Welcome to your October update

Dear member, welcome to the SBS Wealth KiwiSaver Scheme Investor Update for October 2024. Below you will find the latest performance data and market commentary from your SBS Wealth Investment Management Team. 

Performance data  

Performance as at 30 September 2024. 

The Lifestages Auto Options invest in combinations of the SBS Wealth High Growth Fund and the SBS Wealth Income Fund in proportions that vary in accordance with pre-selected age bands. These options automatically adjust the risk profile of your investment by altering the proportions invested in the funds based on your age. 

Performance is shown after fees and before tax. For more information about how performance is calculated and more performance periods, click here. 

Market Update

The US Federal Reserve (Fed) surprised markets in September, cutting interest rates by 0.50%. Firstly, this was the first cut in four years, and secondly, the market was 50/50 on whether they would start with 0.25% or 0.50%. The Fed Chair Powell emphasised this being a proactive move, and not due to recession fears. They believe inflation is no longer a concern and are now focusing on the labour market (the other side of the Fed’s dual mandate). 

Equity markets started September as they have done for a number of years, going backwards (note September is traditionally the worst performing month for equities). However, better inflation figures, the surprise Fed rate cut and further interest rate cuts in several European countries, was a positive boost and led to many share markets ending the month in positive territory. Asia led the way, with China up 21.6%, reversing many months of underperformance. An 800 billion Yuan liquidity boost by the government and rate cuts on lending and liquidity facilities stimulated the market. Australia was up 3% (led by Materials stocks and IT), and the US up 2.1% on the back of strong returns from Utilities, Consumer Discretionary and Communication Services. 

European markets were slightly negative, predominantly due to a poor UK stock market (-1.6%). Within Europe itself, Healthcare was the main detractor down –7%. Further afield the Japanese share market was down 1.6%, again Healthcare and Real Estate the main detractors. 

The New Zealand share market was relatively flat for September. There was no Reserve Bank meeting in September, although the signal is that they will lower the OCR by at least 0.25% on 9 October. 

The surprise cut by the US Fed and the anticipated further cuts by several other central banks was positive news for the Income Fund, resulting in a return for September of 0.73%. and an impressive 3.11% for the quarter. The portfolio increased its duration during the month, gaining the benefit of falling rates. However, we remain slightly cautious as to the speed of further rate cuts and the amount that has already been factored into the markets. 

The High Growth Fund produced another positive return for the month, up 0.70%, on the back of good returns from most share markets around the world. Returns were dampened a bit by the flying kiwi dollar against the US greenback. US equity returns were impacted –1.7% from us reporting the returns in New Zealand dollars. We believe the currency movements over the long-term are a net zero game, but this movement can fluctuate 10-20% over the short-term. Top performing stocks in the portfolio over the month in local currency were Tesla +25.5%, Fortescue Metals +20.8%, Infratil 11%, Caterpillar 10.6%, and Port of Tauranga 10.5%. On the downside Healthcare stocks were generally negative for the month (Novo –14%, AstraZeneca –11%, CSL –5.6%, F&P Healthcare –2.6%). 

All the Age Auto options performed well in September, with good returns from fixed interest and equities (equities dampened a bit by the strong kiwi dollar). All the Auto options strategies returned around 0.7% for the month. 

Q3 has also come to an end. This has been a very good quarter for the Scheme, on the back of inflation figures improving globally, central banks starting rate cuts and generally strong corporate earnings reports. All Funds and Age Auto options are up over 3% for Q3. This has filtered through to impressive twelve month returns, with High Growth up over 20% again and Income now just shy of double digits, up 8.8%. The strongest drivers for the year have been the mega cap US stocks fuelling the AI boom.