Diversification by Country

New Zealand is great country, but opportunities for investors don’t stop at the border. Building a globally diversified portfolio is a way of ensuring you’re not overly dependent on one market or economy.  The United States and New Zealand had two of the top performing share markets in the world last year, Russia was one of the worst and Australia was so-so. Which will it be in 2015? The answer is nobody really knows, because whilst there are plenty of opinions about relative economic strengths, the economy and share market performance do not necessary move in tandem.  

The table to the below provides a snapshot of countries that had the best and worst performances over the 5-years to December 2013.

The chart in the button below provides a review of developed market returns in much more detail over 19-years.  The second button below provides a link to a very good column by Larry Swedroe, about why being globally diversified makes so much sense.

Summer Investment Commentary

The link to the report below, contains two main articles. The first provides a snapshot of the news and economic events that dominated the headlines in 2014 along with a broad summary of the sources of investment returns throughout the year.   

The second article provides a reminder that investors have choices.  This is particularly relevant for investors putting together strategies related to future income needs (retirement spending, house purchase, etc).  In general, increased spending today means less funds will be available for spending in the future, and vice versa.  This article reminds us all that, by making small adjustments to our current and future behaviour, we can dramatically influence the investment objectives we may be striving to achieve.

Forecasts to ignore

At the start of a New Year, the media is full of forecasts about the likely path of the economy and markets for the coming 12 months.  Most of these 'investment outlooks' are marketing exercises. The actual outcome of the forecasts doesn't matter since few people recall them anyway. 

The famed US economist John Kenneth Galbraith once said that the only function of economic forecasting is to make astrology look respectable.  Yet people keep on trying.  The link below to an article by Barry Ritholtz revisits some of the (now) embarrassing forecasts made this time a year ago.

Merry Christmas from the team at Axiome Consultants Ltd.

Thank you for your support in 2014 and we look forward to working with you further in the New Year.

Our office will be closed from 23 December to 12 January. 

Please leave a message on our voicemail system, or for urgent assistance contact us.  

Just one fund manager in 100 beats the market

This Daily Telegraph article quotes from the director of the Pensions Institute, David Blake, who says “Based on the findings, just 1pc of fund managers are 'stars’ who are able to generate superior performance in excess of operating and trading costs.  But they extract all of this for themselves via fees, leaving nothing for investors.  A typical investor would be 1.4pc a year better off by switching to a low-cost passive UK equity tracker.”

These conclusions are consistent with decades of academic research in the field of finance and are consistent with the philosophy we apply when helping clients make good decisions with their investment capital. 

In summary, there is no need to take the risk of concentrated security positions nor gamble with attempts to time an optimum entry or exit point with shares, bonds or currency.  Neither is there any benefit in paying a fund manager to take these risks for you.  Over time, the market will reward those who take measured market risk appropriate to their individual objectives and circumstances, then diversify by region, asset class and security numbers to mitigate all unnecessary risks.  Easier said than done, but then that’s where we can help… 

Market Timing

This article provides useful insight on what happens if you are in the market for the best days and out for the worst… It’s a nice idea. However, the reality is that people usually end up doing much more damage to their long-term wealth by trying to time the market, as Philip Baker of the Australian Financial Review explains.

Spring Investment Commentary

The July to September quarter demonstrated yet again why diversification is such a successful tool for long term investing. The third quarter of 2014 saw portfolio investors enjoy their fifth positive quarter in a row, and in each quarter this year (from a New Zealand investor perspective) we have seen a different asset class leading the way. 

In January to March, New Zealand equities was the best performing asset class; over the second quarter, local and international property assumed the top spot; in the recent quarter it was the turn of unhedged international and emerging market equities.

Why did unhedged equities in particular do well? Primarily because, following a sustained period of strength, the value of the New Zealand dollar finally weakened - particularly against the US dollar - over the quarter.