Welcome to your September update

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

Performance data  

Performance as at 31 August 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. 

Performance Update

Defensive portfolios performed better in August. The Income Fund returned 0.84% on the back of positive sentiment from fixed interest markets in anticipation of substantial interest rate cuts occurring over the next few months.

Positive equity markets were offset by a strong NZ dollar, resulting in a small 0.61% negative return for High Growth Fund. This also had an impact on the higher allocated equity Lifestages Auto options 0-49, 50-54 and 55-59. The more income allocated options 60-64 and 65+ had a small positive return.

During the month, the annual rebalancing and age profile review was run. For most members this meant a reallocation of some savings from the higher performing High Growth Fund to the Income Fund. And for those that crossed the Lifestages Auto age band, your profile was also changed. Generally, this was a movement of around 20% from the High Growth Fund to the Income Fund, as your risk profile reduces, and you get closer to the retirement age.

Market Update

Markets were generally positive for August, even though the month began on a volatile note. Fixed interest markets were up around 0.8%, and equities were up 1-2%. However, the strong New Zealand dollar, particularly against the US dollar, meant equity returns when reported back in NZ dollars were slightly negative.

The focus on the imminent start of interest rate cuts by the US Fed led to a positive return, in particular US bonds, but also global bond markets generally. During the month we saw the first interest rate cut by the Reserve Bank of New Zealand since March 2020. The RBNZ reduced the Official Cash Rate (OCR) 0.25% to 5.25%. This was taken positively by the market with fixed interest investments in generally up around 0.9-1.0%. We also saw the start of rate cuts by the Bank of England.

The Bank of Japan raised its policy interest rate at the end of July, much sooner than the market anticipated. This created mayhem in the Japanese equity market, on the back of the “yen carry trade”. On the 5^th of August the Nikkei 225 stock market index recorded its largest decline in history in terms of index points, surpassing the magnitude of the Black Monday crash in 1987. This also created turbulence in other global markets. However, the market sharply rebounded on the following day.

By the end of the month equity markets were positive again. UK equities rose on the back of the healthcare (AstraZeneca +7.9%), consumer staples and industrials sectors. In Eurozone real estate, communication services and healthcare (Novo Nordisk 5.1%) were among the strongest performing sectors. The US market was a little weaker as investors grew worried about weaker economic data. Defensive sectors like consumer staples (Walmart +10.7%), and healthcare (Eli Lily +15%) were the top performers.

Closer to home Fisher & Paykel had a great month, up 10%, and is now double the market capitalisation of the second biggest listed company in New Zealand. The real estate sector also had a good month locally (Precinct +10.7%, Kiwi Property +7.2%).

The expectation of substantial US rate cuts led to a weakening of the US dollar. The New Zealand dollar appreciated over 5% against it during August. This meant that the reported performance of US shares in the Funds depreciated by 5%. For example, a 3% return from a US stock is reported as a-2% return in NZD. The global equity funds have over 60% of the shares US denominated. To mitigate the impact of currency movements we hedge out some of this. Currently 50% of the global equity exposure is hedged back to NZD. What this means is that a 3% stock return (in the example above) would be a 0.5% return in NZD, with half of the 5% currency movement hedged out. Over the long-term, we expect currency movement to be a net zero sum game.

We are currently experiencing a higher level of short-term volatility. However, returns continue to remain positive over 2024 and the long-term outlook for equity and fixed interest markets is also positive.