Portfolio Diversification: Unpacking the Free Lunch
30 APRIL 2021 BY MATT HENRY AND MATT NOLAND
Portfolio diversification is a core principle of long-term investing and has been called the only free lunch in finance. What does that mean?
The primary goal of diversification is not higher returns, but to minimise the risk and volatility (the free lunch) of a portfolio for a given long-term expected return. We unpack why diversification is one of the key tools in an investor’s toolbox.
Crossing the ditch in a bubble
1 APRIL 2021 BY ANDY BOWLEY AND SCOTT ANDERSON
Prime Minister, Jacinda Ardern, is due to announce the timing of two-way, quarantine free, travel between New Zealand and Australia on Tuesday, 6 April. The proposed ‘trans-Tasman bubble’ has been on the cards since May last year but repeatedly scuppered by new COVID-19 outbreaks on both sides of the Tasman and seemingly less desire from our government, until now. Mounting political pressure appears to have hastened it into action. Excluding the prospect of further community outbreaks on either side of the Tasman or a worsening of the current situation in Queensland, we foresee a two-way bubble opening before the end of April.
Government 'cracking down' on housing 'speculators'
25 MARCH 2021 BY MATT HENRY
This week the Government released a policy package to address New Zealand’s “housing crisis”. In our view elevated house prices is principally a supply issue — the population has grown quickly, and the provision of new homes has failed to keep pace. The policy package does include some initiatives to help supply, but the focus is on the demand-side, specifically targeting investors who own around 35% of New Zealand’s residential properties. It seems likely these policies will encourage some investors to switch from housing to other asset classes and, at very least, cause house price growth to slow. Ultimately though, more supply-side solutions are required.
One-two jab: Virus on the back foot, but not a knock-out blow
10 MARCH 2021 BY MATT HENRY AND MATT NOLAND
COVID-19 vaccines are being rolled out around the world. New Zealand’s vaccination programme is now officially underway. Today around 320 million people globally have received at least one dose. The good news is the early evidence suggests that vaccines are at least as effective as the clinical trials concluded. Optimists may be forgiven for therefore thinking the end of COVID-19 is in sight. Unfortunately however, whilst vaccine rollouts are undoubtedly a positive step in the fight against the virus, we do not expect they mean a return to a pre-COVID world any time soon.
Sleepy Joe causes a power surge
15 FEB 2021 BY MATT HENRY AND MATT NOLAND
The last two months have been a wild ride for the share prices of two New Zealand electricity companies, Meridian Energy and Contact Energy. Over recent weeks the GameStop saga (see last week’s Focus article) captured global headlines of how a band of Redditors took on short seller hedge funds, causing wild swings in some companies’ share prices. Closer to home, the case of Meridian and Contact presents another way stock prices can diverge from underlying value.
GameStop: An entertaining sideshow
10 FEB 2021 BY MATT HENRY
Market news headlines over the past couple of weeks have been dominated by a tug-of-war between an army of retail investors (using social media and online trading platforms) and some short-seller hedge funds.
Funding for Lending
4 DEC 2020 BY MATT STURMER
In response to the economic shock of COVID-19 and part of Reserve Bank of New Zealand’s (RBNZ) ‘least regrets’ strategy, a new ‘tool’ is being rolled out next week, which will see the major banks able to access funding at extremely low rates of interest.
The Three Vaccineers
26 NOV 2020 BY MATT HENRY AND MATT NOLAND
The last few weeks has seen a flurry of positive news on COVID-19 vaccines. The potential impact of these vaccines (and possibly others) on economies and companies are front of mind for investors.
From Housing Gloom to Housing Boom
19 NOV 2020 BY MATT HENRY
Back in April, economists were grabbing news headlines with predictions of sharp house price declines. The housing market typically does not do well in a recession, and closed borders shut the door on demand from new migrants. Economists, however, could not have been more wrong. In October we saw house prices hit record highs in every region of the country. Why was economists’ pessimism so misplaced?
Markets Pfizzing on vaccine hopes
10 NOV 2020 BY MATT HENRY AND MATT NOLAND
Overnight, pharmaceutical company Pfizer with biotech partner BioNTech announced that the initial phase III trial results have found their COVID-19 vaccine to be “more than 90% effective”.
