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The Diversification Issue
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KIWISAVER SPECIAL INSIDE
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I N F O R M E D I NVESTO R
Contents IN THIS ISSUE
10. Contributors Meet some of our expert contributors.
12. What We Like Beautiful jewellery and a classic Auckland eatery.
14. Essentials Stylish ways to keep the cold at bay.
18. Count Those Eggs, Watch Those Baskets Finding the right mix of cash and growth assets is tricky, but looking at a wider investment portfolio is worth considering, writes Amy Hamilton Chadwick.
24. Going Up, Going Down Economist Cameron Bagrie has the latest on the New Zealand economy.
26. Do Altcoins Really Play Follow the Leader? In the wake of Bitcoin halving investors are now tracking altcoins, but the devil is in the detail.
28. The Benefits of a Diversified Ethical Approach
Misconceptions about returns and risk of ethical investment might be inhibiting some investors, writes co-CEO of Mindful Money Kate Vennell.
30. The Time and Temperament Recipe Psychological profile, financials and time are the main ingredients in defining your appetite for diversification, writes Martin Hawes.
34. Is This the Other Long Covid? Governments have accumulated massive debt since the pandemic which could lead to financial headaches and is likely to mean a lockdown on public expenditure, writes Andrew Kenningham.
50. The Journey to a Successful, Diversified Portfolio
Understanding your appetite for risk is an investment fundamental, but aligning it with your investor profile and stage in life is key to getting the most from a diversified KiwiSaver strategy, writes Sam Bryden.
52. Snapshot What’s impacting the global economy right now?
54. Are KiwiSaver Funds Really Diversified? Diversification has the twin charm of being a golden rule and a free gift, but are KiwiSaver and fund managers really making the most of this option? Sam Stubbs takes a look.
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KIWISAVER GUIDE 2024 40. Taking an Inside Peek at KiwiSaver We reveal the results of our inaugural KiwiSaver survey, powered by InvestNow.
44. Getting the Best out of KiwiSaver InvestNow takes a look at several ways KiwiSaver can be tailored to deliver the right results.
46. Who Should Sign up for KiwiSaver? Is it worth enrolling your kids in KiwiSaver? And what should you do if you’re self-employed? Jennie O’Donovan from Simplicity has the answers.
48. The Gap Between Saving and Investing What’s the difference between investing in my KiwiSaver of $30,000 vs $100,000 and what advice should I seek?
Take control of your KiwiSaver investments With the KiwiWRAP KiwiSaver Scheme you can work with your adviser to invest in shares and managed funds from around the world. Choose from over 400 investment options, including Apple, Vanguard, Tesla, index funds, ETFs and so many more. It’s time to get advice and treat your KiwiSaver as an investment.
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Consilium NZ Limited is the issuer and manager of the KiwiWRAP KiwiSaver Scheme. The Product Disclosure Statement and a full list of investment options for the KiwiWRAP KiwiSaver Scheme is available at www.kiwiwrap.co.nz. *KiwiSaver Market Review 2023 (Melville Jessup Weaver).
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Contents 56. It’s an Upturn, but an Under-whelming One
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Stretched affordability, high mortgage rates and the recent rise in market listings have all had an impact, writes Kelvin Davidson.
58. Taking the Risk Out of Investment Diversification is one of the key benefits of investing in property, but what does this mean? Sally Lindsay finds out.
62. When Diversification Meets Commercial Property Funds
Often referred to as 'the only free lunch in investing', diversification is a fundamental risk management concept embraced by astute investors across the board.
65. Taking the Commercial Plunge
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Diving into commercial property can be attractive for investors, but it pays to do some homework first, writes Andrew Logie.
66. Diversify and Thrive To spread risk and enjoy higher returns you need to buy in different areas, which is a form of diversification, writes Andrew Nicol.
68. Up for Sale And Still Earning Rent The Stay Hub offers a short-term way to keep your or your client's house on the market while earning rent until you find the right buyer and price.
70. Commercial Property Poised for Growth
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Commercial property investment remains a defensive asset class. Mat Harvie, explains how unlisted property funds are moving through what is likely to be the bottom of this economic cycle.
74. Fashion Update The colours and styles of winter 2024.
76. Here Comes the ‘Wolf’ Without Sheep’s Clothing
The Amarok offers a blend of rugged capability, refined design and advanced technology, writes Liz Dobson.
78. National Treasure Joanna Mathers enters a world of fine jewellery and high-end watches to discover the glittering history behind a very special anniversary.
80. Luxury Cold Weather Warm-ups
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Interior Designer Mary-anne Tobin, of Design Addiction, provides helpful ways to keep the fire alive in your home for a mid-winter glow up.
