The Aon Investment Update

Transcription

1 The Aon Investment Update Aon Hewitt Investment Consulting July 2014

2 Contents In this issue Commentary 3-7 Discretionary Assets - Risk and Return 8 Discretionary Assets - Asset Allocation 9 Conservative, Balanced, Growth Risk Profiles 10 Overseas Equities (unhedged) 11 New Zealand Equities 12 Australasian Equities 13 New Zealand Bonds 14 Overseas Bonds 15 Cash 16 Alternatives 17 Property 18 Global Property 19 Income Funds 19 Explanatory notes 20 About Aon Hewitt 21 Investment Forecasts 22 Economists Survey 23 2 The Managers AMPCI AMP Capital Investors (NZ) ANZ ANZ Investments (NZ) CFSGAM Colonial First State Global Asset Management DEVON Devon Funds Mgt EC Elevation Capital Mgt FISHER FUNDS Fisher Funds Management HARBOUR Harbour Asset Management MAGELLAN Magellan Asset Management MILFORD Milford Asset Management MINT Mint Asset Management NZAM NZ Assets Mgt RUSSELL Russell Investment Group SALT Salt Funds Management TYN Tyndall Investment Mgt The Indices NZ Equities NZX 50 (Gross)* NZX 50 Portfolio* Australasian NZX 50 (Gross)* Equities NZX 50 Portfolio* ASX 200 in $NZ Overseas MSCI Gross in $NZ 0% & 100% Equities MSCI All World in $NZ NZ Bonds ANZ Govt Stock Overseas Citigroup Govt. World 100% Bonds Barclays Capital 100% Aggregate Cash ANZ 90 Day Bank Bill *Includes imputation credits Hedge

3 July 2014 Investment Commentary - June 2014 The good times continue A solid performance in the June quarter means that half way through 2014 investors have enjoyed reasonable returns from most sectors. The strength of the New Zealand Dollar (up more than 6% versus the USD and more than 7% against the Euro to the end of June), has been the only real negative wiping out returns from overseas equities for investors who were not hedged. Domestic equities edge higher The domestic equity market was flat over the June quarter amid a flurry of IPO activity; however the first quarter performance was strong so the NZX 50 index is still up 8.5% so far this year. Many New Zealand stocks look fully priced but at least we are seeing some strong growth in the local economy. New Zealand s Gross Domestic Product grew 3.8% in the first quarter of 2014 compare that with a fall of 2.9% for the US. Most of the domestic equity funds in our survey provided decent returns over the June quarter. Devon s Australian Only fund led the way with a 4.2% return and Salt s NZ Plus fund returned 2.7%. Milford struggled over the quarter with their New Zealand Wholesale Equity fund returning -3.9%, their Active Growth Fund returning -1.1% and their Trans-Tasman Fund returning -0.3%. However all of the Milford domestic equity portfolios have delivered strong long term returns. Asset Sector Q year 3 years p.a. 5 years p.a. Australasian Equities - Manager average 1 - NZX50 gross/ ASX % 0.7% 19.9% 14.6% 15.3% 12.8% 14.8% 12.8% 1 75% NZX50 Gross with imputation credits/25% ASX 200 with currency unhedged Listed property was very strong over the quarter with the index up 8.2% and all the listed property funds returning more than 8%. The average manager in this sector (excluding direct property funds) has returned 16% p.a. over the last 5 years. 3

4 The Aon Investment Update Asset Sector Q year 3 years p.a. 5 years p.a. New Zealand Property (Listed) - Manager average - NZX Property Index 8.3% 8.2% 12.3% 7.8% 14.7% 11.6% 16.0% 13.4% Global shares continued to rise, with the US market up nearly 5% over the quarter. Despite the disappointing GDP number, other economic data releases showed signs of improvement in the US economy. Investors have also been encouraged by the actions of the Central Banks. US Federal Reserve Chair Janet Yellen continues to reassure investors that monetary policy will remain accommodative, and in Europe the European Central Bank reduced the benchmark interest rate to 0.15% and cut its deposit rate for banks from zero to -0.10%. Despite all achieving positive returns, global equity managers struggled to beat the benchmark over the quarter. Only Fisher Funds (4.2%) was ahead of the MSCI World index which rose 3.9% on an unhedged basis. Over the last 12 months the index has returned 9.4% and the average manager just 8.1%. Asset Sector Q year 3 years p.a. 5 years p.a. Global Equities (unhedged) - Manager average - MSCI World (unhedged) - # beating index 3.2% 3.9% 1/9 8.1% 9.4% 3/9 10.1% 9.6% 4/9 9.5% 8.3% 6/8 Global bonds continue to surprise Global bonds provided good returns over the quarter as interest rates in the US were little changed. Whilst there is evidence of economic conditions in the US improving and inflation picking up, the Federal Reserve appears to be in no hurry to raise interest rates. In Europe too, the European Central bank is focused on adding stimulus, not withdrawing it; and the Bank of Japan appears determined to 4

