six easy ways to invest in China Issue 187
AUGUST 2010
INVESTOR NEW ZEALAND
INVESTMENT RESEARCH GROUP
TOP
10
SAFEST Investments
MORE INSIDE... Exclusive new book extract and giveaways
Funky chicken – the rise and rise of Restaurant Brands
Gold mining in Vietnam – the kiwi connection
$8.95
How to lower your health insurance premiums
How long could you and your family survive financially if you lost your job?
Redundancy and Life Insurance • No health questionnaires • Guaranteed acceptance
From as little as $1.37* per day, you’ll receive $2,000 per month PLUS get $10,000 life insurance cover. We insure our house, our car – but what about our most valuable asset: Ourselves and our ability to earn? The rent/mortgage and bills keep on coming and somehow still need to be paid, even if you are not working–so it makes sense to protect your family’s lifestyle with DorchesterLife’s ‘Stop-Gap’ Redundancy and Life Insurance. • Pays an agreed monthly benefit for up to 120 days.
• Includes life cover from $10,000 to $50,000.
• Benefit not affected by any other payments received
• Bankruptcy cover included.
• Only a 7-day stand-down period from the effective
• Your premium is automatically waived during
date of your redundancy.
a redundancy claim.
Whilst it may not be replacing your full income, it will help keep you going so you can get back on your feet again–it’s a ‘Stop-Gap’! Call us now on 0800 733 008 to find out more or visit www.dorchesterlife.co.nz Please refer to the Policy document for full details of exclusions and Terms and Conditions. *Based on a 40-44 year old.
Contents Issue 187 AUGUST 2010
Contents Features 10 Finance companies make slow progress By Brent King 12 Top 10 safest investments By Marco Wong & Dan Stratful 20 Is rececession relevant to Restaurant Brands? By Vaughan Yarwood
12
23 Investors hanging on Tax changes haven’t stopped investors 25 Property trends look positive By Benn Bathgate 28 Family Trusts 101 – exclusive book extract By Janet Xuccoa 32 Are we still in a recession? By Michael Coote 34 Golden opportunity in Vietnam By David McEwen
20
36 Red hot China is yuan for the money By Steve Hart 39 Why we need a super regulator By Kirk Hope 40 Financial astrology – does it really work? By David McEwen 50 Why the kiwi dollar may keep falling By Stephen Calder
34
54 Healthy life, healthier bank balance By Steve Hart
Regulars 2
Editorial
3
News
17 Sharetalk 44 Fundsource
INVESTOR NEW ZEALAND
INVESTMENT RESEARCH GROUP
www.irg.co.nz
46 Fixed term investments 56 The fridge door
New Zealand Investor
30 Classifieds
40
1
www.irg.co.nz
Editorial
2
Bonds are considered among the safest investments around, and various forms of promissory notes make up a number of our top 10 safest investments featured in this month’s issue. However, there are pitfalls to consider when buying bonds. They include: • You can lose money in bonds. • You will get your interest payments, and the capital sum will almost certainly be paid on due date. But that doesn’t mean the returns are guaranteed. In fact the return from a bond can fluctuate widely if you sell your bond before it matures. • Bond prices move in the opposite direction of interest rates. When interest rates fall, bond prices rise, and vice versa. But if you hold a bond to maturity, you will get back the face value of the bond, along with all the interest you expect. When interest rates rise, the price you will get if you tried to sell it on the bond market will be less. That’s because the bond must fall in value so that the yield can rise to match market rates. If you decide to avoid this capital loss by holding onto the bond to maturity, you incur an opportunity cost. That is, you have settled for a return that is below the market rate your bond money could be earning elsewhere. And over the several years it takes the bond to reach its maturity date that loss can amount to a lot of money. • You pay tax on capital gains. Unlike shares, which are not subject to tax on capital gains, the capital profit on the sale of a bond is treated as taxable income. That capital profit will arise as interest rates fall. • Shares do not always outperform bonds. Before 1940, there was not a great difference in US stock market returns and bond returns. But post-World War II, shares have widely outpaced bonds in terms of their totalreturn. And so they should. The management of a company can take action to deliver growth ahead of inflation and interest rates. Prices can be raised, costs cut, new products found. Even in New Zealand’s lacklustre share market, shares will outpace bonds most of the time, but not all the time. In fact there are extended periods where bonds will lick shares. • You can have too much in bonds. Bonds are essential in a mixed portfolio but offer limited safety on their own. A portfolio containing 75 per cent bonds and 25 per cent shares is less likely to lose money in any given year than a portfolio of 100 per cent bonds. Moreover, inflation erodes the value of bonds’ fixed interest payments. Share returns, by contrast, tend to keep pace with inflation. Young and middle-aged people should put a large chunk of their money in shares. Even retirees should own some shares, given that people are living longer than they used to. • Not all bonds are safe. A loan to the government secured by bond has to be the safest you will ever make. That’s because the government can levy taxes to repay its debts if it really got into trouble. But some pretty dodgy second tier companies also have issued bonds, and while these often offer high yields, these reflect the extra risk. The key thing to remember is: A bond is only as safe as the entity that issued it.
