QUARTERLY REPORT THREE MONTHS TO 30 JUNE 2013

Transcription

1 MERCER INVESTMENT TRUSTS NEW ZEALAND June 2012 QUARTERLY REPORT THREE MONTHS TO 0 JUNE 201

2 MERCER INVESTMENT TRUSTS NEW ZEALAND Contents ECONOMY & MARKETS 1-2 ASSET ALLOCATIONS & PERFORMANCE INVESTMENT MANAGER PERFORMANCE MANAGER CHANGES 4 INVESTMENT MANAGER RETURNS AND BENCHMARKS 5-6 Mercer Investment Nominees (NZ) Limited (MINL (NZ)) is the Trustee of the Mercer Investment Trusts New Zealand (MITNZ), Mercer (N.Z.) Limited (Mercer) has prepared and published this Report. Investors should be aware that the value of an investment in any of the MITNZ portfolios may rise and fall from time to time and that neither MINL (NZ) nor Mercer guarantees the investment performance, earnings or return of capital invested in any of the MITNZ portfolios. To invest in the MITNZ, you will need to complete an application form included in, or accompanying, a current MITNZ Information Memorandum which is issued by, and available from MINL (NZ). The information contained in this Report is of a general nature only and does not take into account the personal objectives, nancial situation or needs of individual investors. It is important that you consider these matters, read the MITNZ Information Memorandum and obtain advice from an appropriately authorised nancial adviser before making any investment decision. The investment returns shown for the MITNZ throughout this Report do not take into account the unique characteristics that apply to each investor (such as timing of cash!ow). As a result, the actual investment returns applying to a particular investor may di"er from the investment returns shown in this Report. You should also remember that past performance should not be relied upon as an indicator of future performance. All services provided in this report are delivered strictly on the basis of advice to a wholesale client in terms of the Financial Advisers Act Prepared: August 201 ECONOMY & MARKETS It was a quarter of two halves. April continued much of what we had seen over the 12 months to March: interest rates declining and share markets rallying. With central banks holding interest rates at record lows and investors chasing yield, sectors such as NZ Shares (+4.%) and Global Property (+6.0%) continued to lead the way over the month. And despite both US and Chinese GDP coming in south of expectations, global equity markets also continued to deliver strong returns in April. It only took a few words from US Federal Reserve Chairman, Ben Bernanke, for things to change. Mention of a tapering to the US quantitative easing programme saw the US 10 year bond yield rise 0.49% to end May at 2.16%. As a result, yield assets retreated immediately, looking less attractive given the prospect of rising interest rates. Global Property was a notable casualty, down 5.% over the month. In June, doubts that May signalled a turning point for markets were extinguished as interest rates continued to rise (the US 10 year yield rose to 2.48% by quarter end), sending bond returns on a downward spiral and prompting falls in equity prices. US Federal Reserve tapering was again the catalyst against a backdrop of good progress shown in most developed markets. As a result the US dollar rallied strongly vs the NZ dollar (-7.8% over the quarter). We have seen recoveries in the UK and US both gain further traction during the quarter, while Japan is bene tting from renewed scal stimulus and a lower yen. Europe has shown signs of life over the quarter, with manufacturing numbers improving (although still on a downward trajectory). In contrast, emerging economies seem to be falling behind. China also made headlines during the June with a (seemingly self-imposed) credit crunch, aiming to sti!e the rise of shadow banking, causing Chinese and emerging market stocks to tumble. Signi cant recent developments include: China s Q1 GDP came in below expectations at an annual pace of 7.7%. The announcement was met with disappointment from investment markets, a prompting the Chinese Government to revise its growth target from 8.2% to 7.9%. Data out of the US was largely below expectations during April. Q1 GDP showed the economy is growing at an annual pace of 2.5% (vs. % expected). Manufacturing slowed for the rst time in seven months during March and employment data was weak with the non-farm payrolls gure coming in well short of expectations. During May, the European Central Bank cut rates for the rst time in 10 months, down 0.25% to a record low of 0.50%, promising banks access to liquidity in order to help companies gain access to credit. German Q1 GDP came in at 0.1% quarter on quarter, falling short of the 0.% expected. The German economy has contracted 1.4% over the past year re!ecting a terribly cold winter and lower demand from its major trading partners. Federal Reserve Chairman, Ben Bernanke, hinted at QE changes later in the year as the!urry of positive data out of the US continued into June, with consumer con dence, durable goods orders and home sale prices all beating estimates. We note, however, that conditions Bernanke has stipulated are needed in order to exit QE are still some way o". Unemployment, in particular, hit 7.6% in May, well above the 6.5% threshold set by Bernanke. Shadow banking in China, which has grown to an alarming 69% of GDP, was labelled by Fitch Ratings as unprecedented in modern world history. Shadow banking allows borrowers who aren t able to obtain nance through banks, to borrow money through nancial vehicles. It is estimated this a"ects 97% of Chinese small businesses. Lending rates for Chinese banks ballooned during June, only to come down somewhat by the end of the month. Market Outlook While US GDP growth (supported by continuing improvements in the housing and labour markets) appears to have weathered the impact of signi cant nancial drag in the rst half of 201, we expect US policy and interest rate normalisation to unfold over years as opposed to quarters. Recent payrolls data corroborates a growing expectation that the Federal Reserve may announce a slowdown in the monthly rate of asset purchases as early as September, but without a strengthening in employment growth, QE is unlikely to be terminated before mid The Fed s rush to taper purchases also remains constrained by in!ation expectations. Moreover, despite the Fed s more upbeat view on US growth, expectations that the end of QE will be followed quickly by interest rate rises rate have since been largely unwound. Nevertheless, volatility could remain elevated as the unwinding of monetary policy seems to be largely dependent on evidence that the growth in the economy is also creating jobs. For much of the developing world, however, it is the prospective tightening in US liquidity that will continue to pose the most signi cant challenges (although emerging Asia also has to contend with the implications of a weaker yen). More positively, strengthening recoveries in the developed economies will help export growth. With growth in China also running at an annualised rate of less than 7% in the rst half of 201, further deceleration is likely to be met with further policy support. Across the Tasman, there seems to be little sign of improvement in the non-mining areas of the economy and despite the fall in commodity prices, 1