5 July 2014 keep printing money for many years. Only the UK saw a meaningful increase in interest rates over the quarter as the Bank of England Chairman stated that UK interest rates may start rising sooner than expected in reponse to a strengthening economy and buoyant housing market. Fisher Institutional continues to lead the way in Global Bonds, with their fund returning 3.5% over the quarter well ahead of the index return of 2.8%. Fisher is now ranked 1st in this sector over 1, 3 and 5 years. In New Zealand, the Reserve Bank Chairman delivered two further 0.25% increases to the Official Cash Rate in April and June, taking the rate to 3.25%. These were widely anticipated and the impact on longer term interest rates was minor. Yields rose slightly in June but were more or less unchanged over the quarter, allowing Domestic Bond funds to deliver positive returns to investors. However New Zealand bonds continue to trail global bonds as the RBNZ remains the only Central Bank in the Western world actively tightening monetary policy. The chart below shows the impact of that tightening on bond returns. For four years New Zealand bonds performed more or less in line with global bonds, but over the last twelve months or so performance has deviated sharply. 145 Benchmark Bond Performance Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 New Zealand Bonds Global Bonds 5

6 The Aon Investment Update Amongst domestic bond managers Tyndall fared best over the quarter with their NZ Fixed Interest Fund returning 1.9%. Harbour s Corporate Bond Fund was the worst performer as NZ Government bonds outperformed slightly versus corporates, but the range of returns was narrow. Over the last three years all managers have outperformed the Government Stock benchmark, with the average manager returning 5.6% p.a. Asset Sector Q year 3 years p.a. 5 years p.a. New Zealand Bonds - Manager average - NZ Govt Bond Index 1.7% 1.6% 3.8% 2.1% 5.6% 4.3% 6.9% 5.5% Overseas Bonds (100% hedged) - Manager average - Barclays Global Aggregate 2.8% 2.8% 8.3% 8.0% 8.3% 7.2% 9.0% 7.4% While global growth has picked up, for many economies it is still well below pre-gfc levels, and global inflation remains subdued, with deflation more of a threat in some areas. The search for yield by investors has driven equity (and bond) markets to record levels and we will need to see strong corporate earnings growth over the next year or so to justify current stock market valuations. Even if earnings do disappoint, the US Federal Reserve (and the European Central Bank, the Bank of England and the Bank of Japan) all seem to be prepared to do whatever they can to continue to reassure investors. So for now at least it s hard to argue with the golden rule of investing - don t fight the Fed. But looking longer term, it might be worth considering the comments from the Bank of International Settlements (the central bank for central banks) in their most recent annual report: Overall, it is hard to avoid the sense of a puzzling disconnect between the markets buoyancy and underlying economic developments globally. 6

7 July 2014 New Zealand Fund Management Changes During the quarter it was announced that the London Stock Exchange Group (LSE) has agreed to purchase Russell Investments. The deal is expected to complete in early The LSE is thought to be primarily interested in Russell s index business. At this stage it is unclear whether they will choose to keep the Asset Management and Consultancy business or sell it. Tyndall Investments has announced that Stuart Williams has been appointed Head of Equities, replacing Rickey Ward who left in March. Stuart was previously an Investment Manager with ANZ Investments. Craigs Investment Partners has hired an investment team to join their funds management business Andrew South, Roy Cross and Stefan Stevanovic were all formerly at Brook Asset Management which closed down in April this year. James Ring, who will co-lead the team with Andrew South, was formerly an investment manager at Rank Group. AMP has added Jonathan Davies to their equity team following the departure of John Phipps earlier this year. Morningstar have announced that Chris Douglas has been appointed to a new role as director of the American regional data team. He will relocate to Chicago in September. Chris is currently Co-Head of Australasian Fund research. Morningstar s New Zealand fund manager research will now be managed out of Sydney. If you need any help reviewing your fund s strategic long term asset allocations, or require any assistance with manager selection, please call your Aon Hewitt consultant. 7