INVESTOR NEW ZEALAND
INVESTMENT RESEARCH GROUP
Subscriptions: P O Box 1314, Shortland Street, Auckland 1140. Tel: (09) 304 0145 Publisher: Investment Research Group Ltd (IRG) P O Box 1314, Shortland Street, Auckland 1140. Editor: David McEwen Writers: Benn Bathgate, Steve Hart Advertising: David Rennie (09) 304 0228, Mobile 021 675 175, Email: david.rennie@irg.co.nz Advisers/Research: Investment Research Group Ltd Level 13, 57 Fort Street, Auckland P O Box 1314, Shortland Street, Auckland 1140. Contacts: Sharebroking advice: Sharon Fang (09) 304 0235, Dan Stratful (09) 304 0232, Nick O’Boyle (09) 304 0233, David Buell (09) 304 0223, Rob Cochrane (09) 304 0229 Prospectus requests: Email: info@irg.co.nz Design and layout: Daniel Grey - daniel@dmgadvertising.com Printing: PMP Maxum (09) 979 3100 ISSN: 1172-451X Registered Publication Information: For information and correspondence on any of the products/investments mentioned in this publication contact: Investment Research Group P O Box 1314, Shortland Street, Auckland 1140. Freephone: 0800 437 8489, Tel: (09) 304 0230, Fax: (09) 358 3858 Email: info@irg.co.nz Disclosure of Interest Directors and staff of Investment Research Group Ltd (IRG) may and do from time to time hold investments in shares and investment products reviewed in New Zealand Investor. It is our policy to follow our own advice. New Zealand Investor is the investment magazine of investment analysts and financial advisers IRG. New Zealand Investor is provided free to investor clients who meet qualifying investment criteria. It is also available by subscription and through all good newsagents. Clients of IRG receive additional brochures and information as well as personal advice. To become a client of IRG all that is necessary is that you invest through us. We discount entry fees on almost all investment products to bring our clients a highly comprehensive service. IRG may receive brokerage, commissions or other payments from issuers of investments and advertisers. Disclosure under the Investment Advisers (Disclosure) Act 1996 is available upon request. Investment Risks and Suitability Published material and advertisements are not intended as personal investment advice or recommendations of suitability to any particular person. Articles and advertisements may include reference to investments which have varying levels of risk and return from speculative and risky to very low risk. It is the responsibility of the reader to assess suitability of any investment advertised or referred to having regard to their own objectives, particular circumstances and investment portfolio. If in any doubt, clients and prospective clients of IRG should consult with us in order to better assess suitability for their objectives or investment portfolio. Investors should also read the investment statement and/or prospectus or Product Disclosure Statement (PDS) for any investment which by law requires publication of such documents and satisfy themselves that investments referred to are appropriate for their circumstances and portfolio. Disclaimer IRG, as publishers of this magazine, believe that the information contained in the New Zealand Investor is correct at the time of publication and that any estimates, opinions, conclusions or general recommendations contained in herein are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of any estimates, opinions, conclusions (which may change without notice) or other information contained in this publication and, to the maximum extent permitted by law, IRG disclaims all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient relying on anything contained in or omitted from this publication. Any action taken by an investor is strictly that investor’s independent decision and sole responsibility. The company declines and disclaims any liability whatsoever in contract and in tort (for negligence) for any direct or indirect consequences from or arising from the information supplied. Copyright No part of the New Zealand Investor may be copied, photocopied, stored in an electronic retrieval system or reproduced in any form without prior permission from the copyright holders. © Investment Research Group 2010. Disclosure Statement: A disclosure statement can be obtained free of charge by calling IRG on 0800 437 8489, or by visiting our website www.irg.co.nz
News briefs
Harcourts goes global NAI Harcourts, a member of the international NAI Global network, has entered the New Zealand market to operate in the commercial property sector. The joint venture company is made up of NAI Global, one of the world’s largest commercial real estate service providers, Harcourts International and Brock Real Estate. NAI Harcourts is also the brand under which Harcourts commercial property and business broking services will now be provided on both sides of the Tasman. CEO of the joint venture company, Chris Nicholl, says launching the www.naiharcourts.co.nz website is the first step in a five year plan to establish the organisation in the top tier of Australasia’s commercial property service providers. The company will offer access to buyers, listings and market knowledge from across NAI Global’s network of around 5000 commercial real estate professionals in more than 50 countries. Harcourts New Zealand CEO Hayden Duncan says the Australasian commercial property market offers significant opportunities, generating an estimated $1 billion in fees at present.