EDITOR’S LET TER
The Wisdom a Father can Bestow The father of diversification died last year, but the modern portfolio theory was his invaluable gift to the world. Harry Markowitz, American economist and Nobel Prize winner, died on June 22 last year. He was 95. In 1952, he published a dissertation entitled Portfolio Selection. Investment theory at the time was underpinned by the assumption that you should buy shares in companies that seem likely to be successful … and hope for the best. Markowitz’s theory threw this out the window. Portfolio Selection postulated that risk lies not in the stocks within a portfolio, but in their relationship to each other. The optimal mix of high-risk, high-return, and low-risk, low-return stocks offered the perfect balance for cautious investors. Markowitz was the father of diversification. Using complicated mathematical equations, his theory offers those charged with managing our funds a vital analytical tool for compiling optimal portfolios. Modern portfolio theory (or MPT) is his gift to the world. And as the New York Times stated in an article following his death, “[his] breakthrough insight and its corollaries have now permeated all aspects of money management”. The lead story this issue looks at the art and science of diversification. As a nation, New Zealand is extremely under-diversified. Amy Hamilton Chadwick reveals how we are skewed towards property and the implications of this.
you have so much of your wealth tied up in a single asset that’s tucked away in the corner of the world. It doesn’t make much sense from a diversification perspective.” As Amy explains, there is a simple tool for portfolio diversification, KiwiSaver. A wellmanaged mix of assets within a KiwiSaver scheme offers exposure to national and international investments. By spreading your money over a wide range of industries and assets, you’re sheltered from the dangers of under-diversification. On the topic of KiwiSaver, Informed Investor has partnered with InvestNow for our inaugural KiwiSaver survey. There are 3,351,507 active members of KiwiSaver in New Zealand and we are highly engaged with it – most of these members have chosen their own fund managers. The results of the survey are fascinating and indicate we understand the scheme and are invested in the results. We also feature a KiwiSaver Q&A section with a lot of useful information around the scheme, written by experts. There are some misconceptions around KiwiSaver, and we hope to offer you clarity. I hope you enjoy your quarterly delve into the wonderful world of investing.
“You almost can’t avoid it, because everyone wants the peace of mind that comes with owning property,” says Jason Choy, senior portfolio manager at InvestNow. “But then
Joanna Mathers Editor
Editor Joanna Mathers
Resident economist Ed McKnight
Art Director Mark Glover
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Account Manager Stephanie Bryant – 021 165 8018
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Subscriptions Jill Lewis – subscriptions@informedinvestor.co.nz This magazine is subject to NZ Media Council procedures. A complaint must first be directed in writing, within one month of publication, to the email address, stephanie@informedinvestor.co.nz. If not satisfied with the response, the complaint may be referred to the Media Council PO Box 10-879, The Terrace, Wellington 6143; info@mediacouncil. org.nz. Or use the online complaint form at www.mediacouncil.org.nz. Please include copies of the article and all correspondence with the publication. WI NTE R 2 0 2 4 | I N F O R M E D I NVESTO R 8
Published by: Opes Media Informed Investor 33 Federal Street, Auckland Central, Auckland. www.informedinvestor.co.nz
Informed Investor is an investment magazine published quarterly by Opes Media. You need Informed Investor’s written permission to reproduce any part of the magazine. Advertising statements and editorial opinions in Informed Investor reflect the views of the advertisers and editorial contributors, not Informed Investor and its staff. Informed Investor’s content comes from sources that Informed Investor considers accurate, but we don’t guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk: Informed Investor magazine is not liable to anybody in any way at all. Informed Investor does not contain financial advice as defined by the Financial Advisers Act 2008. Consult a suitably qualified financial adviser before making investment decisions. Informed Investor magazine does not give any representation regarding the quality, accuracy, completeness or merchantability of the information in this publication or that it is fit for any purpose. To advertise in Informed Investor, you must accept Informed Investor magazine’s advertising terms and conditions. Please contact Stephanie@informedinvestor.co.nz about advertising. Informed Investor is printed on environmentally responsible paper. The paper is produced using elemental chlorine-free pulp, sourced from sustainable and legally harvested farmed trees. The magazine is recyclable. PRINT ISSN 2744-6085 DIGITAL ISSN 2744-6093
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*5.97% is our best estimate of the funds expected annualised return after fees and before tax as at 30 April 2024. The current yield calculation assumes floating rate notes return their yield to next reset date, whilst all other securities earn their yield to maturity. We think it is one of the most appropriate ways to explain the expected return (subject to investment risks) of a fund comprised of fixed income, as it reflects what is currently in the fund, rather than what happened in the past or could happen in the future. Returns are subject to change at short notice and are not guaranteed. There is a risk of lower-than-expected or even negative returns for short time periods due to market conditions. Please read the Product Disclosure Statement at goalsgetter.co.nz
UP FRONT
Meet Some of Our Contributors CAMERON BAGRIE
SAM BRYDEN
Cameron is the managing director of Bagrie Economics, a boutique research firm. He was previously chief economist at ANZ, a position he held for over 11 years.
