Market update - quarter ending 31 March 2019

from Russell Investments, UniSaver’s investment manager and consultant

The first three months of 2019 saw markets recover from the disappointing fourth quarter of 2018. Global share markets rose by 12% (as measured by the MSCI All Country World Index hedged[1] to the NZ dollar), driven by more supportive rhetoric from major central banks around the world and fresh stimulus measures from China. Markets were particularly relieved to see the Federal Reserve announce a temporary pause in interest rate hikes. Furthermore, the trade talks between China and the United States (US) started to look more promising, reducing investors’ recent fears of a global trade war.

Despite the rebound in share markets, global fixed income investments continued to perform strongly as well. The Bloomberg Barclays Global Aggregate Bond Index (hedged to the NZ dollar), generally considered one of the standard measures of fixed income investments around the world, rose by 2.9% in the quarter.

In New Zealand, share markets recovered in line with markets around the world. Positive news from market heavyweights A2 Milk and Fisher & Paykel Healthcare helped to lift the New Zealand share market to new record highs at the end of March.

The New Zealand dollar strengthened on the back of the changed rhetoric from central banks offshore, and the trade-weighted index of the NZ dollar increased by 0.5% over the period.

How did markets affect UniSaver’s investment options?

Returns for Conservative, Balanced and Growth were strong enough to make up for the losses incurred in the previous quarter. This quick recovery may be a helpful reminder for members that markets can turn from pessimism to optimism (,and vice versa,) in a very short amount of time. Changing strategy based on short-term results is often an ill-advised approach to investing, and members that switched into Cash on the back of disappointing returns at the end of last year could have easily missed out completely on the recovery in the first three months of 2019.

On the back of a firmer NZ dollar and strong returns in global equity markets, UniSaver’s options performed very well relative to KiwiSaver options. Growth and Balanced outperformed most KiwiSaver schemes, further helped by the strong performance of UniSaver’s allocation to listed infrastructure.

Returns of all UniSaver options for the one-year period from 1 April 2018 to 31 March 2019, while not as spectacular as in recent times, were positive and slightly above long-term objectives.

Outlook

Russell Investments’ strategists believe that new tariffs announced by the United States are mainly a negotiation tactic, and that ultimately China and the US will come to an agreement on trade. However, reaching this point may be a rocky, drawn-out process. As a result, it is fair to assume that we will continue to see sudden, sharp negative and positive reactions in equity and fixed income markets related to these trade talks.

Looking at the global economy more broadly, many investors believe that recession risks around the world are somewhat lower given the recent actions of central banks. However, the potential for a slowdown in the global economy remains a key watchpoint for market participants, alongside political developments in Europe and the Middle East.

The information contained in this publication was prepared by Russell Investment Group Limited (RIG). RIG is the investment manager for UniSaver.  This publication has been compiled from sources considered to be reliable, but is not guaranteed. This publication provides general information only and should not be relied upon in making an investment decision. Before making an investment decision, you need to consider whether this information is appropriate to your objectives, financial situation and needs. All investments are subject to risks. Past performance is not a reliable indicator of future performance.

Copyright © 2019 Russell Investments. All rights reserved. This information contained on this publication is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments.



[1] Hedging is a tool used to reduce the effects of changes in exchange rates on investment returns. The scheme’s international investments are largely hedged, which means our returns are not significantly affected by currency movements.

 

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