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Santa came late: Markets stage historic rally in first two months of 2019

The market recovery that began in late December continued into February with solid returns from many global stock market indices. 

The NZX 50 was up 3.8% month on month, the ASX 300 up 6.0%, US S&P 500 Index rose 3% and global shares up 4.5% (in NZD terms).

The S&P 500 Index return for the first two months of the year is the 5th largest in all of the history of the S&P 500, and the best start since 1987. Other years with bigger gains in their first two months were 1975, 1943 and 1931. Historically, when January and February each gained, there has been a significantly positive year for US equities. Since 1938, when both January and February were positive, the year ended up on average more than 20%. 

Gains in markets have been attributed to the US Federal Reserve Bank indicating interest rates could be on hold for a while and more encouraging news on the US/China trade negotiation.

Locally the best performing shares were Fisher & Paykel Healthcare (+17.0%), Synlait Milk (+13.9%) and a2 Milk (+13.1%). The worst performing were Sky Network Television (-22.8%), Air New Zealand (-12.1%) and Fonterra Shareholders’ Fund (-12.0%). 

The big 4 Australian banks recorded solid gains and put the outcome of the Royal Commission report behind them (ANZ +11.9%, CBA +10%, NAB +5.3% and Westpac +9.8%). Many of the bank shares had been sold off on the prospects the banks would get hauled across the coals for some of their banking practices, what transpired was ugly but not as bad as some expected.

Central banks continue to review their rate hike forecasts and are more cautious in their approach. The RBNZ, RBA and ECB all indicated it could be until late 2019 or 2020 before rate hikes would be considered.

The Tax Working Group (TWG) released its final report into a reworking of the current tax system and the introduction of a capital gains tax. It is fair to say there has been considerable moaning and debate on the subject. The issue of a capital gains tax is an election issue and not due to be enforced until 2021, if at all.   

NZ Government bond yields continue to decline and the 10-year yield set fresh lows during the month. Local Government Funding Agency, NZ bank, and NZ corporate bond yields remain lower than term deposit rates for the same maturity. 

The softer tone coming out of the recent US Federal Reserve meeting saw a rally in the bond market and treasury yields fall further. Analysts note the difference between the 2-year and 10-year US bond yield (aka the “2-10 slope”) has narrowed to a point last seen prior to the global financial crisis. 

The NZ dollar declined against the basket of major currencies and this resulted in a small drag on the performance of a fully hedged portfolio.   

Fund returns

The following fund data is to 28 February 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 9.17% 2.73% 2.91% -1.22% 5.08% 8.78%
Simplicity Balanced Fund 01.09.16 6.46% 2.00% 2.72% -0.26% 5.30% 6.99%
Simplicity Conservative Fund  01.09.16  4.52%  0.97%  2.51%  1.39% 5.36%  4.96% 
Simplicity Guaranteed Income Fund 24.10.17  4.52%   1.76% 2.55%  0.08%  4.53%   
 
Investment Funds
Simplicity Growth Investment Fund 03.04.17  7.92%  2.80%  2.95%  -1.04%  5.22%   
Simplicity Balanced Investment
Fund
03.04.17  6.22%  2.08%  2.94%  -0.06%  5.33%   
Simplicity Conservative Investment
Fund
03.04.17  4.47%  0.97%  2.51%  1.40%  5.40%   
Simplicity NZ Bond Fund 03.04.18  6.21%  0.63%  2.35%  2.67%     
Simplicity NZ Share Fund 03.04.18  14.46%  3.67%  5.44%  0.61%     

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.

*Authored by Craig Simpson, Head of Research and Operations for Simplicity 

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