Defensive, Conservative, Balanced and Growth Portfolios will have a 5% increase in the target allocation to Growth assets (such as Australasian equities and international equities) and a 5% reduction in the target allocation to Income assets (such as cash, New Zealand fixed interest and international fixed interest). | The changes will help improve potential long-term returns for Members versus other similar risk profile funds in the market. It’s important to note that while the target asset allocation is changing, the actual asset allocation will not necessarily change immediately. The Plans’ investment managers will judge what they consider the best time to implement this. |
| We are replacing the term Portfolio with the term Fund. For example, the Balanced Portfolio becomes the Balanced Fund. | The new terminology better reflects the way your money is invested – units are held in a fund rather than directly in a portfolio of securities. It also aligns with other providers in the market, so you can make comparisons more easily. |
| We are changing the name of Defensive to Conservative; and Conservative to Moderate. So, the Defensive Portfolio becomes the Conservative Fund; and the Conservative Portfolio becomes the Moderate Fund. | The new names are aligned to those used by other KiwiSaver scheme providers for similar risk profiles. |
| The fixed interest asset class will be explicitly split out between New Zealand and international fixed interest.The target allocation will be 35% to New Zealand and 65% to international fixed interest. | This provides greater transparency to Members. The higher allocation to international fixed interest provides greater diversification opportunities within portfolios, potentially reducing risk. |
| The current fee charged by the Licenced Independent Trustee is increasing from $9,000 pa to $15,000 p.a. for each of the MAS KiwiSaver Plan and MAS Retirement Savings Plan. | This fee forms part of the Other Management & Administration Charges in the Product Disclosure Statements. The fee is paid by each Plan and is therefore shared across all investors in a Plan. It equates to approximately 0.002% per annum on Member balances. |
No change in Risk Indicator ratings
The change in target asset allocation does not change the Risk Indicator ratings of the Portfolios as disclosed in the Product Disclosure Statements so you shouldn’t need to change the Portfolio you are invested in. To check your risk profile and make sure you’re invested in the most appropriate Portfolio, you can answer a few questions here.
If you’d like to make any changes or switch Portfolios, you should complete a switch form here and email it to us at masinvest@linkmarketservices.com.
Change in Fees
The change in estimated Annual Charges for individual portfolios is outlined in the table below:
| Portfolio/Fund | As at 10 October 2018 | As at 1 December 2018 |
|---|---|---|
| Cash | 0.52% | 0.52% |
| Defensive | 1.18% | 1.20% |
| Conservative | 1.17% | 1.19% |
| Balanced | 1.16% | 1.18% |
| Growth | 1.16% | 1.18% |
| Aggressive | 1.16% | 1.18% |
| Global Equities | 1.16% | 1.17% |
Note: The Annual Charges for a particular portfolio/fund are the same for the MAS KiwiSaver Plan and the MAS Retirement Savings Plan.
Want to know more?
A copy of the latest relevant Product Disclosure Statement is available here (MAS KiwiSaver Plan & MAS Retirement Savings Plan). If you’d like to talk with us, please call us 0800 800 627 or email info@mas.co.nz.
Good Returns for Equities
Investors in our more Growth asset oriented portfolios enjoyed returns of up to 5% for the quarter. This brings annual returns for these portfolios as high as 16%. The strong outcomes masked significant differences in returns between different markets and asset classes over the quarter. This is illustrated in the chart below that shows the returns achieved in the MAS KiwiSaver Balanced Portfolio.
Driving this quarter’s returns were ongoing strong earnings growth by companies in the United States and increasingly around the world. This helped offset bouts of investor nervousness (reflected in lower weaker share prices) around possible trade wars between the United States, China and the European Union.
As New Zealand is a small, export dependent economy, the possibility of us being caught up in a global trade war led to a 2% fall in the New Zealand Dollar. This boosted the value of shares held overseas. It also led to increased expectation by investors that the New Zealand Official Cash Rate (OCR) will remain at or below the current record low of 1.75% well into 2020. In contrast, the United States Federal Funds Rate (their equivalent of our OCR) was 2.25% at quarter end, and in response to a strongly growing economy and rising inflation is likely to be 3.25% in a years’ time. This makes the United States more appealing to fixed interest investors than New Zealand.
The prospect of higher short-term interest rates in the United States led to their long-term interest rates rising (bond capital values falling). This move was repeated in other world fixed interest markets to varying degrees. This meant that returns from the international fixed interest asset class were well down on the prior quarter.
Our Investment Managers Outlook
Despite some weakness in international sharemarkets since quarter end our investment manager, JBWere, remain positive on the potential returns from international equities. They point to a backdrop of robust economic growth in most countries, strong earnings growth and low interest rates. That said, they note that the fact that we are in the late stages of one of the longest increases in global share markets in history is reason for caution. Further, there are several potential risks that they are watching closely, like developments around global trade and instability in emerging markets such as Turkey and Argentina. They don’t see significant risk warning indicators on the near-term horizon to cause material concern. They continue to forecast global equities to generate a positive return over the next 12 months. But investors will need to adjust to a higher level of volatility.
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