3 QUARTER ENDING 0 JUNE 201 NOTE: Past performance is not a reliable indicator of future performance. Quarter Year Australia still very much appears a two speed economy. The RBA has cut the cash rate by 1.5% since the start of 2012 in an e"ort to stimulate growth, however the e"ect has been limited and there seems to be a strong case for further cuts. Re!ecting the growth in the economy, while the RBNZ has signalled that rates are likely to remain unchanged for the rest of this year, it has given its strongest signal yet that the next move will be an increase, most likely early in However, it would be naive not to acknowledge that future growth in the country is not reliant on our two largest trading partners, Australia and China, both of which are struggling somewhat at present. Sector Commentary Trans Tasman Equities New Zealand Shares closed the quarter in positive territory, up 0.5%, but it was far from a smooth ride as negative returns in May and June pegged back the strong 4.% gain in April. Australian Shares followed a similar trend, but closed the quarter down 2.5%. Both markets were a"ected by o"shore events. The NZ market, notable for its high dividend paying stocks, su"ered alongside other yield assets. The Australian market was also a"ected by this dynamic (although to a lesser extent), but also su"ered as a result of the slowdown in China Global Equities The divergence between developed and developing markets shares was strongly evident in the June quarter, with returns of +1.7% and -5.5% respectively. Brazil and India both detracted from returns with disappointing growth numbers and higher in!ation. The inactivity of the respective governments to address structural problems remains a concern and investors have deserted these countries as a result. The Chinese slow down and June credit crunch did nothing to increase con dence in emerging markets. However, contagion fears largely subsided by the end of the quarter as money market rates subsided. Property Listed Property investments proved to be a rollercoaster ride over the quarter, with both the UBS Global Property Index (-2.1%) and NZ Listed Property Index (-0.2%) closing the quarter in negative territory. Property stocks have proven popular over the past few years as investors have searched for yield amid record low interest rates, sending property stock valuations well over their NTA (Net Tangible Assets) values. The relatively sharp correction served as a reminder that even defensive stocks can produce volatile price movements. NZ Bonds and Cash NZ bond yields followed the global trend with the NZ 10 year bond closing the quarter up 0.5% to 4.1%. The rise in yields sent returns downwards with the ANZ All Government Stock Index down 2.2% for the quarter to return 0.0% over the past 12 months. A-Grade Corporate Bonds didn t participate fully in the sello", closing the quarter up 0.2%. Cash returns remained stagnant, returning 0.7% over the quarter, as the OCR has remained at 2.5% since February 2012 with a rise in rates now anticipated in early Global Bonds Global Bond yields rose over the quarter (prices fell), as the Federal Reserve (Fed) announced it is looking to slow the rate of bond purchases later this year. The Fed has a rosy outlook on US growth, but the extent to which bond purchases will be culled is largely dependent on an improvement in the job market. Global sovereign bonds fell 1% over the quarter, with global corporate bonds falling even further as the higher yield on o"er looks less attractive in the face of rising rates. Dynamic Asset Allocation We continue to be overweight growth assets, with intentional tilts towards overseas and emerging markets shares, although we slightly reduced our allocation to listed property. On the defensive side of the ledger, we remain underweight overseas sovereign and in!ation linked bonds, with a positive tilt to emerging market debt. Portfolios remain overweight cash as a balancing item. Finally, we retain our underweight currency hedging position. 2