8 The Aon Investment Update Discretionary Assets Risk and Return Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI ANZ FISHER FUNDS MILFORD NZAM TYN Average (asset-weighted) Average Price inflation Wage inflation Return (% pa) Year Risk/Return MILFORD ANZ TYN AMPCI FISHER FUNDS NZAM Risk

9 July 2014 Discretionary Assets Asset Allocation Allocation at end of quarter Changes since last quarter (%) 0% 20% 40% 60% 80% 100% NZ OS Cash Aust OS Abs Prop Bonds Bonds Eq Eq Ret AMPCI ANZ FISHER FUNDS MILFORD NZAM TYN NZ Bonds Overseas Bonds Cash Overseas Equities Absolute Return Property Australasian Equities 9

10 The Aon Investment Update Conservative, Balanced And Growth Risk Profiles Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk Conservative AMPCI Balanced AMPCI AMPCI RIL ANZ FISHER FUNDS MILFORD NZAM TYN Growth AMPCI Return (% pa) AMPCI BALANCED NZAM 3 Year Risk/Return MILFORD TYN FISHER FUNDS AMPCI Risk ANZ

11 July 2014 Overseas Equities (unhedged) Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI 1, ANZ 2, EC Global Value Fund of Funds EC Value Fund FISHER FUNDS MAGELLAN Global 5, RUSSELL TYN Multi-Manager TYN SRI Average (asset-weighted) Average Index (MSCI Gross Unhedged) Index (MSCI Gross 100% Hedged) Index (MSCI All World) Year Risk/Return 16.0 MAGELLAN Global 14.0 Return (% pa) TYN Multi-Manager EC Value Fund AMPCI ANZ 6.0 FISHER FUNDS RUSSELL Risk 11

12 The Aon Investment Update New Zealand Equities Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk ANZ DEVON NZ Core MILFORD SALT TYN Core Average (asset weighted) Average Index (NZX 50 Gross) incl I/C Index (NZX 50 Portfolio) incl I/C Year Risk/Return MILFORD ANZ Return (% pa) DEVON NZ Core TYN Core SALT Risk

13 July 2014 Australasian Equities Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk Index Aware AMPCI AMPCI SEGF ANZ ANZ Australian Only CFSGAM Core 1, DEVON Australian DEVON Trans-Tasman FISHER FUNDS HARBOUR MILFORD Dynamic MILFORD Trans-Tasman MINT RUSSELL SALT NZ Focus Share SALT NZ Plus Share TYN Small Companies Absolute Return ANZ ESF DEVON Alpha MILFORD Active Growth TYN Aggressive Average (asset weighted) Average Index (NZX 50 Gross) incl I/C Index (NZX 50 Portfolio) incl I/C Index (ASX 200) Return (% pa) MILFORD A-G 3 Year Risk/Return MINT DEVON Alpha MILFORD T-T ANZ ESF HARBOUR FISHER FUNDS MINT ANZ DEVON T-T AMPCI SALT P-S TYN Agg TYN S-C MAM Index Trans-Tasman Aware TYN Absolute AggressiveReturn Risk 13

14 The Aon Investment Update New Zealand Bonds Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI 1, ANZ 1, FISHER FUNDS HARBOUR NZ Core HARBOUR Corporate Bond MILFORD RUSSELL TYN TYN Corporate Bond Average (asset-weighted) Average Index (ANZ Govt Stock) Year Risk/Return Return (% pa) TYN HARBOUR Corporate Bond FISHER FUNDS AMPCI ANZ Risk

15 July 2014 Overseas Bonds Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI ANZ 1, CFSGAM 2, FISHER FUNDS 1, RUSSELL 1, TYN Average (asset-weighted) Average Index (Citigroup) Index (Barclays) Year Risk/Return 10.0 RUSSELL FISHER FUNDS 9.0 Return (% pa) TYN 6.0 AMPCI ANZ Risk 15

16 The Aon Investment Update Cash Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI 3, ANZ 1, CFSGAM FISHER FUNDS HARBOUR TYN Average (asset-weighted) Average Index Year Risk/Return 4.0 TYN 3.9 Return (% pa) FISHER FUNDS AMPCI ANZ Risk

