Investment Environment Report - July 2018
POSTED ON: 24 July 2018
In this ‘Investment Environment Report’ Mike Frith, Manager, Economics, explains the global investment environment and its implications for the NZ Super Fund.
Economic and market backdrop
Economic fundamentals remain sound, underpinned by strong momentum, favourable market sentiment, supportive financial conditions, and expansionary fiscal policy in the United States. Together, these support corporate earnings and equity markets. However, it is not all one-way traffic. The strong performance of equity markets through 2016 and 2017 has not been sustained into 2018 thus far.
Central Bank liquidity is being slowly withdrawn and inflation expectations and interest rates have increased. These are all normal late-cycle market developments, although give cause for market participants to reassess expectations for corporate earnings growth. In addition, market volatility has increased due to global trade tensions and European political outcomes, which increase market uncertainty around the global outlook.
While the Fund remains strongly weighted towards growth assets, our overall use of active risk remains comparatively low, reflecting our view that many assets are fairly valued. However, the Fund remains busy – over the past six months it has increased the size of its Australian farming assets, purchased a 27% stake in fruit and vegetable export company NZ Gourmet, and increased its allocation to natural catastrophe bonds. The Fund is looking to increase its exposure to equity factors and has announced an interest in investing in light rail infrastructure for Auckland.
How has the Fund performed?
Consistent with movements in asset markets, the Fund has returned more than 13% in the 12 months to May 2018. Our Reference Portfolio, which comprises around two thirds of the total Fund and provides our benchmark, returned 10.7%, while the activities of the investment professionals within the Fund delivered an additional 2.5% - around 800 million dollars.
This report has been prepared as a high level summary of certain matters of interest. It is necessarily generalised and may not be relied upon. It does not constitute financial, taxation, legal or professional advice. Any forward-looking statements in this report are subject to risks and uncertainties, and actual events may differ. No representation or warranty is given as to the accuracy or completeness of this report. To the maximum extent permitted by law, Guardians of New Zealand Superannuation as Manager and Administrator of the New Zealand Superannuation Fund (and its affiliates, officers, employees and agents) exclude any liability and responsibility in connection with this report.