4 MERCER INVESTMENT TRUSTS NEW ZEALAND NOTE: Past performance is not a reliable indicator of future performance. Mercer Defensive Mercer Fixed Interest Objectives To achieve a return (after investment management fees) that exceeds CPI increases by at least 2.0% per annum over rolling three year periods. Objectives To achieve a return (after investment management fees) that exceeds CPI increases by at least 1.25% per annum over rolling three year periods. Total & Excess Returns - Before fees and tax Mercer Defensive Months 1 Year Years (p.a.) 5 Years (p.a.) Total Returns - Before fees: na na Benchmark Return* na na Excess Returns: na na *Composite benchmark of relevant indices Total & Excess Returns - Before fees and tax Mercer Fixed Interest Months 1 Year Years (p.a.) 5 Years (p.a.) Total Returns - Before fees: na na Benchmark Return* na na Excess Returns: na na *Composite benchmark of relevant indices Asset Allocation Mercer Defensive Benchmark (%) Growth 20.0 Defensive 80.0 Shares Real Assets Actual (%) Shares Trans Tasman Shares Overseas Shares Overseas Small Caps Emerging Markets Real Assets Unlisted Property Listed Property Unlisted Infrastructure Listed Infrastructure Natural Resources Alternative Assets Fixed Interest Asset Allocation Mercer Fixed Interest Fixed Interest Benchmark (%) Actual (%) Fixed Interest New Zealand Sovereign Bonds Overseas Sovereign Bonds Overseas In!ation Linked Bonds Global Credit Emerging Markets Debt Cash Fixed Interest New Zealand Sovereign Bonds Overseas Sovereign Bonds Overseas In!ation Linked Bonds Global Credit Cash Currency Hedging (in Overseas Shares) * Net of tax 50 45

