The Aon Investment Update

Transcription

1 JANUARY 2010 The Aon Investment Update

2 In this issue... Commentary Discretionary Assets Risk and Return Asset Allocation...5 Conservative, Balanced,. Growth Risk Profiles... 6 Overseas Equities (unhedged)... 7 New Zealand Equities... 8 Australasian Equities... 9 New Zealand Bonds...10 Overseas Bonds...11 Property Cash Global Property Other Funds Explanatory Notes Investment Forecasts Economists Survey Contact Details The Managers The Indices ABNZL AMPCI AXA GI NZ Equities Alliance Bernstein Ltd NZ AMP Capital Investors (NZ) AXA Global Investors (previously known as Arcus. Investment Mgt) ASB ASB Bank Investments BROOK Brook Asset Mgt ING ING GSJBW Goldman Sachs J B Were MAM Milford Asset Management MINT Mint Asset Management NZAM NZ Assets Mgt RUSSELL Russell Investment Group SMS Smartshares TAM Tower Asset Mgt TYN Tyndall Investment Mgt NZX 50 (Gross)* NZX 50 Portfolio* Aust Equities NZX 50 (Gross)* NZX 50 Portfolio* Overseas Equities MSCI Gross in $NZ NZ Bonds ANZ Government Stock Overseas Bonds Citigroup Govt. World Barclays Capital Aggregate Cash ANZ 90 Day Bank Bill *Includes imputation credits Rk means Ranking, where 1 indicates that manager had the highest return over the period. Hedge 0% & 100% 100% 100%

3 Investment Commentary - December 2009 A strong recovery - but 2010 may be a little rough Investors will be relieved The 2009 calendar has witnessed a strong rally in most asset classes - surprising and welcome given the pessimism that prevailed by the middle of the first quarter of the year. A summary of the returns for the last two calendar years is given in the table below: Calendar year investment return (gross of tax and fees) Asset Sector 12 months ending 31 December months ending 31 December 2008 Manager average Best Worst Manager Average Income Cash NZ Bonds Global Bonds 4.3% 3.7% 13.5% 4.7% 5.1% 26.7% 3.3% 2.4% 2.9% 8.6% 15.1% 3.9% Growth Australasian Equities Global Equities* NZ Property 26.3% 10.5% -1.4% 55.9% 14.3% 16.3% 20.1% -2.5% -19.4% -25.5% -28.1% -18.7% *currency unhedged Note: the average is weighted by assets under management. These strong returns are, of course, welcome but may be a little misleading. First, for many investment managers the strong returns from equities over 2009 have not been sufficient to make good the losses over This is illustrated in the table below: Calendar year investment return (gross of tax and fees) Asset Sector Australasian Equities Global Equities* NZ Property Manager average Positive returns and % 10.5% -1.4% -25.5% -28.1% -18.7% 1 of 18 0 of 11 0 of 5 *currency unhedged As expected (but no longer taken for granted), all managers have delivered positive returns over the two year period on both their NZ and their global bond funds. However, their performance has remained unusually volatile over that period. More on this shortly. Secondly, investment markets benefited over 2009 by the no cost is too high approach by governments determined to stave off a very substantial recession. This included pouring money into investment markets. The initial objective of limiting the impact of the recession appears to have been achieved, but the resultant hang-over could be both gnarly and drawn-out. 1

4 Bond markets over the last two years The last two years have seen some extraordinary returns from fixed interest funds. At the beginning of 2009 investment managers were predicting a strong year for corporate bonds through the combination of high running yields and capital gains as credit spreads (ie the interest rate margin between corporate and sovereign debt) contracted. This was contingent on there not being a substantial number of defaults on corporate debt. This scenario has played out for global bonds over Investment managers for NZ bond funds performed very well in absolute terms over 2008, with most returns well into double figures, but no where near as well in The performance for global bonds has been very mixed over the 2 years, though with some managers delivering strong absolute returns. A summary of the performance of both sectors over the last 5 years is given below. Fixed Interest Securities NZ Bonds Global Bonds Calendar Years Manager Average Beating Index Manager Average Beating Index NZX Govt Barclays % 7 of % 8 of % 3 of 7 3.9% 2 of % 5 of 7 6.9% 2 of % 9 of 9 6.0% 4 of % 6 of 7 8.5% 7 of 8 Note: the average is weighted by assets under management. The last two years have seen an unusually large range of returns amongst investment managers, especially for global bonds. Historically, compared to equity funds, the returns amongst investment managers have been relatively similar with the average difference between the best and the worst performing investment manager for a quarter being: NZ Bonds 0.92% Global Bonds 1.75% However, over the last two years there has been a very large spread of returns from investment managers. This is illustrated by the following graph, which shows the difference between the best and the worst performing investment managers for each quarter over the last three years. Spread Between Managers Quarters 2007 to

