The Aon Investment Update

Transcription

1 The Aon Investment Update Aon Hewitt Investment Consulting May 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) Limited BROOK Brook Asset Mgt BT BT Funds Management (NZ) Ltd CFSGAM Colonial First State Global Asset Management DEVON Devon Funds Mgt Ltd EC Elevation Capital Mgt Ltd FISHER FUNDS Fisher Funds Management Ltd HARBOUR Harbour Asset Management MAGELLAN Magellan Asset Management Limited 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* Overseas MSCI Gross in $NZ 0% & 100% Equities 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 May 2014 Investment Commentary - March 2014 New Zealand equities continue to perform well The first quarter of 2014 was a volatile period for investors but most asset classes managed to provide positive returns, albeit modest ones for some sectors. Perhaps the biggest surprise was the strength of bond markets. Despite expectations of higher interest rates, long-term yields actually fell over the quarter, helping both domestic and global bonds to post positive returns. New Zealand equities beat global equities Equity markets closed the quarter in positive territory, however, global equities were only just positive in local currency terms and negative on an unhedged basis. There were several adverse factors, including an exceptionally cold winter slowing the US economy and economic data suggesting that growth in the Chinese economy is slowing. The on-going crisis in the Ukraine also spooked investors. On a fully hedged basis, global equity markets returned around 1.5% to New Zealand investors over the quarter. However, a rising New Zealand dollar eroded all of these gains. None of the unhedged overseas equity funds managed to provide a positive return over the quarter despite the fact that many equity markets rose in local currency terms. Domestic equities were strong, with the NZX 50 Gross rising 8.8% over the quarter, while Australian equities were barely positive. On most measures, the New Zealand stock market now looks expensive, but that does not mean prices can t move higher. The local economy is growing strongly, inflation remains benign, and consumer confidence and business confidence are both high. For managers of Australasian equities, one of the key determinants of performance was the relative allocation between New Zealand and Australian shares. The two Australian only funds in the survey both returned -0.7% over the quarter, whereas the best performing Australasian fund (ANZ Investments Australasian Equity Fund) returned more than 10%. Investment performance (before tax and investment fees) for equity funds to 31 March 2014 is summarised overleaf: 3

4 The Aon Investment Update Asset Sector Q year 3 years p.a 5 years p.a New Zealand Equities - Manager average - NZX50 gross 8.7% 8.8% 21.7% 17.5% 17.6% 15.8% 17.4% 16.2% Australasian Equities - Manager average - NZX50 gross/ ASX % 7.2% 18.0% 16.5% 13.4% 14.0% 16.7% 15.5% Global Equities (unhedged) - Manager average - MSCI World (Unhedged) -4.4% -4.0% 15.7% 15.0% 5.7% 5.6% 10.5% 8.8% 1 75% NZX50 Gross with imputation credits/25% ASX 200 with currency unhedged During the quarter we celebrated the 5th anniversary of the current bull market in equities generally agreed to have started on 9th March 2009 when the main US equity index, the S&P 500, bottomed at the disturbing level of 666. Five years later the index finished the March 2014 quarter at 1,872 a gain of 180%, or more than 20% per annum for the 5 year period. Returns from other equity markets have varied but have all been strong, resulting in the MSCI World Index returning 18.6% p.a. on a fully hedged basis. New Zealand dollar strength (particularly versus the US dollar and Japanese Yen) meant that on an unhedged basis the return was a more muted 8.8% p.a. Bonds surprise with positive returns Domestic bond managers all beat the New Zealand Government Bond index over the quarter, with returns ranging from 1.2% (Fisher Funds) to 1.7% (ANZ Investments). However over the last twelve months, ANZ s is still the worst performing fund (-0.6%), and Harbour s Corporate Bond fund the best (3.3%). Corporate bonds significantly outperformed government bonds over the same period. 4