Cheapest supermarket is in Lower Hutt For the 11th year running, Pak’nSave has taken the top spot as the nation’s cheapest supermarket. An independent survey conducted in June compared the prices of 40 top-selling products at different supermarkets across six regional centres. Pak’nSave stores at Mill Street in Hamilton and in Lower Hutt battled it out for the title of cheapest store in the survey with basket prices of $115 and $116 respectively. However, as the Hamilton region was surveyed on a 38 item basket as opposed to the other regions’ 40 items, Lower Hutt narrowly pipped Mill Street to the post. Pak’nSave was the cheapest supermarket in five of the six regions, with fellow Foodstuffs brand New World South City in Christchurch narrowly taking out the top spot by $2.
Instant profit Personal loan provider Instant Finance has reported a profit of $3.3 million for the year to March 31. This was significantly ahead of the previous year’s $1 million, which had been affected by one-off costs from establishing funding lines. Net loan receivables increased 17 per cent from $55.4 million to $64.9 million and, at March 31, the company had gross instalments receivable of $89.2 million and 18,756 active loans. Shareholders continued to forego dividends to boost balance sheet strength.
Mutual Finance managing director Paul Bublitz says the company’s board is “deeply disappointed” by the decision of trustees Covenant Trustee Company to place the company into receivership. Covenant Trustee Company appointed Brendan Gibson and Grant Graham of Korda Mentha as receivers after what the board claimed was a “technical breach” of one of its trust covenants. The trustee also believed a cashflow mismatch might arise through the timing of the realisation of assets and payments to depositors.
Bublitz said: “The company was working to address the technical breach and considers that the trustee has taken an extremely conservative view of the cash flows of the company.” He said the board of Mutual Finance regretted it was not given the opportunity to deal with an issue it considered resolvable. Bublitz says the company had been “working with the trustee and its advisors to address the issue, which it viewed as capable of remedy in relatively short order”. He said: “The board considers the
trustee has acted in his own interests rather than those of investors in placing the company into receivership.” All Mutual Finance depositors are covered by the Crown Guarantee scheme and a Treasury spokesperson says it will contact depositors to help them claim their money. The Treasury’s director of financial operations Phil Combes said: “The Crown stands fully behind its guarantee commitments, and we expect an orderly process of payment to eligible Mutual Finance depositors.”
New Zealand Investor
Mutual Finance “deeply disappointed” over receivership
3
News briefs
KiwiSaver scheme gives investors more control
www.irg.co.nz
Kiwibank has launched a KiwiSaver scheme that offers investors more direct control of their funds in what chief executive Sam Knowles (pictured) says is “a logical expansion of Kiwibank services and products”. Knowles says the bank aims to lead the market with the scheme in terms of transparency and disclosure of fees. “We have a customer base of about 700,000 New Zealanders and there has been growing demand for us to have a scheme that helps customers save for their retirement,” he says. “We have designed a KiwiSaver scheme that enables customers to choose whether they let fund managers make some investment decisions for them, or whether they more actively manage their own investments.” He says not all customers would want to actively manage their savings so they could chose the acceptable level of risk and investment type that suited them best. “Others will want to design their own portfolio and be more involved in its management,” he says. The new scheme also aims to remove some of the mystery and complexity surrounding retirement provision. “Our KiwiSaver scheme is able to be accessed via internet banking like other Kiwibank accounts,” says Knowles. “Customers will be able to see how their funds are performing and also make changes as appropriate for their retirement needs online.”
