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Welcome

2020 has been a volatile year and, here at SuperLife, we have seen all facets of investor behaviour — part exuberant, part tentative, and part hopeful. The most recent quarter has seen sharp one-day rises, acute one-day falls, and numerous recoveries. Amid all this change is one key takeaway for investors: the importance of understanding risks and how to manage them.

It is usual that your appetite for investment risk changes through your life. At SuperLife, we are here to help if you think your risk profile has changed. We have a range of funds for members to choose to invest in, enabling you to tailor your portfolio to your specific risk profile.

An easy option, if you are saving for retirement, is SuperLife Age Steps. This option automatically adjusts the proportion of income and growth assets and risk profile based on your age. For younger investors, Age Steps holds more shares (equities) and property that have a higher expected return but also greater degree of risk. As you get older, the proportion of your portfolio in higher risk investments will be reduced and more will be weighted to stable bond and cash investments. See our website or call us if you want more information.  You can switch your investment options online at any time.

In ‘Thoughts on investment strategy’, our chief investment officer Stuart Millar discusses the current low interest rate environment, how this presents challenges for investors seeking income, and how there is still value to be found in some equity markets.

If you have any questions about your investments then please get in touch. Our experienced customer service team is available online, by phone or through email to explain our investment products and how they work for different risk profiles. If you are feeling under pressure and worry about your SuperLife account, or if you just have a quick question, please don’t hesitate to call us at 0800 27 87 37. We are here to help.

 

Best wishes,

Hugh Stevens

CEO, Smartshares

 

Market Update

International equities

After accounting for currency fluctuations, returns from international shares rose 5.2% in the September quarter. Over 12 months, returns rose 4.6%. (FTSE Developed All Cap Index in NZ dollar terms)

NZ equities

NZ equities returns, as measured by the S&P/NZX 50 Gross Index, rose 2.6% in the quarter after stunning gains made in the June quarter. Over 12 months, NZ equities rose 7.5% (S&P/NZX 50 Gross Index).

Emerging markets

Emerging markets returns rose 9% in the September quarter, and were up 9.5% over the year. (FTSE Emerging Markets All Cap)

Australian equities

Australian equity returns, as measured by the S&P/ASX200 Total Returns Index, fell 0.4% in the September quarter. Over 12 months, Australian equities fell 10.2%. (S&P ASX 200 Total Return Index)

International fixed interest/bonds

Returns from overseas bonds were up 0.7% in the quarter.  Over 12 months returns rose 3.9%. (Bloomberg Barclays Global Aggregate Total Return Index NZD Hedged)

NZ bonds

NZ bonds returned 1.7% in the quarter. Over12 months, returns rose 5.3%.  (S&P/NZX A-Grade Corporate Bond Index)

SuperLife funds

Most funds managed to hold onto their gains in the September quarter in a market dominated by swings on Wall Street, and a world still coming to terms with COVID-19’s impact.

SuperLife Income, which does not have any exposure to equities, returned 1.2% in the quarter and 3.2% over 12 months.

SuperLife Conservative, invested mainly in income assets, returned 2.3% in the quarter, and 1.3% over 12 months.

SuperLife Balanced (which typically has 60% in equities/listed property and 40% in cash and fixed income) returned 3.5% in the quarter, and 0.6% over 12 months.

SuperLife Growth returns rose 4.2% in the quarter but over 12 months, returns fell 0.9%. This fund invests mostly in international equities, some cash and fixed interest.

SuperLife High Growth, mostly invested in higher risk assets such as equities and property stocks, returned 4.8% in the quarter but over 12 months, returns fell 2.1%.

Ethica, which invests into funds that have strict sustainability criteria, returned 5.2% in the September quarter, and over 12 months returns rose 4.5%.

 

Figure 1: Equities recovery choppy, bonds stay flat lined

S&P500

Source: Bloomberg/SuperLife

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Thoughts on investment strategy

The September quarter gave investors a good glimpse into the fickle nature of investor behaviour. During the quarter, Wall Street chalked up its largest gain in 30 years, all within the month of August. This celebratory mood gave way to caution during the first week of September when the S&P 500 took the biggest plunge seen in three months, down 3.5% over one trading day. Just before the quarter ended, investors were tentatively making their way back into the market.