5 QUARTER ENDING 0 JUNE 201 INVESTMENT MANAGER PERFORMANCE Trans-Tasman Shares The Mercer Core Trans-Tasman Shares Fund outperformed over the quarter, adding 0.6% to the NZX50, which returned 0.5% over the quarter. Devon was the main contributor to excess performance, outperforming by 1.5%. Its material overweight to Fisher & Paykel Healthcare, which returned over 0% over the quarter, contributed strongly to excess returns. OnePath (+0.%) marginally outperformed, its overweight to Ryman Healthcare the largest contributor to excess performance. Not holding Oceanagold, Nuplex and Pumpkin Patch also added value as these shares underperformed the NZX50 over the quarter. A zero allocation to accounting software company Xero was a detractor. Harbour performed in line with the benchmark over the quarter. Gains made from its overweight to Fisher and Paykel Healthcare was negated by poor performance from waste management company, Transpaci c Industries, and property stock, Lend Lease. Overseas Shares The Overseas Shares Fund returned underperformed the index over the quarter, largely due to an underweight exposure to the outperforming US market and an overweight exposure to underperforming Emerging Markets. North American markets and an overweight to European Property, which rallied. An underweight to Japan combined with positive stock selection within that country also aided performance. The Mercer Direct Property Fund returned 4.% for the quarter, outperforming relative to the broader market. NZ Property manager, Fisher Funds (formerly Tower Asset Management), performed strongly over the quarter, bene tting from revenue growth through rental increases at two of its properties. The manager has a strong outlook on Auckland industrial property and is currently canvassing the area for further investment opportunities. Of our Australian managers, both Investa and Goodman had a number of positive asset revaluations, with Investa also noting positive leasing activity. Infrastructure The Mercer Listed Infrastructure Fund performed in line with its benchmark over quarter, delivering a return of.2%. Colonial First State outperformed, capitalising on improved conditions in European airport tra#c and exposure to the passenger rail and energy storage sectors. RARE underperformed the benchmark, largely due to holdings in European water distributors and a Brazilian thermal generating company. Our managers continue to be defensively positioned and tend to own more low beta stocks, which are typically less a"ected by broader market movements. value, easily outperforming the cash benchmark. Multi-strategy hedge fund manager, Standard Life, had only a small exposure to long interest rate strategies, which minimised losses, although credit exposures detracted. Bonds The Mercer Trans-Tasman Sovereign Bond Fund marginally outperformed the benchmark over the quarter, although still posted a negative return (- 1.7%) as bond yields rose, sending prices downward. NZ bond manager, OnePath, performed in line with the benchmark despite its long duration position. Australian manager, Challenger, outperformed, contributing strongly to excess returns. The Mercer Overseas Sovereign Bond Fund returned 1%, outperforming over the quarter. H20 delivered strong returns over the quarter, with exposure to peripheral Europe positive for performance, despite a downward turn during the second half of the quarter. H20 also bene tted from its exposure to the US dollar. The key drivers for AllianceBernstein were its underweight exposures to Australia and US, as well as currency positions, such as long US dollar versus Japanese Yen. Both the Australian in!ation-linked bond manager, Challenger (-0.%), and the global in!ation-linked bond manager, BlackRock (-.7%), performed in line with their benchmarks over the quarter. Franklin Templeton was the major detractor to performance for the quarter, a"ected by stock selection within the Energy and Healthcare sectors. Franklin has a concentrated portfolio of around 40 stocks, which can, at times, lag the benchmark over the shorter term. Baillie Gi"ord outperformed with positive contributions from holdings in Ryanair (airline), Naspers (media) and Tesla (automotive). During the quarter Edinburgh Partners was replaced by Arrowstreet. The investment team had lost faith in Edinburgh Partners ability to add value over the full market cycle and elected to replace it with Arrowstreet, which has been a long standing manager in the equivalent Mercer Overseas Shares product in Europe and already features as a manager in the Small Companies Fund. Property The Mercer Listed Property Fund returned -0.5% for the quarter, coming in slightly below the benchmark. Brook eld contributed strongly to returns, as a result of strong stock selection within the Asia Paci c and The Mercer Unlisted Infrastructure Fund returned 2.7% over the quarter, outperforming relative to its CPI + 5% benchmark. It was generally a quiet period for underlying asset revaluations, although Colonial First State produced strong outperformance due to a favourable asset revaluation. Natural Resources The Mercer Natural Resources returned -2.7% over the quarter, slightly underperforming. Strong gains from timber manager, New Forests Asset Management, were negated by collective underperformance from commodity managers H Global Advisors and Global Commodities. Alternative Assets The Alternatives Fund returned % for the quarter, slightly outperforming its benchmark, although manager results for the quarter were mixed. Managed Futures manager, H, was a drag on performance, with net long positions in interest rates and bonds detracting the most from returns. In contrast, GMO s managed futures positions added The Mercer Global Credit Fund performed in line with its benchmark over the quarter, returning 0%. Colonial First State had a weaker quarter in relative terms, with widening credit spreads a"ecting its allocation to high yield bonds, while exposure to Asian credit was also a detractor. Wellington performed in line with benchmark over the quarter, with positive contributions from the Utilities sector and security selection in Mortgage Backed Securities $"setting the bias towards corporate credit. Cash The Cash Fund returned 0.9% over the quarter, outperforming its benchmark. The Fund bene tted from the higher returns that term deposits are providing and is also long duration relative to benchmark. MANAGER CHANGES Termination : Edinburgh Partners (Overseas Shares), Appointment : Arrowstreet (Overseas Shares), BlackRock (US Passive ETF). 4