17 July 2014 Alternatives Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk MILFORD Global NZAM NZAM Alpha TYN Alternative TYN Bond Option Average (asset-weighted) Average Year Risk/Return NZAM Return (% pa) TYN Alternative Risk 17

18 The Aon Investment Update Property Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI AMP Listed ANZ FISHER FUNDS MINT SALT TYN Average (asset-weighted) Average Year Risk/Return 18.0 Return (% pa) AMPCI FISHER FUNDS MINT TYN SALT ANZ Risk

19 July 2014 Global Property Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI ANZ CSFGAM Average (asset-weighted) Average Income Funds Returns (%) gross of tax and fees for Funds the last the year ended 30 June Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk DEVON HARBOUR MILFORD TYN Average (asset-weighted) Average

20 Aon Hewitt Investment Consulting Service This quarterly survey is produced by Aon Hewitt New Zealand. Other investment consulting services include: Establishing investment objectives for both our clients and investment managers; Determining long-term investment strategies, in the form of benchmark portfolios and sector ranges, consistent with the investment objectives; Determining the efficient frontier and risk/ return profiles; Asset/liability modelling; Reviewing contractual agreements and legal documentation; Assisting in the appointment of investment managers, by: - Establishing the selection criteria; - Identifying suitable investment managers; - Analysing investment managers capabilities against the criteria; and - Carrying out qualitative reviews. Performance monitoring, against both investment objectives and competitors; and Communication of investment objectives and strategies to investors. Explanatory Notes 1. Returns are before management fees and tax and are generally per annum, except for quarterly returns which are per quarter. 2. Discretionary Assets are those for which the manager considers they have full discretion over stock selection and asset allocation. 3. Australasian Equities AMPCI s returns are those of their actively managed portfolios only. 4. Overseas Sectors The returns are in $NZ and exclude the effects of currency hedging on Equities and include the effects of currency hedging on Bonds, Global Property and Absolute Return Funds. 5. Overseas Equities AMPCI s returns are those of their actively managed portfolios only. 6. Property The returns in this table are influenced by the allocation to direct investment and holdings in listed vehicles. In the case of direct investment, the valuation approach and timing adopted by the manager will influence the returns. 7. In the compilation of the risk/return plots, risk is measured by the standard deviations of monthly returns over the period. The 3 Year Risk/Return snail trail charts show the change in 3 Year Risk/Return from the previous year to the current one. 8. Rankings on returns are calculated using more than 1 decimal place. Where managers have the same return rounded to 1 decimal place but different rankings, the rankings reflect the returns to more than 1 decimal place. 9. Index data was provided by AMP Capital. 20

21 About Aon Hewitt New Zealand July 2014 Part of Aon plc, Aon Hewitt is the world s leading HR consulting and outsourcing firm. We empower organisations by advising and delivering integrated HR solutions that help employers achieve business results and create better outcomes for employees. At Aon Hewitt, we know that every organisation is only as great as its people. That s why we work with clients to make sure their people are positive, productive and secure in their future. Only then can they achieve remarkable results for their organisation. We also recognise the importance of safeguarding individuals financial wellbeing as well as their physical wellbeing. Our Wealth Management business helps individuals to meet their wealth creation, protection and retirement planning needs. In New Zealand, Aon Hewitt provides consulting services and solutions to clients in the areas of: Aon KiwiSaver Scheme Aon Master Trust KiwiSaver and superannuation administration actuarial and investment consulting engagement and leadership remuneration surveys and analytics performance and rewards consulting health and benefits global benefits. With more than 30,000 professionals in 120 countries, Aon Hewitt makes the world a better place to work for clients and their employees. About Aon Aon plc is the leading global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 65,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative and effective risk and people solutions and through industry-leading global resources and technical expertise. Aon has been named repeatedly as the world s best broker, best insurance intermediary, reinsurance intermediary, captives manager and best employee benefits consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited to learn about Aon s global partnership and shirt sponsorship with Manchester United 21

