Taking Stock of Last Years Investments

So you have decided to sit down and look at how your portfolio has performed over the past year.  You will invariably see that shares, particularly Australasian shares have performed very well.  If you have direct shares, the performance of these will most likely be all over the place.

Some examples of this are Auckland International Airport, which returned just over 30%, Telecom just under 20%, and Contact Energy -12%.  But these are just three of the commonly held shares by New Zealand investors.  They also comprise a reasonable chunk of the NZX 50, so are often held at close to benchmark index weightings by index hugging fund managers.  The NZX 50 had a gain of around 19% for the year and the Australian All Ordinaries 33%.  There is no doubt that some fund managers add a significant amount of value.  Typically most of our investors achieved returns well in excess of 40% for their Australasian share exposure for the year.

Few investors have direct exposure to International shares.  Most exposure will be via open ended managed funds, various index fund offerings, or by listed UK investment trusts.  The returns in New Zealand dollar terms will have been extremely variable.  Investors in the MSCI World Index, will have seen little or no return in New Zealand dollar terms, despite the index rising by over 24%.  Despite the impact of significant strengthening of the New Zealand dollar over the year, some managers have produced very good returns in excess of 20% for the year.  Those who invested in the volatile Asian and BRIC markets may have done extremely well.

When we look at fixed interest, we all know that interest rates are low.  It is a hard area to make money, especially when the outlook is for interest rate rises.  Some direct bonds have returned in excess of 10%, but the reality is that the running yields are now likely to be in the 5 – 7% range.  This is still relatively attractive to flexible investing at the bank, albeit it is higher risk.

Listed property has not been without its problems over the past year.  Most of the problems have been associated with restructuring debt.  Issuing additional shares has diluted the share prices, but has provided a stronger foundation for the property company to move forward.  Some property companies have sold what they describe as non core properties.  The overall performance will invariably have been better than New Zealand fixed interest.

So where does that leave investors? The returns that they achieved will have been strongly influenced by their asset allocation, and by the choice of their underlying investments.  Those with higher exposures to shares should have been well rewarded for the risk that they took, provided they were fully invested for the second quarter of the year.  Those that bought in during the year may well have missed the major share rally periods, and their returns may well be disappointing.  Those with large exposures to fixed interest could also be suffering the after effects of finance company failures or moratoriums.

Looking forward, it is unlikely that share returns will be as strong as what we have seen over the past year.  It may be prudent to take some of the profits and reinvest these into an area that has not performed as well, such as listed property.  It is always a tough call to make, when it comes to selling down some of your top performing investment assets.  Sentimentality can get in the way of logic.

It is extremely difficult to predict the likely winners, which is why we generally advise our clients to use well managed active funds for the majority of their investments.  Last year’s winners may prove to be this year’s losers.  As the old saying goes, past performance is not necessarily a predictor of future performance.