6 NOV 2020 BY MATT HENRY AND MATT NOLAND
Although not said with the same conviction as the former The Apprentice star, it appears President Trump will likely be removed from office. But, in the highest turnout election since 1900, the results were closer than betting odds and many polls predicted. It’s been a roller-coaster few days, with both parties claiming victory and President Trump spreading (or more accurately, tweeting) accusations of voter fraud.
The Red Pill or the Blue Pill
30 OCT 2020 BY MATT HENRY AND MATT NOLAND
The markets’ attention next week will squarely be on the US election.
Will Democrat Joe Biden oust Republican incumbent Donald Trump from the Presidency? Will the result be clear on the day, or will we have to wait days or even weeks to know for sure? Will we see a “Blue Wave” with Democrats sweeping the Presidency, Senate and House of Representatives, or will Congress remain split?
Every cloud has a (tech) silver lining
25 SEP 2020 BY KEVIN STIRRAT
“Like it or not we live in interesting times. They are times of danger and uncertainty; but they are also the most creative of any time in the history of mankind” Robert Kennedy.
54 years on, as we grapple with the first global pandemic in over a century, Robert Kennedy’s words still seem as relevant as ever. It’s easy to feel overwhelmed by negative headlines and doomsayer predictions, but history teaches us good times usually follow bad. And bad times have often been the catalyst for a step change in research, discovery, and innovation.
Bonus Bonds - The house was the winner
4 SEP 2020 BY MATT NOLAND
1970 — The Beatles released their final album ‘Let it Be’, Brazil became the first team to win the FIFA World Cup three times, pirate radio station Radio Hauraki was finally awarded a license, and the New Zealand Government launched Bonus Bonds through the Post Office Savings Bank.
Lockdown déjà vu, but not for the NZX
14 AUG 2020 BY MATT HENRY
After 102 days of no community transmission of COVID-19 in New Zealand, our largest city Auckland, with around a third of the country’s population and about 38% of GDP, is back in lockdown. Clearly this will come as a bitter disappointment to most but isn’t really a huge surprise.
3 AUG 2020 BY BERNARD DOYLE
Does anyone in financial markets care about Covid anymore? Looking at the performance of the US sharemarket, one could be forgiven for thinking not.
Injection of optimism in the search for a vaccine
27 JUL 2020 BY MATT NOLAND
Over the past few months, we’ve been inundated with medical jargon and talk of a COVID vaccine. Every day seems to bring news around a potential vaccine or medical treatment. Markets are increasingly optimistic a medical treatment will be found. With a recent string of more tangible news, are we finally starting to get some real traction?
Power cut for Tiwai smelter
10 JUL 2020 BY ANDREW HARVEY-GREEN
Nearly a half-century ago, in November 1971, the then Prime Minister of New Zealand Keith Holyoake flew to Invercargill (with a small number of cabinet ministers in support), to open the aluminium smelter at Tiwai Point.
KiwiSaver and the magic of compounding returns
3 JUL 2020 BY MARTIN HAWES
When KiwiSaver started in 2007, there was a stampede to sign up. There was the $1,000 kickstart dropped into your account and that, along with the contributions from government and employers, had people asking “why wouldn’t you?” There was no sensible answer to that question and so people joined in droves. (There are now over 3,000,000 members)..
Ryman Healthcare: An interview with Gordon MacLeod
26 JUN 2020 BY MATT HENRY
Ryman Healthcare is a New Zealand success story. It is the country’s largest retirement village and aged care operator, and in 2014 it opened its first village in Victoria, Australia, where it continues to expand. Ryman listed on the NZX in 1999, raising NZ$25 million at a market capitalisation of NZ$135m. Since then it has grown to now be valued by the market at NZ$6.5 billion.
Mainfreight: Special People, Special Company
19 JUN 2020 BY ANDY BOWLEY
Mainfreight listed on the NZX on 14 June 1996, at 96c per share. Since then, and after adjusting for a 1 for 10 bonus issue in 2002, its share price has climbed by an average annual compounded rate of +17% before accounting for the added benefit of dividends. It has the second highest (marginally behind Ryman Healthcare) total shareholder return of any stock on the NZX since initial public offering (IPO) that has been listed since 2000. For every NZ$1 invested in its IPO, investors would now have a whopping NZ$149 compared to a little under NZ$10 if they’d put the same NZ$1 into the market index. Read more about the Mainfreight story...
Investing or speculating?