22 The Aon Investment Update The Aon Hewitt Investment Forecasts Conducted during July 2014 Investment Sector NZ Cash NZ Fixed Interest NZ Property NZ Equities International Fixed Interest International Equities Inflation Rate Over the current year 1 Jul Jun 2015 Over the next five years 1 Jul Jun 2019 Average Dispersion Average Dispersion 3.9% (0.2%) 4.2% (0.7%) 3.8% (0.4%) 4.2% (1.0%) 3.3% (0.9%) 4.5% (0.9%) 3.3% (1.1%) 5.2% (0.4%) 6.3% (2.0%) 7.0% (1.4%) 6.6% (2.5%) 6.9% (2.0%) 6.4% (2.5%) 7.7% (0.5%) 7.8% (1.7%) 9.1% (2.0%) 2.7% (1.0%) 4.1% (1.1%) 2.6% (1.0%) 4.4% (1.1%) 8.4% (1.5%) 8.2% (0.9%) 10.7% (4.6%) 8.8% (0.9%) 2.0% (0.2%) 2.2% (0.4%) 2.1% (0.8%) 2.2% (0.5%) Contributors to the survey were: ANZ Investments (NZ) BT Funds Management (NZ) Devon Funds Management First NZ Capital Fisher Funds Harbour Asset Management Notes: 1. Participants were asked for their estimate of the annual rate of investment return before tax and expenses for a New Zealand dollar investor. The figures shown are the average of all responses received. Figures in brackets give a measure of the dispersion of responses, and are equal to the second highest response less the second lowest. 2. The figures in italics are the results of our April 2014 survey. 3. These results may be reprinted in whole or in part, but attribution to Aon Hewitt would be appreciated. 4. The information contained in this report is provided for general information purposes only. It is given without knowledge of your individual circumstances and should not be used as a substitute for you seeking your own independent professional advice. No liability will be accepted for loss resulting from reliance on information contained in this report which proves to be inaccurate and/or incomplete. 2222

23 July 2014 The Aon Hewitt Economists Survey Conducted during July 2014 In 1 year s time In 4 years time In 7 years time Average Dispersion Average Dispersion Average Dispersion Inflation rate as measured by CPI Rate of increase of Average Weekly Wage Real interest rate (i.e., yield on 10 year Govt stock, in excess of inflation) Rate of growth of real GDP Trade Weighted Exchange Rate (TWI) 2.1% (0.3%) 2.2% (0.1%) 2.2% (0.3%) 2.1% (0.2%) 2.3% (0.1%) 2.2% (0.3%) 2.8% (1.2%) 3.0% (0.5%) 2.9% (0.8%) 2.8% (1.2%) 3.1% (0.4%) 2.9% (0.7%) 3.0% (0.3%) 3.1% (0.4%) 3.2% (0.2%) 2.9% (0.2%) 3.0% (0.3%) 3.2% (0.3%) 3.3% (0.9%) 2.4% (0.3%) 2.4% (0.8%) 3.4% (0.7%) 2.3% (0.2%) 2.4% (0.8%) 76.3 (2.2) 67.9 (3.0) 67.2 (4.0) 76.8 (2.0) 68.2 (2.9) 67.4 (4.0) Contributors to the survey were: ANZ Bank (NZ) BNZ Deutsche Bank (NZ) First NZ Capital NZIER UBS NZ Notes: 1. The figures shown are the average of all responses received. Figures in brackets give a measure of the dispersion of responses, and are equal to the second highest response less the second lowest. 2. The figures in italics are the results of our April 2014 survey. 3. These results may be reprinted in whole or in part, but attribution to Aon Hewitt would be appreciated. 4. The information contained in this report is provided for general information purposes only. It is given without knowledge of your individual circumstances and should not be used as a substitute for you seeking your own independent professional advice. No liability will be accepted for loss resulting from reliance on information contained in this report which proves to be inaccurate and/or incomplete. 23

24 Aon Hewitt New Zealand Consultants and Actuaries Auckland Level 2, AMP Centre, 29 Customs Street West PO Box 3167, Shortland Street Auckland 1140 Tel: Fax: Christchurch 388 Blenheim Road, Christchurch PO Box 2058, Christchurch 8140 Tel: Fax: Wellington Level 2, State Insurance Building, 1 Willis St, Wellington PO Box 2764, Wellington 6140 Tel: Fax: Visit our website at Or nz.info@aonhewitt.com The information used to compile this survey has been provided by the investment managers or is from publicly available sources. The information contained in this report is provided for general information purposes only. It is given without knowledge of your individual circumstances and should not be used as a substitute for you seeking your own independent professional advice. No liability will be accepted for loss resulting from reliance on information contained in this report which proves to be inaccurate and/or incomplete.