Sign in and choose 'Your super amount' under the 'Your super' tab.
A detailed review of the 2018 investment year and the outlook for 2019. Read more.
Another year of solid returns
It was another year of solid returns for the scheme. Nevertheless, unlike in previous years, our three main investment options didn’t perform as well as many KiwiSaver funds. There are two reasons for this.
Currency hedging – Unlike some funds, we hedge our offshore assets. We do this to protect the scheme from the volatility of the New Zealand dollar against the foreign currencies in which some of our investments are denominated. This means the fund does not benefit if it were unhedged and the New Zealand dollar weakens like it did in the past year. However, we do benefit when our dollar strengthens. While hedging didn’t help us this year, it has paid off over the longer term. Fluctuations in the New Zealand dollar have had a neutral effect on returns over five years and longer.
New Zealand shares – We have a lower proportion of assets invested in New Zealand shares than other funds. Instead, our assets are well diversified all over the world. This means the fund isn’t overly reliant on any one asset class, fund manager or stock. This year, the New Zealand share market performed particularly well compared to the broader equity market. A large part of this, however, was due to one stock – A2 Milk. While this is good news for the New Zealand market, it does highlight why there is a need for diversification outside of what is a small market. There is, as the saying goes, considerable risk in having all your eggs in one basket. Investment markets do not go up forever and, when there is volatility, diversified funds fare much better.
While our assets are diversified across a range of asset classes, investments in international shares and bonds are the mainstay of our portfolio. Here’s a brief overview of how these asset classes performed.
Shares – Despite increasing global political and market volatility during the year, share markets delivered strong returns. Share markets sailed smoothly through the first half of the year before fears of rising inflation, rising interest rates, and increasing global political tensions saw a strong sell-off of equities in February. Investors then regained some confidence, with global equities finishing the year up 10.9% (in local currency terms). As noted above, New Zealand shares performed strongly, delivering 18.9%.
Bonds – Bond markets delivered low returns for the year as expectations of higher interest rates in the future kept a cap on returns. The Official Cash Rate in New Zealand remains at a record low of 1.75%. This was also a key driver of the returns from Cash Plus, which is focused on shorter-term cash investments.