Sam Bryden is Head of Distribution at Nikko AM NZ. With over 18 years’ experience in investment management and financial markets, the last six of these at Nikko AM, he is responsible for leading the firm’s sales, marketing and client servicing.
AMY HAMILTON CHADWICK
MARTIN HAWES
Amy specialises in property and finance journalism. She has been a writer and editor for almost 20 years. Amy is a registered financial adviser.
Martin is the chairman of the Summer KiwiSaver Investment Committee. He’s an authorised financial adviser and offers his services throughout New Zealand.
BEN BRINKERHOFF
SAM STUBBS
Ben is Head of Advice at Consilium and has over 20 years’ experience in financial services. He works with over 140 independent financial advice firms to help develop their ideal advice practice.
Sam is the founder and MD of Simplicity, New Zealand’s only low-cost, nonprofit funds manager. Previously from the banking world having worked for Goldman Sachs and NatWest Markets in London and Hong Kong, Sam believes the finance industry should be as much a force for good as a source of profit.
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C ONTRIBUTORS
KELVIN DAVIDSON
JENNIE O'DONOVAN
Kelvin joined CoreLogic in March 2018 as senior research analyst, before moving into his current role of chief economist. He brings with him a wealth of experience, having spent 15 years working largely in private sector economic consultancies in both New Zealand and the UK.
Jennie O'Donovan has been a part of the Simplicity team since 2020, bringing with her 15-plus years in communications and education experience from the nonprofit sectors in New Zealand and the United Kingdom.
MIKE HEATH
ANDREW KENNINGHAM
Mike has been leading the InvestNow service since launch, March 2017. Over the past 20+ years he has held senior management roles for some very well-known NZ and international businesses and brands – TAB, Contact Energy, Reuters and Rabobank.
Andrew is the chief Europe economist for Capital Economics. He was previously an economic adviser for the United Kingdom Foreign Exchange.
MARY-ANNE TOBIN
ANDREW NICOL
Former senior underwriter turned qualified interior designer, Mary-Anne Tobin is constantly viewing the latest international trends and incorporating these into her designs. She also blends modern day aesthetics with practical solutions.
Andrew is an authorised financial adviser and the managing partner of Opes Partners. He has more than 15 years’ experience in banking, finance, and property.
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UP FRONT
What We Like
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A Touch of Luxe 3.
Partridge Jewellers’ exquisite range includes true showstoppers this season. The Daisy Sapphire Drop Earrings are the perfect accompaniment for an evening at the opera. Priced at $2,850, they are crafted from white gold and feature a sapphire encircled by diamonds. An exquisitely playful pendant, Letters of Love Diamond Yellow Gold Pendant ($2,015) can be personalised to the first letter of your loved one’s name. A true statement piece, the Rubellite Cushion Cut Ring is the ultimate expression of love made from 18ct gold; it retails for $18,000. But the crowning glory of the collection is this Rose Gold and Diamond Heart Chain Necklace; something to cherish for generations, it sells for $60,250.
