Kia ora Whai Rawa whānau,
We are commencing a new series of Investment Updates for you. Below you will find the first Investment Commentary for the year and we will update you every month on market conditions, how your investment in Whai Rawa is performing and what this means for you.
We hope you will find it useful and welcome any feedback or pātai.
You can also see all our Quarterly Fund Updates on our website at any time – https://whairawa.com/what-is-whai-rawa/publications/
The December quarter was a turbulent one for global markets, with all major share markets suffering significant losses. On the back of concerns over slowing economic growth in China, rising interest rates and continued global trade tensions, share markets suffered from what was widely dubbed “the worst month in ten years” in October. While November brought some relief, even Christmas couldn’t protect share markets in December, as they rounded off the quarter with another large decline. The quarter finished with developed market shares (which include US, UK, Australia, New Zealand among others) falling -13.1%, erasing market gains made earlier in the year and leading to the first negative market calendar year return since 2011.
What this means for Whai Rawa members
Investors have had a great run since the Global Financial Crisis in 2008. Indeed, global shares have been positive for the last seven years, last recording a loss in quarterly earnings in 2016. Markets have been supported by Central Bank actions (very low interest rates and quantitative easing packages) and growing economies, without the usual threat of inflation. This has led to strong and stable returns for investors, who got used to positive returns, but are now being reminded that prices can go down as well as up.
The World Bank released a report in January forecasting global economic growth for the medium term to reduce relative to previous forecasts, but to remain positive, projecting global growth of 2.9% in 2019 and 2.8% in 2020-2021. The growth projections are supported by improving employment data across the US and Europe, including evidence of real wage increases in the US. Economic growth is usually a precursor to positive investment returns.
There are, however, risk factors associated with the current global environment. Despite some recent improvements in the relationship between the United States and China, there is still potential for disruption to global trade. Political risks associated with the (partial) US government shutdown and ongoing Brexit negotiations also remain elevated, adding to investors’ concerns. However, despite these risks, we believe global growth remains relatively robust and that shares are still supported by relatively strong fundamentals.
While we expect a general trend of positive returns, this is likely to be interrupted with bouts of volatility (i.e. some short term negative returns along the way).
The Whai Rawa Fund
Whai Rawa members invest in Mercer Investment Trusts New Zealand’s Conservative Fund, which has a mix of defensive and growth assets. The benchmark split is 80% defensive assets, such as bonds (50%) and cash (30%) and 20% growth assets, such as shares (16%) and real assets (4%). The Fund is expected to achieve slightly higher returns over the medium term (at least 3 years) than those expected from investing solely in bank term deposits, but there is a possibility of some fluctuations in returns in any one year.
No one likes negative returns and we know that can make some of our members quite uncomfortable. We’re not comfortable with the negative returns either, but we were pleased that the diversified nature of our fund moderated the falls compared to less diversified portfolios. More information about the Whai Rawa fund can be found in the Product Disclosure Statement.
If you have any pātai/questions please get in touch with David Tikao, Whai Rawa Executive Director on [email protected] or +64 3 974 0132.