5 May 2014 Amongst Global Bond funds, returns for the quarter ranged from 2.2% to 3.0%, compared with an index return of 2.7%. Over the longer term returns have been impressive, with the top three funds (Fisher Funds, Russell and AMP) all returning more than 10% p.a. over the last 5 years, compared with 7.2% for the Barclays Global Aggregate index. Overseas bonds have continued to outperform domestic bonds with the average global manager returning 9.7% over the last 5 years, compared with 6.7% for the average domestic bond manager. Some of this outperformance is due to the hedging premium, but the relative strength of the New Zealand economy, and the expectation that our economy will continue to grow at a rate significantly higher than most others, has put considerable pressure on local yields, and contributed to the recent underperformance of our market. A summary of the performance of bond managers for periods ending 31 March 2014 is provided below. Asset Sector Q year 3 years p.a 5 years p.a New Zealand Bonds - Manager average - NZ Govt Bond Index 1.4% 1.2% 1.3% -1.7% 6.0% 4.8% 6.7% 5.1% Overseas Bonds - Manager average - Barclays Global Aggregate 2.6% 2.7% 4.2% 3.7% 8.0% 7.0% 9.7% 7.2% Global bonds performed well during the first few years of the equity bull market as Central Bank policies (particularly the US Federal Reserve) pushed global yields to very low levels. However, following the first mention of tapering by then Fed Chairman Ben Bernanke in May 2013, yields have risen sharply and bond returns have suffered as a result, as illustrated in the graph overleaf. The Barclays Aggregate index 5

6 The Aon Investment Update (100% hedged) returned 7.2% per annum over the full 5 year period, but only 3.7% over the last 12 months. 1.2% US Bond Yields 4.5% 1.0% 4.0% 3.5% 0.8% 3.0% 0.6% 2.5% 2.0% 0.4% 1.5% 0.2% 1.0% 0.5% 0.0% 0.0% Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 2 Year Treasuries 10 Year Treasuries (rhs) Looking forward, returns from global bonds are likely to remain low, and the 7-10% p.a. returns that we have seen over the last 5 years are very unlikely to be repeated over the next 5. However, within a balanced portfolio, bonds are primarily held to reduce risk and to provide protection should there be a shock to the global economy, or if global growth slows significantly. If there are no shocks, and there is a gradual recovery in global economic growth, resulting in interest rates continuing to rise, global bonds should still be able to provide positive, though modest, returns. Global bond managers will need to earn their fees in this challenging type of environment and it is likely that there will be noticeable divergence in the performance of the various funds. It will be important to monitor the managers carefully to ensure that global bond funds are performing as they should. 6

7 May 2014 New Zealand Funds Management Changes Within the New Zealand funds management community several personnel changes were announced during the quarter: Head of equities, Rickey Ward, left Tyndall NZ to take up a new role at JBWere New Zealand John Phipps resigned from his role as deputy head of equities at AMP Capital Darryl Briggs left Harbour Asset Management Phipps and Briggs have announced that they will open their own boutique funds management business called Forte Funds Management Shane Solly resigned from Mint Asset Management, where he was head of equities, to take up a new role at Harbour Asset Management Macquarie announced the closure of Brook Asset Management 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 31 March 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 NZAM FISHER FUNDS Risk

9 May 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 31 March 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 TYN SRI Growth AMPCI Return (% pa) BALANCED AMPCI NZAM 3 Year Risk/Return MILFORD TYN FISHER FUNDS AMPCI Risk ANZ

11 May 2014 Overseas Equities (unhedged) Returns (%) gross of tax and fees for Funds the last the year ended 31 March Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI ANZ 2, EC Global Value Fund of Funds EC Value Fund FISHER FUNDS MAGELLAN Global 5, RUSSELL TYN TYN Multi-Manager TYN SRI Average (asset-weighted) Average Index (MSCI Unhedged) Index (MSCI 100% Hedged) Year Risk/Return 16.0 MAGELLAN Global Return (% pa) EC Value Fund TYN Multi-Manager FISHER FUNDS AMPCI ANZ RUSSELL EC Value Risk 11

12 The Aon Investment Update New Zealand Equities Returns (%) gross of tax and fees for Funds the last the year ended 31 March Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk ANZ BROOK Premium Share 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 24.0 MILFORD 22.0 Return (% pa) BROOK Premium Share TYN Core ANZ SALT 14.0 DEVON NZ Core Risk

13 May 2014 Australasian Equities Returns (%) gross of tax and fees for Funds the last the year ended 31 March Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk Index Aware AMPCI AMPCI SEGF ANZ ANZ Australian Only BROOK Tasman CFSGAM Core 1, DEVON Australian DEVON Trans-Tasman FISHER FUNDS HARBOUR MILFORD Trans-Tasman MINT SALT Focus Share SALT NZ Plus Share TYN Small Companies Absolute Return ANZ ESF BROOK Alpha 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 MILFORD A-G MINT 3 Year Risk/Return HARBOUR Index Aware Return (% pa) ANZ ESF MILFORD T-T DEVON Alpha ANZ HARBOUR FISHER FUNDS AMPCI SALT P-S DEVON T-T TYN Agg BROOK Alpha TYN S-C MAM Absolute Active Growth Return Risk 13