4
Retail sales up despite grocery dip For the first time in at least 15 years, retail sales across the country’s supermarket and grocery stores were lower in May than the year earlier according to Statistics New Zealand. Across the core retail sector, excluding vehicle sales, sales were 0.6 per cent down for the year – only the fourth time year-onyear core sales figures have fallen since 1995. The falls were led by a 7.7 per cent ($14 million) drop in recreational goods, an 11.6 per cent fall in liquor sales ($12 million) and a 2.8 per cent ($9 million) fall in sales in cafes and restaurants. Within the core retail industry, only the accommodation sector saw a rise, up 8.3 per cent ($14 million). Total retail sales, including vehicle sales, rose 1.9 per cent ($98 million) in May from the year earlier, boosted by a 16.8 per cent ($88 million) increase in vehicle sales and a 5.8 per cent ($30 million) rise in fuel sales. The seasonally adjusted total retail sales for May were 0.4 per cent higher than April. Core retail sales fell by a seasonally adjusted 0.2 per cent during the month, led by the two per cent fall in sales across the combined hospitality industries. BNZ has said the figures are disappointing despite the odd positive sign. “There were a number of positives for May, in the form of good gains in appliances, footwear, clothing and personal and household good hiring. “However, these were countered by at least as many weak bits, with notable falls in accommodation, takeaway food, liquor and the miscellaneous other retailing category.”
News briefs
The listed share and bond market operator NZX plans to buy back 3.57 million of its shares (2.9 per cent of its stock) by the year end, saying its current share price undervalues the company and doesn’t take account of its growth prospects. The company is also to switch from paying its dividends annually to twice a year (April and October) “to better meet the needs of investors looking for regular income as well as capital appreciation”. “The current share price is significantly below fair value and doesn’t reflect a reasonable valuation of the company today, even without taking into account the growth prospects about which the board and management are confident,” NZX said. NZX has pledged to raise its annual dividend payments by a minimum of one cent per share for the next four years.
Beat the GST hike
MARAC NON-GUARANTEED TERM DEPOSIT*
.25 8 24 MONTHS
%
p.a.
WITH INTEREST QUARTERLY.
MARAC GUARANTEED TERM DEPOSIT
.25 7 24 MONTHS
%
p.a.
WITH INTEREST QUARTERLY.
MINIMUM INVESTMENT $1,000.
If you’re looking to invest then you will probably be looking for a sharp interest rate. With MARAC, you’ll get that and much more. We’ve been helping Kiwis like you achieve their investment goals for more than 55 years. Your investment in MARAC helps provide finance to consumers and small to medium-sized New Zealand businesses, which form the backbone of the country and provide jobs to thousands of Kiwis. So to invest in a New Zealand owned company that offers more than just competitive rates, contact MARAC today for an Investment Statement on 0800 26 27 22 or visit www.marac.co.nz.
MARAC HAS A GUARANTEE UNDER A CROWN RETAIL DEPOSIT GUARANTEE SCHEME, BEING A GUARANTEE THAT EXPIRES ON 31 DECEMBER 2011.
*MARAC NON-GUARANTEED DEPOSITS OFFERED BY MARAC ARE NOT COVERED BY THE GUARANTEE GIVEN UNDER THE CROWN RETAIL DEPOSIT GUARANTEE SCHEME. MARAC Guaranteed Term Deposits are covered by the Crown guarantee, until the guarantee expires on 31 December 2011, subject to the terms and conditions of the guarantee. Further information about the Crown retail deposit guarantee scheme is available on Treasury’s website www.treasury.govt.nz. All Deposits (including MARAC Non-Guaranteed Deposits) are secured by first ranking secured debenture stock, subject to permitted prior charges (currently none) and claims given priority by law. Rates are subject to change. MARAC has a credit rating of BB+ (Outlook Negative) from Standard & Poor’s. Further information about MARAC’s credit rating can be found in MARAC’s Investment Statement or by visiting www.marac.co.nz.
MAR0502NZI
With annual rates bills dropping in your letter box, this may be the time to pay them in full upfront – ahead of the rise in GST from 12.5 per cent to 15 per cent on October 1. By paying your whole rates bill – or any other annual bill before the new GST rate comes in – you’ll avoid the extra GST payments and make savings of 2.5 per cent on your bills when compared to paying them after the new rate comes into force.
Two great rates
New Zealand Investor
NZX to buy back shares
5
News briefs
$80 million paid to troubled investors The Treasury has repaid almost $80 million to depositors under the Retail Deposit Guarantee Scheme which covers investors should the firm they invest in default. So far six institutions approved for the scheme have triggered the Crown guarantee leading to payments totalling $79.1 million of principal and interest. Repayments have been made to depositors with three of the defaulting entities and the process is underway for the remaining three. The six institutions approved for the Retail Deposit Guarantee Scheme that have triggered the payouts are: • Mascot Finance, which defaulted on 2 March 2009. To date, $69.4 million of principal and interest has been repaid to eligible depositors, representing approximately 99.8 per cent of eligible depositors. • Strata Finance, which defaulted on 16 April 2009. No claims are outstanding and $300,000 of principal and interest has been repaid to eligible depositors.