12 JUN 2020 BY MATT HENRY
Overnight we saw the largest drop in equity markets since 13 March. Investors’ pursuit of safety has pushed up the price of defensive assets. The yield on United States 10-year Treasury bonds has tightened from 0.95% to 0.65% over the last week (remember, when bond prices rise, the yield on offer falls).
The changing face of retail
5 JUN 2020 BY GUY HOOPER
Lenin said nothing can happen for decades, and then decades can happen in weeks. Although not quite a decadal shift, there is no doubt that the COVID-19 pandemic has pulled forward the future of retail. Consumer purchasing behaviour has changed, effectively overnight. While many consumer behaviours will revert once the COVID-19 threat eases, we expect that recent changes in the way people shop could prove enduring.
Are negative interest rates on the way?
29 MAY 2020
The concept of “negative interest rates” is one many of us will struggle to comprehend. Will I have to pay the bank to hold my cash? Will the bank pay me to have a mortgage? These two common questions almost seem surreal, however, the reality is that not much is likely to change. Negative retail interest rates for both depositors and borrowers are still very uncommon in countries that have negative central bank interest rates.
Accelerating the digital revolution
22 MAY 2020
Lockdown measures around the world have forced many people and businesses to change how they communicate, how they buy and sell goods and services, and how they spend leisure time. While we expect most will largely return to previous ways of living and working once restrictions are lifted, we do expect some lasting change.
Budget 2020 - The Government responds to a global pandemic
15 MAY 2020 BY KEVIN STIRRAT
"Houston we have a problem”, might well have gone through Grant Robertson’s mind as he crafted the government’s 2020 Budget in response to the COVID-19 global pandemic. Like most of the world, New Zealand has been severely impacted as the virus placed extreme pressure on the global economy. Few escape when borders are closed and non-essential businesses are shut-down for several weeks. Because the Budget was drafted at the height of a crisis, it’s unlikely to be perfect.
Trade War 2.0
8 MAY 2020 BY BERNARD DOYLE
Although Covid-19 dominates the headlines, the US Presidential election, due November 3rd, creeps closer. The election looked tight before the Virus Crisis. Now it’s on a knife edge. A tight race and rebounding share market may tempt President Trump to reignite a trade confrontation with China too, amongst other things, emphasise his global heft to voters.
The gang’s all here: “Mr Market”, “Tina” and “FOMO”
1 MAY 2020 BY MATT HENRY
Well, for most of us it’s been a unique month. We’ve been isolated within our bubbles, maybe socialising over Zoom, binge-watching Netflix, home-schooling the kids, or (by the looks of it) desperately craving takeaways. And, if you hadn’t noticed, equity markets had their strongest month in over 33 years.
Contain or eliminate?
24 APRIL 2020 BY KEVIN STIRRAT
A COVID-19 mass vaccination campaign is unlikely for at least a year to eighteen months. But an antibody therapy or experimental vaccine that’s proven safe may be available sooner, and be able to be produced in sufficient quantities to protect high-risk people. Regardless, New Zealand’s goal to eliminate the virus has implications for our economy, with major implications for businesses that rely on demand from sectors such as travel, tourism, education, and migrant labour.
A post-pandemic world
17 APRIL 2020 BY KEVIN STIRRAT
Signs are emerging that the global infection rate from COVID-19 may have peaked. While some countries are further ahead than others in the battle against the pandemic, the overall trend is looking more promising.
Will Tina Play an Encore?
9 APRIL 2020 BY MATT HENRY
The past week has been a good one for equity markets, responding to slowing new COVID-19 cases in hot spots like Italy, Spain, and potentially New York. Here in New Zealand, it appears the lockdown is working – fingers are crossed that measures may be eased sooner rather than later.
Living in a bubble
3 APRIL 2020 BY MATT HENRY
It really is quite remarkable how quickly the world can change. Two months ago most New Zealanders were happily enjoying summer. Most of us had never heard the terms coronavirus, social distancing or self-isolation before. Today we’re living in our bubble, hoping it’s only for three more weeks, but nervously suspecting it might be longer. The future is uncertain. If it wasn’t, investing would be easy.
20 MARCH 2020 BY MATT HENRY
For the vast majority of people, the current COVID-19 crisis is unprecedented. The human and societal impacts are sobering. Financial market volatility has remained extreme. Investor anxiety at such a time is entirely understandable. And it is human nature to want to seek safety. History firmly underlines that acting on these instincts is detrimental to long-term investment returns.