Market volatility shapes returns as NZ Super Fund grows to $43.1 billion
POSTED ON: 17 September 2019
A climate of global volatility has influenced returns to the NZ Super Fund, which has grown more than $3.7 billion in the past financial year.
The Fund is now worth $43.1 billion, returning 7.02 percent in 2018/19 after costs and before New Zealand tax, beating its passive Reference Portfolio market benchmark by 0.67 percent ($261 million).
Chair Catherine Savage says it was a satisfying result for the Fund which, as a long-term investor, has the ability to look through and profit from the periods of uncertainty and volatility that have impacted global markets.
“The Fund continues to stick to its mission of maximising returns over the long-term without undue risk, in order to reduce the future cost of providing for universal superannuation,” says Ms Savage.
“We are pleased with what was another good result for the Fund this year. It brings the Fund’s return since inception in 2003 to 10.15 percent per annum, delivering $8.3 billion more than the Reference Portfolio benchmark over time.
Active management of the Fund through our portfolio completion strategy was a large driver of value add in the past year. The strategy rebalances the Fund to our desired Reference Portfolio weightings and manages liquidity risk in the most efficient manner possible.
Other value adding contributions came from large direct investments in privately-held companies, our internally-managed credit mandate and the strategic tilting programme, which has delivered total value of 1.1 percent p.a. since it commenced in 2009.
“At a time when central bank policy decisions and trade tensions between the United States and China are driving asset price values across the world, the Guardians has maintained an investment approach that continues to deliver. I commend the team on their dedication and professional approach to managing the Fund for the benefit of all New Zealanders,” says Ms Savage.
“I would also like to acknowledge the continuing capital contributions made to the Fund by the New Zealand Government, which resumed in December 2017 after an eight year suspension.” Capital contributions during the financial year totalled $1 billion.
CEO Matt Whineray says the year has been a good example of the volatility inherent in a portfolio weighted towards growth assets.
“It was literally a year of two halves. Negative returns from growth assets over the first half of the year saw the Fund decline to a low point on Christmas Day 2018, before rebounding strongly to finish the year up just over 7 percent.”
“Returns have been very strong since the Global Financial Crisis – the Fund has returned more than 14 percent per year over the last ten years. All else being equal, given the market environment, we expect returns from the Fund’s portfolio over the next few years to be less than those very strong returns we have seen, and possibly lower than our long-term expected average.
"We remain discerning about deploying capital, focusing on investments which play to our advantages as a long-term investor, and looking for good buying opportunities in the midst of market volatility.
“Economic factors mean there are fewer attractive investment opportunities at the moment. This means we’re taking less active risk in the short term, thereby impacting expected value added returns. However, our view about expected returns over the long term remain largely unchanged, giving us confidence that we can meet our commitment to New Zealand taxpayers.”
The Fund’s Annual Report will be tabled in Parliament in October.