14 The Aon Investment Update New Zealand Bonds Returns (%) gross of tax and fees for Funds the last the year ended 31 March Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI 1, ANZ 1, BT Bond Fund BT Corporate Bond FISHER FUNDS HARBOUR NZ Core HARBOUR Corporate Bond TYN TYN Corporate Bond Average (asset-weighted) Average Index (ANZ Govt Stock) Year Risk/Return Return (% pa) TYN 6.0 AMPCI HARBOUR Corporate Bond FISHER FUNDS BT Bond Fund ANZ Risk 14

15 May 2014 Overseas Bonds Returns (%) gross of tax and fees for Funds the last the year ended 31 March 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 Return (% pa) TYN RUSSELL FISHER FUNDS AMPCI ANZ Risk 15

16 The Aon Investment Update Cash Returns (%) gross of tax and fees for Funds the last the year ended 31 March Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI 3, ANZ 1, BT CFSGAM FISHER FUNDS HARBOUR TYN Average (asset-weighted) Average Index Year Risk/Return TYN Return (% pa) AMPCI FISHER FUNDS 3.4 ANZ 16 BT Risk

17 May 2014 Alternatives Returns (%) gross of tax and fees for Funds the last the year ended 31 March Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk MILFORD Dynamic MILFORD Global NZAM NZAM Alpha TYN TYN Bond Option Average (asset-weighted) Average Year Risk/Return TYN Return (% pa) NZAM Risk 17

18 The Aon Investment Update Property Returns (%) gross of tax and fees for Funds the last the year ended 31 March 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 16.0 ANZ 14.0 MINT SALT Return (% pa) AMPCI FISHER FUNDS TYN Risk

19 May 2014 Global Property Returns (%) gross of tax and fees for Funds the last the year ended 31 March Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk AMPCI ANZ CSFGAM Average (asset-weighted) Average Income Funds Returns (%) gross of tax and fees for Funds the last the year ended 31 March Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk BROOK 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 May 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 April 2014 Investment Sector NZ Cash NZ Fixed Interest NZ Property NZ Equities International Fixed Interest International Equities Inflation Rate Over the current year 1 Apr Mar 2015 Over the next five years 1 Apr Mar 2019 Average Dispersion Average Dispersion 3.8% (0.4%) 4.2% (1.0%) 3.2% (0.3%) 3.9% (0.8%) 3.3% (1.1%) 5.2% (0.4%) 2.8% (1.2%) 4.7% (0.8%) 6.6% (2.5%) 6.9% (2.0%) 5.3% (1.5%) 6.7% (2.2%) 7.8% (1.7%) 9.1% (2.0%) 6.0% (3.0%) 8.7% (4.0%) 2.6% (1.0%) 4.4% (1.1%) 2.4% (1.0%) 4.5% (1.7%) 10.7% (4.6%) 8.8% (0.9%) 8.2% (3.0%) 9.0% (4.0%) 2.1% (0.8%) 2.2% (0.5%) 2.0% (0.0%) 2.2% (0.4%) 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 January 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 May 2014 The Aon Hewitt Economists Survey Conducted during April 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% (0.2%) 2.3% (0.1%) 2.2% (0.3%) 2.2% (0.2%) 2.2% (0.1%) 2.2% (0.3%) 2.8% (1.2%) 3.1% (0.4%) 2.9% (0.7%) 2.8% (1.0%) 3.0% (0.4%) 2.9% (0.4%) 2.9% (0.2%) 3.0% (0.3%) 3.2% (0.3%) 2.8% (0.3%) 3.1% (0.6%) 3.3% (0.3%) 3.4% (0.7%) 2.3% (0.2%) 2.4% (0.8%) 3.3% (0.5%) 2.2% (0.4%) 2.4% (0.8%) 76.8 (2.0) 68.2 (2.9) 67.4 (4.0) 76.0 (2.5) 68.2 (2.0) 66.7 (5.1) 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 January 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.