5 Investment manager changes The last year has also seen some major changes amongst the wholesale investment managers operating in New Zealand. AllianceBernstein has closed its New Zealand office and effectively withdrawn from actively supporting NZ business. ANZ has moved to full ownership of ING (NZ) Ltd. NZAM / Milford have developed a balanced fund product. Almost all investment managers have continued to modify their offerings to meet market, and in particular KiwiSaver, demand. These changes have been driven partly by the turmoil in investment markets, with poor investment returns resulting in clients going elsewhere and in the total amount of funds under management, and so income for the manager, falling. However, due to corporate restructuring, rebranding and globalisation, change within investment managers is always happening. The table below provides a snapshot of the investment managers participating in the Aon survey at selected dates over the last 20 years. Investment managers offering multi-sector wholesale products for the year ended 31 December AMP AMP AMP AMP AMP... ASB ASB ASB AXA GI 1 AXA GI 1 AXA GI 2 AXA GI 2 AXA GI 2... Alliance Bernstein 3 Alliance Bernstein 3. ING 4 ING 4 ING ING.... NZAM/Milford Tower Tower Tower Tower Tower.. Tyndall 5 Tyndall 5 Tyndall Tyndall ANZ ANZ ANZ Westpac Westpac Westpac Colonial Mutual NZI Life Norwich Southpac Colonial Mutual NZI Life Norwich Southpac.. Prudential... BNZ BNZ... BT BT... CFS CFS... NZFM NZFM 1 Previously known as National Mutual 2 Previously known as ARCUS 3 Previously known as Alliance Capital 4 Previously known as Armstrong Jones 5 Previously known as Guardian Trust In addition, there are some managers that offer wholesale investment services only in one or two sectors, typically Australasian equities. Currently these include Brook, Goldman Sachs JB Were and Mint, with Harbour about to open its doors. 3

6 Discretionary Assets - Risk and Return 4

7 Discretionary Assets - Asset Allocation NZ Bonds Overseas Bonds Cash Aust Equities Overseas Equities Absolute Return Property 5

8 Conservative, Balanced & Growth Risk Profiles Balanced 6

9 Overseas Equities (unhedged) 7

10 New Zealand Equities 8

11 Australasian Equities 9

12 New Zealand Bonds 10

13 Overseas Bonds 11

14 Property 12

15 Cash 13

16 Global Property Other Funds 14

17 Aon Investment Consulting Services This quarterly survey is produced by Aon 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; < 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. < Reviewing contractual agreements and legal documentation; < Performance monitoring, against both investment objectives and competitors; < Communication of investment objectives and strategies to investors; and < Asset/liability modelling. 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. 8. Average return is the asset-weighted average return. 9. 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. 10. Index data was provided by AXA Global Investors. 15

18 Investment Forecasts CONDUCTED DURING JANUARY 2010 Over the Current Year Over the Next Five Years Investment Sector 1 Jan Dec Jan Dec 2014 Average Dispersion Average Dispersion NZ Cash 3.5% (0.9%) 5.7% (0.7%) 3.2% (0.7%) 5.6% (1.4%) NZ Fixed Interest 5.9% (0.5%) 6.2% (0.3%) 5.3% (1.9%) 6.0% (0.9%) NZ Property 5.7% (5.0%) 8.3% (1.8%) 6.9% (4.0%) 8.4% (2.3%) NZ Equities 10.3% (2.5%) 9.6% (3.8%) 10.6% (5.0%) 9.5% (4.5%) International Fixed Interest 4.7% (2.6%) 5.2% (0.7%) 5.4% (5.5%) 5.6% (1.2%) International Equities 11.1% (4.2%) 9.2% (2.5%) 11.2% (5.0%) 9.3% (3.0%) Inflation Rate 1.9% (0.2%) 2.6% (0.5%) 1.9% (0.3%) 2.6% (0.2%) Contributors to the survey were: AMP Capital Investors BT Funds Management First NZ Capital GSJBWere ING (NZ) Limited New Zealand Funds 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 grey are the results of our October 2009 survey. (3) These results may be reprinted in whole or in part, but attribution to Aon Consulting, Consultants and Actuaries, 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

19 Economists Survey CONDUCTED DURING JANUARY 2010 In 1 year's time In 4 years' time In 7 years' time Average Dispersion Average Dispersion Average Dispersion Inflation rate as 2.2% (1.4%) 2.5% (0.5%) 2.4% (0.3%) measured by CPI 1.6% (0.9%) 2.4% (0.6%) 2.4% (0.5%) Rate of increase of 2.3% (1.6%) 3.6% (0.8%) 3.6% (0.8%) Average Weekly Wage 2.0% (1.4%) 3.3% (1.1%) 3.8% (0.6%) Real interest rate (ie yield on 10 year Govt 4.5% (1.9%) 4.1% (0.7%) 4.1% (0.6%) stock, in excess of inflation) 4.8% (1.6%) 4.5% (1.5%) 4.2% (0.7%) Rate of growth of 2.7% (0.7%) 2.5% (0.5%) 2.8% (0.8%) real GDP 2.0% (2.2%) 2.7% (0.6%) 2.6% (0.7%) Trade Weighted 63.9 (4.7) 62.7 (8.1) 61.8 (3.0) exchange rate (TWI) 63.8 (7.5) 63.3 (8.1) 61.4 (3.0) Contributors to the survey were: ANZ Bank (NZ) Limited Bank of New Zealand BERL Deutsche Bank (NZ) Limited First NZ Capital New Zealand Business Roundtable NZIER UBS NZ Limited Westpac 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 grey are the results of our October 2009 survey. (3) These results may be reprinted in whole or in part, but attribution to Aon Consulting, Consultants and Actuaries, 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. 17

20 Aon New Zealand Consultants and Actuaries Auckland Level 2, AMP Centre 29 Customs Street West PO Box 3167, Shortland Street Auckland 1140 Tel: Fax: acg-info@aon.co.nz Wellington Level 8, BP House 20 Customhouse Quay, Wellington PO Box 2764, Wellington 6140 Tel: Fax: acg-info@aon.co.nz Christchurch Level 9, BNZ House Hereford Street PO Box 2058, Christchurch 8140 Tel: Fax: acg-info@aon.co.nz Visit our website at 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.