Despite a somewhat shaky period, the September quarter ended in a more positive mood.  Equity markets have been surprisingly resilient after the major sell-off seen in March, at the height of the COVID-19 pandemic.

In many ways, investor behaviour was split into two camps during the September quarter. Half took comfort in the resilience of the equities market and continued to buy shares in big tech companies such as Facebook, Amazon, Apple, Netflix, and Google. Collectively, these stocks are popularly known as FAANG stocks. The other half took advantage of what gains they made, booking some profits, hence the correction in the S&P500, and in particular the FAANG stocks.

It was also very much a world of two halves in terms of fortunes. In one half, Zoom became an overnight sensation as the world flocked to its meeting technology; Netflix provided major distraction for a world mostly in isolation; and online trading technology providers were in demand as shoppers spent time and money online.

For the other half of investors, the sudden hibernation of global tourism damaged the fortunes of global carriers, as well as the tourism and services sectors. US airlines, for example, reported an after tax net loss of US$11 billion in the first three months of the year, according to CBS News.

Government’s soothing aid

Amid an uncertain COVID-19 world, there is one constant — the unwavering and solid determination of governments around the world to provide fiscal and monetary policy support to keep their economies running.

The going has been tough. In New Zealand, the economy took a hard hit despite a massive fiscal programme to mitigate the impact of COVID-19. Government statistics showed gross domestic production (GDP) fell by 12.2% in the second quarter, its first fall since 1987 when this statistical series began. GDP is a measure of economic activity.

Elsewhere, the UK’s GDP shrunk 19.8% in the second quarter, while the US economy shrunk a massive 31.4% during the same period. China was the outlier. Its GDP grew by 3.2% during the same period, surpassing economists’ expectations.

There has been signs of economic recovery across major economies over the last two months but not conclusive enough to point to a full-scale sustained turnaround in economic fortunes.

How deep are governments’ pockets?

What remains to be seen is whether governments around the world can afford to extend the same level of monetary and fiscal stimulus needed to keep the economic engines going.

In the US, the White House and Congress are divided over what levels of monetary support should be given to resuscitate the US economy.

Increasingly, analysts are questioning whether the US Federal Reserve’s monetary stimulus (to help keep the cost of funds low for businesses), can be effective without fiscal support from the government who must then get Congress to approve the fiscal changes. 

Central banks and governments continue to look in their tool boxes to see what other options are available to provide cheaper funds and financial support to turnaround their economies.

New Zealand’s Reserve Bank has been signaling to the market it is exploring different tools  for monetary stimulus, hinting that negative interest rates may be on their way. In the US, the Federal Reserve has made a policy shift in how it manages inflation, making it known its inflation management will be done without stifling job market growth in a recessionary environment.

Investors will be looking for stronger resolve from governments to cough up more funds to support ailing businesses and those hurting financially.

What does all this mean for investors?

The months ahead will see the unfolding of the recessionary impact across the world. The market can take some comfort that not all caution has been thrown to the wind. The recent price consolidation has given time for the market to pause and reflect on what has been, on most part, an exuberant retracing of March’s sharp losses.

The S&P500, which tracks movements of large companies, is trading at an expected price-to-earnings (PE) ratio of 22 times, and the NZX50 index is trading at 34 times expected earnings. The PE is an indicator of how expensive or cheap an investment is, relative to its earnings ability.

In the near to medium term, consumer confidence recovery will depend on whether there is more positive economic data pointing to a sustained economic recovery, and how soon safe vaccines can be found for COVID-19.

Here are some thoughts on navigating the current investment environment.

  • The environment of low interest rates is here to stay. This is not an environment to chase returns. It is useful to be invested in low-cost providers when returns are challenging.
  • A low return environment also means the need to review whether existing investment goals are still valid.
  • Fixed income and cash returns will be lackluster in the next 12 months, at least. For those invested in conservative funds, it might be worthwhile to check whether the fund has a mandate to invest in some risk-assets such as equities.
  • Despite low yields, government bonds present less risk due to the active bond-buying programme by governments to keep money supply going. High quality corporate bonds will be also be sought after by investment managers.
  • For those with a higher risk threshold, global equities can be still attractive. The focus will shift to finding value, given how much the market has recovered.
  • For those tempted to switch to lower risk/return funds, remember the best action is to stay on course, and continue to invest regularly to average the cost of investments over time.

