Market Commentary

31 March

Investors enjoyed strong returns over the month of March across most sectors, but the biggest surprise came from the NZ stock market which rose an astonishing 5.9% over the month. It’s difficult to know how to describe the current strong run in equities – is it a “golden summer” which seems to stretch out longer than anyone would expect and just keeps going, or is it the “final throes” of a bull run that’s twitching before it comes to an end? Of course, rarely in investments is such emotive language particularly helpful and we’d caution against any narrative which paints such pictures. However, it probably does help identify some of the different views on equity markets at the moment. Some will point to ongoing acceptable global market data, supportive monetary policy and stable earnings, whereas others will observe that we could have seen the tipping point in the rates cycle, US government bond yields inverting (i.e. you get lower returns from the long-dated bonds than short-dated bonds) and global growth slowing further and more rapidly. Either way, it’s been a strong first quarter in 2019 with each of the diversified funds providing returns which exceeded our expectations for the whole year.

Having recently reviewed the asset allocation for each of the funds we decided to reallocate a small portion of cash into global bonds as the risks of further rate rises receded slightly, and the expected returns on cash continue to fall. Overall within fixed income, we continue to have a slight preference for NZ issued debt over its global counterpart. During the month of March, both domestic and global bond markets performed very well as rates fell resulting in capital gains boosting the running yields to give returns of between 1.3% -1.9% depending on the fund.

We reiterate the often mentioned point that within the diversified funds we seek to maintain good diversification across sector, geography and strategy and will maintain our search for opportunities to add value over and above general market returns. Our mind-set continues to focus on the longer term, and this helps to balance the need to be aware of the day-to-day details without being unduly influenced by such things and being tempted to make knee-jerk reactions. In the meantime, we happily accept the strong monthly performance of 2.1% (Growth Fund), 1.8% (Balanced Fund) and 1.5% (Conservative Fund).