Smooth sailing no more 

By Russell Investments, UniSaver’s investment manager and consultant

After nearly a decade of positive returns, members of UniSaver were unfortunately confronted with negative returns for the year in all options except Cash. While shares had a difficult period early in the year, they started to decline more significantly in the fourth quarter. Global fixed-income markets provided some protection, but the returns were not strong enough to generate positive returns for members in Conservative, Balanced and Growth. 

Returns for the 2018 year were also disappointing relative to KiwiSaver funds. The decision to hedge currency risk on most of the scheme’s offshore exposures provided a headwind for UniSaver in terms of returns, with most KiwiSaver schemes benefiting from their greater exposure to offshore currency. However, over the longer term (five years), all three options are still performing well above the median KiwiSaver provider.  

In our 2017 review, we cautioned members against using the strong results over the last decade as a guide for the future and stated that it was fair to expect that a potential turning point in markets was getting closer. Unfortunately, the 2018 calendar year happened to prove us correct. 

Markets rattled early in the year by fear of inflation and tariffs 

2018 began with yet another strong month in markets as the global economy continued to hum along and investors welcomed strong profit growth for companies around the world. However, investors were spooked by a stronger-than-expected increase in wages in the United States in early February. The fear of higher inflation and the potential reaction from central banks led to a steep and sudden fall at the beginning of February. In addition, the escalation of the trade war between the United States and China through the imposition of additional tariffs in March also weighed on sentiment in investment markets. 

Share market comeback ends abruptly in the fourth quarter

Much like earlier corrections, the negative returns experienced in the early part of the year were short lived, and from April onwards, markets continued with an almost steady increase, resulting in new highs being reached in share markets around the world in September.

Unfortunately, this correction ended relatively abruptly, with the global share market index declining by nearly 13% in New Zealand dollar hedged terms in the fourth quarter. Fears of rising interest rates in the United States, softer-than-expected manufacturing activity around the world and ongoing trade frictions between China and the United States were some of the main storylines that contributed to the negative returns. 

After staying flat for most of the year, global fixed-income investments experienced strong returns in the fourth quarter. The defensive nature of this asset class provided protection during a period of heightened uncertainty in investment markets.  

As a result of the turmoil in the fourth quarter, most share markets had a negative return for the 2018 calendar year – the first time this had happened since 2008. 


Many investors are still worried about rising interest rates, a further escalation of the trade war between China and the United States and its impact on the global economy and the slowing growth in the United Kingdom following the ongoing uncertainty around the departure from the European Union (Brexit). 

Unfortunately, none of these issues are expected to be solved soon and may very well continue to lead to disappointing results in financial markets. On the other hand, the global economy overall continues to be sound. Inflation is still limited, and therefore many of the most important central banks around the world have the flexibility to stop raising interest rates – or even lower them if required. 

And while there is a significant gap between growth in the United States and, for example, the United Kingdom, UniSaver’s assets are diversified around the world to balance the risk of divergence in returns across different markets. 

Much like the comments in our 2017 review, we caution against simple extrapolation as a guide to investing. Exiting the market as a short-term reaction to the negative returns in 2018 creates a risk of missing out on a rebound, which may very well come unannounced and swiftly – indeed, this seems to have been confirmed again at the start of 2019. So rather than trying to time the market, it may be more advisable to accept that years like 2018 happen every now and then as part of the journey of long-term investing.

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.


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