For more information on these pieces, visit www.partridgejewellers.com WI NTE R 2 0 2 4 | I N F O R M E D I NVESTO R 1 2
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1. Rose Gold and Diamond Heart Chain Necklace 2. Letters of Love Diamond Yellow Gold Pendant 3. Daisy Sapphire Drop Earrings 4. Rubellite Cushion Cut Ring
W H AT W E L I K E
Time to Return to a Rave Restaurant Andiamo, 194 Jervois Road, Herne Bay, Auckland. I’ve been frequenting Andiamo for decades. It’s always been one of those places – a local restaurant with flare, friendly service and excellent food – you will revisit time and time again. So, on the coldest night of 2024 I headed to the Herne Bay eatery with my partner, knowing I wouldn’t be let down. Good table service makes a restaurant, and from the outset that’s exactly what we experienced. Our waitress from Colombia was a delight – attentive, quick to bring fresh glasses of excellent wine: Te Kairanga rose for me, Mt Difficulty pinot noir for him (both exceptional). We were excited to try the change in menu, developed by new female head chef Canada Loucks, and started with focaccia and warm Sicilian olives. Served with red pepper and parmesan butter, and a drizzle of cabernet vinegar, the focaccia was possibly the highlight of my night. The crust crunched into doughy bliss ... a dreamy vessel for the delectable butter. The olives were also excellent, offering some of the tiniest I’ve ever eaten (a delicately salty treat) and the addition of roasted garlic and chillies kept things interesting. Hello to new dish Onto the mains, and I chose the butternut girella with sage and burnt onion brodo – mainly because I’d never heard of girella or brodo. Girella (“spinning top” in Italian) is the ideal descriptor for this spectacular dish. The thick strip of pasta is spiralled in the centre of the plate and liberally sprinkled with small gems of diced butternut. The pasta sits within a pool of brodo (broth); a salty counterpoint to the sweet butternut. It’s a multi-layered textural and flavourful dish. My partner chose the tomato risotto, with soffritto, stracciatella and basil; it was light and subtle and partnered well with the girella (we shared the mains). Tiramisu is irresistible, so was ordered straight after the main. But I was keen to partake of the ricotta and fig Genoise sponge with chestnut crema and pear sorbet. Star performer The tiramisu was extremely decadent, rich and creamy, but the Genoise sponge was the star. We have figs in our garden, which are underutilised, so it was great to see them as stars of the show. The pear sorbet elevated the earthiness of the fig, adding a refreshing tangy undertone. Dessert was enjoyed with a glass of port (a family tradition) and the night ended on a high note. Good Italian eateries are few and far, but Andiamo never disappoints. Reviewed by Joanna Mathers WI NTE R 2 0 2 4 | I N F O R M E D I NVESTO R 1 3
ESSENTIALS
Warm Up Your Winter
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Stylish ways to keep the cold at bay.
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QUOTE & DEFINITION
Diversification /də-ˌvər-sə-fə-ˈkā-shən/
‘The act or practice of spreading investments among a variety of securities or classes of securities’ Merriam-Webster Dictionary
‘What’s comfortable is not the right way to invest. You must own things that you’re uncomfortable with, otherwise you’re not really diversified.’ – Peter Bernstein, US economist
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D I V E R S I F I C AT I O N
Count Those Eggs, Watch Those Baskets Finding the right mix of cash and growth assets is tricky, but looking at a wider investment portfolio is worth considering, writes Amy Hamilton Chadwick.
Don’t put all your eggs in one basket ... that’s essentially what diversification is all about. It’s a simple idea, but the details can get almost infinitely complicated. How many eggs do you have, which baskets should you put them in, and how many eggs should you allocate to each basket? Many Kiwis wouldn’t think the phrase “investment portfolio” relates to them. But if you have a KiwiSaver account and savings in the bank, you already have an investment portfolio. Beyond that, you might own a home, have shares in a trading platform or cash in a term deposit. You possibly own a business, or a rental property, or have a chunk of money in a managed fund. You might even collect sneakers, own gold or be in cryptocurrency. All your assets and debts make up your total portfolio, and where they are invested tells you how diversified your financial life is. Ideally, you want your money to be spread across a range of investment types, countries and industries. But New Zealanders typically aren’t well diversified – in large part thanks to our high-cost housing market. Our houses are so expensive that if you own a home, it’s likely to be your biggest asset – one that produces no income and is located on a remote island nation. This can leave you more vulnerable than you’d like to a local downturn. “New Zealand is a unique situation where a lot of our financial wealth and economy is tied up with property, and it’s how a lot of people have gained their wealth,” says Jason Choy, senior portfolio manager at InvestNow. “You almost can’t avoid it, because everyone wants the peace of mind that comes with
owning property, but then you have so much of your wealth tied up in a single asset that’s tucked away in a corner of the world. It doesn’t make a lot of sense from a diversification perspective.” Overweight in property? Not only are homeowners typically underdiversified, many have doubled down on property, buying rentals and commercial buildings. “Previous generations have done very well out of property, so we’ve chased the same dream – which can be quite a stressful consideration for younger people,” says John Moffett, group general manager at short-term property management company The Stay Hub. “I would hope from a diversification perspective that property owners have other investments, but Kiwis are creatures of habit and we do what we know.” Owning several properties in the same location intensifies the risk that something could go wrong in that local market, like flooding or council rule changes. Buying different types of properties across several locations is one way to diversify, but it’s rare in practice and still only provides limited risk mitigation. “People do what is comfortable and invest in places they know,” says Moffett. “They tend to have clusters of properties within an area. Or they’ll have a type of property they feel comfortable with. It might be townhouses, so they’ll have multiple townhouses in different locations, or portfolios of just CBD apartments. It’s rare to see someone who owns a villa in Parnell and an apartment in Onehunga – people do stick to their knitting.”
‘New Zealanders typically aren’t well diversified – in large part thanks to our high-cost housing market.’ WI NTE R 2 0 2 4 | I N F O R M E D I NVESTO R 1 9