SuperLife offers access to 42 funds across different sectors and countries so investors can create portfolios tailored to their needs.

Our Ethica fund is a socially responsible fund geared towards investments in a balance of income and growth assets.

If you are getting close to retirement, the SuperLife Age Steps option lets you set your investment in income and growth assets based on your age. This means as you get older, the proportion of your investment in more volatile growth assets will be reduced, lowering the expected size of the ups and downs in the value of your investment.

If you are concerned about your investments, or would like to find out more about how SuperLife can help with your investments, get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it. or 0800 27 87 37.

These thoughts on investment strategy do not constitute financial advice and do not take into account personal circumstances. They are designed to illustrate possibilities only. As with all investment decisions, what might be the right strategy over the medium or longer term may not pay off over the very short term. No one can consistently predict what will happen over the short term. Those acting upon the information in this newsletter do so entirely at their own risk. SuperLife does not accept liability for the results of any actions taken or not taken based on this information. While every effort has been made to ensure accuracy, no liability is accepted for errors or omissions in this newsletter.

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New prescribed investor rate (PIR) rule

New Zealand law has changed recently. From 1 April 2020, if Inland Revenue advises us to change your PIR based on the latest assessment of your total income, then we are obliged to do so.

Once we receive Inland Revenue’s advice, we have to make the change and let you know.

However, if you disagree with Inland Revenue's assessment of your PIR, you can direct us to amend it to another PIR. 

It is important to note however that having a wrong PIR means you could be underpaying or overpaying tax on your investment income.

If you have underpaid taxes, you may need to file a tax return. If you have overpaid, you may be eligible for a refund from Inland Revenue.

What is a PIR?

Your PIR is the rate you use to calculate how much tax you will pay on the taxable portion of your investment income. Not all investment income is taxable. Your PIR can be 10.5%, 17.5% or 28%.

What if I am not sure of my PIR?

You can check your latest PIR on SuperLife’s member site. If you are unsure of your PIR, you can work it out using SuperLife’s PIR guide or go to your MyIR which has your total income information.

What do I have to do next?

No action is needed if you accept Inland Revenue’s assessment of your PIR. If you think Inland Revenue is wrong, you can tell us to change your PIR. If you are still unsure, seek help from a tax adviser.

Your residency status affects your PIR and the taxes you pay. If you are no longer living in New Zealand, or have returned to New Zealand recently, remember to let SuperLife know, and update your details on MyIR.

 

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Feeling a bit under pressure lately?

The COVID-19 pandemic has caused severe stress on businesses and individuals who might have had to deal with recent financial hardships, and other types of stress.

Unfortunately during periods of higher stress like this, fraudsters and scammers try even harder to take advantage of people. The number one rule for spotting a scam or fraud is that if an investment offer looks like it is too good to be true, it probably is. You can learn some great tips about how to detect a scam here.

If you receive an unsolicited investment offer, a great first step is to check the Financial Market Authority’s (FMA) guide on how to deal with such an offer. Avoid unsolicited offers from overseas as they fall outside the FMA’s regulatory powers.

Take a bit of time to learn more about investments on the Financial Market Authority’s website, or www.sorted.co.nz.

Always deal with licensed Managed Investment Scheme (MIS) managers in New Zealand, or New Zealand authorised financial advisers (AFAs). Use the FMA’s list here.

Withdrawals from a SuperLife KiwiSaver account should be the last resort as it is a retirement savings fund. However if you can provide evidence that you are suffering, or are likely to suffer significant financial hardship, you may be able to withdraw some of your KiwiSaver savings. Find out more here. We are here to help if you have any questions. Get in touch on 0800 27 87 37.

The Ministry of Health, which can be reached at 0800 611 116, is also a good source to get help for different health issues, including mental health.

Smartshares Limited is the issuer of SuperLife Invest, the SuperLife KiwiSaver scheme, the SuperLife UK pension transfer scheme and the SuperLife workplace savings scheme. The Product Disclosure Statements and Fund Updates for these schemes are available at www.superlife.co.nz/resources/legal-documents

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