Learn » Updates » Borrowers left in the cold but bond holders showered with some autumnal warmth - April commentary


Borrowers left in the cold but bond holders showered with some autumnal warmth - April commentary

If markets in March were moody, April can be best described as a contemplative month.

Interest rates were under the lens all month with widespread speculation about rate cuts which were on hold, as we now know, till May.

As expected, the Reserve Bank of NZ made the cut May 8th, lowering the Official Cash Rate from 1.75% to a historic low of 1.5%.

The focus has now shifted to whether consumers will enjoy the benefits of lower borrowing. 

Reserve Bank boss Adrian Orr encouraged consumers to take the bull by the horn and negotiate more assertively for better deals with their banks. 

One of the driver's for the reduced rate was low business confidence, weaker inflation and employment growth slowing. 

Borrowers may be waiting for some joy but bondholders are seeing the rewards.

Government bond yields crept higher in April, with bondholders and bond funds enjoying a nice tailwind for the past 12 months as the result of lower interest rates.

A large portion of bond returns lately has come from capital gains, not income.

Simplicity's NZ Bond fund and Conservative fund which is approximately 80% in bonds and cash, both returned 7.3% before tax and after fund management fees over the past 12 months.  

The NZX50 index continues to break records, climbing about the magic 10,000 mark.

Most of this rise was on the back of the index heavyweight A2 Milk (+17%).

Investors breathed a sigh of relief as the government ruled out the proposed Capital Gains Tax. 

The Simplicity NZ Share fund has continued its strong performance and returned 20% before tax and after fund management fees over the past 12 months. The NZX 50 Index has returned 19.8% before tax and fees.

Across the Tasman, the Australian market continued its recent run of good form. The Australian ASX300 index has been edging ahead of the NZX50 in recent months but is 10% behind us on 1-year numbers.

US equities (S&P 500) also reached record highs on the back of solid corporate earnings reports.

Of the major developed market equity indices, the UK and Japan are below levels they were 12 months ago. Since President Trump took power, the US market has outperformed a majority of other markets. Another driver behind the strong US market is their unemployment rate is sitting at the lowest point since 1969 (3.6%). 

Our Growth Funds that have the highest equity component have returned just over 10% for the past 12 months.  

The NZD was the victim of weaker domestic economic data and fell against most of the major currencies. 

Fund returns  

The following fund data is to 30 April 2019. Note these returns are before tax, and the $30 per annum member fee but after the 0.3% per annum management fee.

 

NameInception
Date
Since
Inception
Annualised
1
Month
3
Months
6
Months
1
Year
2
Years
Annualised
KiwiSaver Scheme
Simplicity Growth Fund 01.09.16 10.57% 2.54% 7.84% 8.95% 10.14% 10.17%
Simplicity Balanced Fund 01.09.16 7.61% 1.76% 6.06% 7.50% 8.85% 8.09%
Simplicity Conservative Fund  01.09.16  5.20%  0.53%  3.48%  5.46% 7.26%  5.64% 
Simplicity Guaranteed Income Fund 24.10.17  6.25%   1.42% 5.10%  6.45% 7.66%   
 
Investment Funds
Simplicity Growth Investment Fund 03.04.17  9.81%  2.51%  7.90%  9.03%  10.35%   9.90%
Simplicity Balanced Investment 
Fund
03.04.17  7.72%  1.78%  6.13%  7.77% 8.92%   7.85%
Simplicity Conservative Investment 
Fund
03.04.17  5.36%  0.53%  3.48%  5.52%  7.27%   5.46%
Simplicity NZ Bond Fund 03.04.18  6.63%  -0.41%  2.08%  3.80%  7.36%   
Simplicity NZ Share Fund 03.04.18  19.91%  1.69%  11.60%  14.63%  19.97%   

 

A note on returns. From time to time there will be small differences in the returns between the KiwiSaver scheme and Investment Fund returns. Some of the differences can be attributed to either small differences in asset allocation, timing, and reinvestment of cash flows and transaction costs (i.e. brokerage) or a combination of these factors. Past returns are not a guide to future potential returns.

 

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