6 MERCER INVESTMENT TRUSTS NEW ZEALAND NOTE: Past performance is not a reliable indicator of future performance. Sector performance Against sector benchmark - Excess return (+% or -%) as at 0 June 201 Sector Months 1 Year Years (p.a.) 5 Years (p.a.) SHARES REAL ASSETS FIXED INTEREST Trans Tasman Shares (benchmark) Mercer Trans Tasman Shares Overseas Shares (benchmark) Mercer Overseas Shares Hedged Overseas Shares (benchmark)* Mercer Hedged Overseas Shares Unlisted Property (benchmark) na Mercer Unlisted Property na Listed Property (benchmark)* na Mercer Listed Property na Listed Infrastructure (benchmark)* na Mercer Listed Infrastructure na Unlisted Infrastructure (benchmark)* na Mercer Unlisted Infrastructure na Natural Resources (benchmark)* na Mercer Natural Resources na Trans-Tasman Sovereign Bonds (benchmark) na Mercer Trans-Tasman Sovereign Bonds na Overseas Sovereign Bonds (benchmark)* na Mercer Overseas Sovereign Bonds na Overseas In!ation-Linked Bonds (benchmark)* na Mercer Overseas In ation-linked Bonds na Trans-Tasman In!ation-Linked Bonds (benchmark)* na na Mercer Trans-Tasman In ation-linked Bonds na na Global Credit (benchmark)* na Mercer Global Credit na Emerging Market Debt (benchmark)* na na Mercer Emerging Market Debt na na Cash (benchmark) Mercer Cash * Mercer Australia (MMF) holding, therefore hedged back to NZD at 18% gross of tax BENCHMARKS What asset class sector benchmarks are used? Trans Tasman Shares Overseas Shares Hedged Overseas Shares Unlisted Property Listed Property Listed Infrastructure NZX 50 Index with Imputation Credits MSCI World Index with net dividends reinvested MSCI World Index with net dividends reinvested (100% hedged to NZD on a net of tax basis) Mercer NZ Unlisted Property Index FTSE EPRA/NAREIT Global Real Estate Index (with net dividends reinvested) (100% hedged to NZD on a net of tax basis) UBS Global 50/50 Infrastructure & Utilities Index (100% hedged to NZD on a net of tax basis) Unlisted Infrastructure Consumer Price Index (CPI) + 5% Natural Resources 45% DJ UBS Index Plus (100% hedged to NZD on a net of tax basis) plus 15% S&P GSCI (100% hedged to NZD on a net of tax basis) plus 40% CPI +5% Alternative Assets ANZ 90-day Bank Bill Index plus a currency di"erential between the Australian Dollar and the New Zealand Dollar. Trans-Tasman Sovereign Bonds Overseas Sovereign Bonds Overseas In!ation Linked Bonds Global Credit Emerging Market Debt Cash ANZ NZ All Government Stock Index JP Morgan Government Bond Index Global (100% hedged to NZD on a net of tax basis) Barclay s Capital World Government In!ation-Linked Bond Index (100% hedged to NZD on a net of tax basis) Composite: 50% Barclay s Global Aggregate Corporate Index (100% hedged to NZD on a net of tax basis), & 50% Barclay s Global Aggregate ex-treasury ex-government Related Index (100% hedged to NZD on a net of tax basis) JP Morgan GBI-EM Global Diversi ed Composite Index in NZD ANZ 90-day Bank Bill Index 5

7 Manager performance against sector benchmark - Excess return (+% or -%) as at 0 June 201 QUARTER ENDING 0 JUNE 201 NOTE: Past performance is not a reliable indicator of future performance. Managers Months 1 Year Years (p.a.) 5 Years (p.a.) SHARES REAL ASSETS FIXED INTEREST Trans Tasman Shares OnePath (NZ) Harbour Asset Management na na Devon Funds Management na na Overseas Shares* Schroders (low-risk active) na Baillie Gi"ord +0.6 na na na Arrowstreet na na na na Global Thematic Partners na na Hexavest na na Lingohr na na Franklin Templeton -5. na na na Unlisted Property Tower Asset Management na Lend Lease Investment Management -0. na na na Investa Property Group +0.5 na na na Goodman Funds Management +0.9 na na na Listed Property* Brook eld +1.6 na na na Principal +1.1 na na na Urdang +0.2 na na na Listed Infrastructure* Colonial First State Investments na Magellan na RARE na Unlisted Infrastructure* Colonial First State Investments Macquarie Specialised Asset Management na na Westbourne Credit Management na na Natural Resources* Global Commodities na H Global Advisors (broad commodity) na H Global Advisors (enhanced broad commodity) na New Forest Asset Management na na Trans-Tasman Sovereign Bonds Macquarie Investment Management na Challenger na na BT Investment Management +0.1 na na na OnePath (NZ) na Overseas Sovereign Bonds* AllianceBernstein na na Challenger na H 2 O Asset Management na na Overseas In!ation Linked Bonds* BlackRock na Trans-Tasman In!ation Linked Bonds* Challenger na Global Credit* Colonial First State Investments na Wellington Management na Cash AMP Capital Investors Note: Returns are calculated before fees, and may be based on provisional estimate. * Returns are stated on an unhedged basis using excess derived from the Australian equivalent product 6

8 FOR FURTHER INFORMATION Chris Di Leva Investment Analyst Russell Garrett Principal t: (+64) t: (+64) e: chris.dileva@mercer.com e: Russell.garrett@mercer.com