• Vision Securities, which defaulted on 1 April 2010. To date, approximately $9.4 million of principal and interest has been repaid to eligible depositors, representing approximately one third of depositors. • Rockforte Finance, which defaulted on 10 May 2010. • Viaduct Capital, which defaulted on 14 May 2010. • Mutual Finance, which defaulted on 14 July 2010. With Rockforte Finance, Viaduct Capital, and Mutual Finance, the Treasury is currently at various stages of obtaining and verifying information about depositors and the amounts deposited. “We’ll contact depositors when we have the necessary information,” says the deputy secretary financial operations Philip Combes. “We’re mindful that repayments are funded by taxpayers and we have a duty to ensure that repayments are made to people entitled to receive the money.”
www.irg.co.nz
Building blocks of growth
6
For investors who are looking to tap into high growth opportunities, BRIC funds – Brazil, Russia, India and China are quickly becoming the rising star of the equities market. HSBC Global Asset Management’s latest edition of Investment Intelligence notes that BRIC funds have generated an annualised return of 23.4 per cent over the past five years in comparison to 16.9 per cent for emerging market equities over the same period. Glen Tonks, manager of HSBC’s private clients division HSBC says for investors seeking aggressive growth opportunities then BRIC funds are “certainly worth looking at in more detail as, on average, they have been outperforming emerging market equities for the past five years now. “As money moves from developed to higher growth emerging markets, BRIC markets could benefit. Particularly as the debt crisis in Europe intensifies, it is even more likely that the divergence in growth outlook between developed and the emerging markets will become even more pronounced. “Not only were BRIC countries the first to emerge from the global financial
crisis, but they are also currently contributing to almost half of global growth. Much of this can be put down to their hugely favourable demographics, the newly emerging middle class, a low penetration of consumer goods and services and the fact that they have signalled significant future investment in infrastructure.” Tonks says Brazil, and Russia in particular, account for the lion’s share of global commodities. “As commodity demand and prices are expected to rise as manufacturing recovers, the BRIC markets are set to benefit,” he says.
TSX:OYM | ASX:OYM | OTCBB:OLYMF | FSX:OP6
Southeast Asia’s Low Cost Gold Producer olympuspacific.com
News briefs
Orcon enters mobile phone market The mobile phone market is hotting up as yet another firm enters the fray handset subsidy which they may have to refund.” Newman says one issue he does have with Orcon is that it is not, at the time of going to press, a member of the Telecomunications Dispute Resolution Scheme. “That’s not a good look,” he says. “Consumers are entitled to expect membership of such a scheme as a fundamental sign of good business ethics and practice.”
Broadlands
Finance Limited is committed to its investors Your investment in Broadlands helps provide finance to consumers and small businesses in New Zealand. Call Rob Cochrane now on 0800 474 669 to discuss interest rates and terms available and for a copy of the Broadlands’ Investment Statement Broadlands has a BB - credit rating from Standard & Poors. For more information regarding our credit rating, and information about credit ratings generally, please refer to our Investment Statement or our website www.broadlands.co.nz.
