Strategy and planning – when you need it most

24 April 2020

The effect of Coronavirus are the main headlines around the world at the moment so we thought it was important to share our Booster view on what is happening in the markets and what the key factors are driving your balance up and down during this time.

March saw the effect of Covid-19 have a much bigger impact at home as we, along with many other countries around the world, moved into lockdown with tight restrictions impacting our normal day-to-day lives. Meanwhile, share markets are also reacting and continuing to be volatile with the US S&P 500 index staging a dramatic partial recovery, up 18% in three days towards the end of March and up further so far in April.

Plan AheadWhile share market volatility can be a bit unnerving, especially with KiwiSaver being many Kiwi’s first foray into investing and sharemarkets, our disciplined investment approach really comes into play during these tough times. Our active management of client’s savings paired with strategic diversification, or carefully balancing your investment across different areas, have worked well to ease some of impact the markets can have on our investors. This combination of strategic planning and good risk management goes in ahead of time and doesn’t necessarily show during the ‘good times’, but it really shows in times like this when its needed.

As they say, the proof is in the pudding, and looking at a few examples shows this to be true. Despite recent volatility, these strategies have shown that a Booster KiwiSaver Scheme Balanced Fund is down less than 1% in the last 12 months to end of March (after fees, before tax). Likewise, the High Growth Fund (with more investment into shares) has still delivered positive returns over the last two years.

In order to paint a better picture of what our Research Team has been hard at work in creating these strategies for you, our investors, here’s a bit of insight into these changes they have made and how they really present value for your investments.

Benefit of built in ‘shock absorbers’

In today’s world, immediate access to information can have a massive influence on our daily lives. It’s very easy to read a few headlines about share markets and think that it directly translates over to your own KiwiSaver or investment portfolio. But our Booster Research team works hard at a few different strategies which means that often this isn’t the case. These strategies are nicknamed ‘shock absorbers’ by the team as they help deliver more solid outcomes over the long-term.

Across Booster’s core investment funds, these key strategies include:

Diversification – spreading your investment across different areas

  • In times like this, it really pays to not have all your eggs in one basket. In terms of your investment, this is especially the case. Part of this strategy is to invest a portion of our multi-sector funds (such as a Balanced Fund) into high-quality fixed interest investments, which gained 1% over the first three months of 2020. This helped to lessen the impact the drop in share markets recently.

Strategic Currency Management – spreading your investment across NZ and foreign currency

  • Being a smaller economy with a big focus on trade, whenever global markets start to feel a bit of ‘stress’, the value of our NZ Dollar tends to drop.  This year is no different with the NZD falling by 13% since the start of the year which really helped to support the value of our overseas shares held in NZD. Our Research Team strategically left 40% of our portfolios ‘unhedged’ which means that their value is free to float with the value of the NZD. This means that when markets get a bit shaky, this strategy helps to soften the blow to our investors.

Adding unlisted investments into the mix

  • Over the past three years we have been building a small portion of our funds being allocated to unlisted land and business investments through our Private Land and Property Fund and Booster Tahi Fund. While this portion is still relatively small (around 4% of a Balanced Fund), as we expected, these unlisted investments have helped to soften the impact of the volatility we have seen in the share markets recently.

Benefits from active management – when it matters most

We allocate over a third of your global share investments to two concentrated, active strategies from California-based Fisher Investments and Rothschild Bank in Zurich. So far in 2020, through to the end of March the part of our global shares managed by California-based Fisher Investments has performed 8% better than the global share markets on average and our direct share portfolio partnership between Booster and Rothschild Bank in Zurich performed 13% better than the market – doing a great job of helping to ease the drop in markets.

Matthew Manuel Bhlsbx 0Rnm UnsplashA big driver of these results has been investing in strong businesses with good financials and steady cashflow. Some of our standout investments include Amazon (up 19% for the year to 31st March) and Microsoft, both in a great position given their demand during these tough times of working from home and isolation throughout the world.

We’ve also made other changes to some of our investments given the current dynamic climate:

  • Early in March we bought more shares in the US Healthcare sector as many of the companies in this area, like Roche, are heavily involved in the rolling out of Covid-19 testing. We also sold our shares in US and European construction businesses where we expect growth in that sector to be quite slow as we ride out the pandemic.
  • In NZ and Australian shares, we reduced our holdings in a range of companies that we figure may have a tough time during the pandemic (such as Air NZ and Sky TV). We also took advantage of the price dip to buy shares in Brambles (a key distribution company involved in essential products in Australia) and in Kathmandu via an attractively priced share offering. We expect more of these opportunities will continue to arise.

  • Amidst the constant news about Coronavirus, the exchange rate between the Aussie Dollar and NZ Dollar almost rose to $1. We took this opportunity to lock in this attractive exchange rate with our Australian investments as the NZ Dollar value didn’t look likely to stay at that level over the long term and have since cystallised some gains from this decision.   

Governments and central banks are ‘all in’

Prateek Katyal Fnmztjegssa UnsplashHistory has shown us time and time again that the markets will ultimately recover from ‘shocks’ and often the recovery starts while the headlines are still sounding a bit doom and gloom. While we are all aware of the short-term challenges we are facing during this epidemic, its also clear that governments and central banks around the world are all “taking the gloves off” to support their economies through these short-term struggles. These measures really help to support businesses and economies through the tough short-term to the other side, unfortunately, with a few inevitable business casualties along the way.

From an investment perspective, our task is to really look at the future outlook for our investors, not the last few months. Here at Booster, we expect our focus on quality businesses and fixed interest investments puts our investors’ portfolios in a good position to weather the storm during this time and provide more areas of opportunity as the ‘light at the end of the tunnel’ starts to shine a bit brighter.

 

“Booster KiwiSaver Scheme is managed and issued by Booster Investment Management Ltd. A copy of the Product Disclosure Statements are available at www.booster.co.nz. A disclosure statement is available from your financial adviser, on request and free of charge."

Daniel Haskell

By Daniel Haskell

Booster Adviser