www.broadlands.co.nz
New Zealand Investor
State-owned telco Orcon is to enter the mobile phone market on the back of Vodafone’s network. While Orcon’s prices won’t set the world on fire, the company says its key proposition is that it isn’t asking customers to sign up to any long-term agreements “we want customers, not prisoners,” the firm’s CEO Scott Bartlett is quoted as saying in media reports. Orcon mobile phone customers will be given the 020 prefix for their phone numbers and is offering four plans whereby customers pay in advance. Per-minute pricing will be 69 cents or 38 cents depending on how much a customer uses the service. Mobile computer users will pay $49.95 a month for one gigabyte of data or $1 a day for 10 megabytes when using the casual scheme. Bartlett expects to have the firm’s pre-paid plans in the shops for Christmas. Since announcing plans in 2006 to offer mobile phone and data services, 2degrees has entered the market along with a handful of mobile wholesalers. So competition is starting to happen in the mobile phone market following years of a Vodafone-Telecom duopoly. Orcon says all its plans will have a basic text rate of 20 cents but there are a couple of add-on text bundles at $11.95 for 500 texts to any network or $9.95 for 2000 to other users on the Orcon scheme, including Vodafone and all other mobile operators that use the Vodafone network – with the exception of recent entrant 2degrees. Writing on his blog, Ernie Newman, chief executive of the Telecomuncation Users’ Association says Orcon is a “welcome newcomer to the market with a well-differentiated product” but he has concerns about the complexity of its pricing structure with regard texting. “Sadly, differentials between on-net and off-net pricing will be a feature of Orcon’s pricing,” says Newman. “How is your average busy consumer meant to get their head around that? Even before factoring in that they don’t readily know what network the people they call may be on at any specific time. “Admittedly, Orcon’s surcharges are modest, but I think there will be massive brownie points for the first [mobile phone] service provider that does away altogether with these surcharges for off net calls. “One really positive aspect is the absence of long term contracts. Customers can sign up today and leave tomorrow with no penalty, unless of course they’ve had the benefit of a
7
News briefs
Minister rejects calls for review of ING as KiwiSaver provider Calls for ING to be reviewed as a default KiwiSaver provider in the wake of a Commerce Commission report into alleged breaches of the Fair Trading Act have been rejected by Commerce Minister Simon Power. The calls for ING and ANZ to have their default provider status reviewed came from Frozen Funds Group spokesman Gerard Prinsen in the wake of a Commerce Commission report that said: “The commission is of the view that ING and ANZ engaged in misleading or deceptive conduct and/ or made false or misleading representations. . . it has sufficient evidence to commence criminal and/or civil proceedings against ING and ANZ”. The Commission opted against legal action instead securing a $45 million settlement for thousands of New Zealand investors’ in the two funds promoted by the ANZ-owned ING; the ING Diversified Yield Fund and the ING Regular Income Fund. Commerce Commission chair Dr Mark Berry said the Commission opted for the settlement because “any court proceedings were likely to have involved significant delay, cost and risk, with no certainty of achieving an outcome that would benefit the affected investors”. Prinsen believes that, while the report represents a moral victory, it also raises other issues. He said a review - with the threat of
removal as a default provider - would act as a warning to other providers and offer an incentive to non-default providers that they could successfully compete for vacancies among default providers. However, Commerce Minister Simon Power said: “The Diversified Yield Fund and Regular Income Fund are separate financial products to the ING KiwiSaver funds. As a default provider, ING is required to report quarterly to the Ministry of Economic Development and the Government Actuary on the performance of its default funds. I’m advised that officials have no evidence that indicates the fund is high-risk or marketed inappropriately. Officials also advise me that they do not think the stability of the fund has been compromised and that there are no grounds for terminating ING’s default provider status”. The $45 million settlement is the largest monetary settlement to date secured by the Commerce Commission and as part of the agreement ING and ANZ “have accepted that some of the representations made in the marketing material and by ANZ advisers may have
breached the Fair Trading Act”. The dispute dates back to March 2008 when around 15,000 investors had their money frozen in the two funds. Now that the $45 million settlement has been agreed the Commission is to work with ANZ and ING to determine the payment process, including the amount payable to investors, with a target date for payment of mid to late November 2010.
Commerce Commission chair Dr Mark Berry
www.irg.co.nz
Double-dip fears ease on US figures
8
AMP Capital analyst Shane Oliver has said early positive earnings reports from the United States have lessened concerns of a double-dip recession, though he did warn “the New Zealand market will continue to be buffeted to
some degree with what is happening in the global share market”. Oliver said in the wake of reports from some 40 large US companies that he believes “a double-dip recession will be avoided”.
“We saw some weakness a couple of weeks ago and double dip worries intensified. But in the last couple of weeks, there were some boosts in the market with profit reports in the US.”
Discount vouchers may not offer any savings People offered vouchers for discounted or free holidays, hotels and flights from cold-calling telemarketers should be cautious of the offers made, warns the Commerce Commission. The Commission is concerned that some consumers have been contacted by businesses claiming to be selling vouchers or schemes for discounted accommodation in New Zealand and Australia that don’t deliver everything that’s promised. Some of those who have paid for the discount vouchers have found they cannot be used in all the places promised, while others are worried they have signed up for an ongoing membership that will be automatically renewed annually. “These types of schemes have been marketed in New Zealand for some years now,” says Greg Allan, Commerce Commission enforcement manager. “In our experience some are legitimate and others are not. We hope that highlighting these schemes will help educate consumers so that they can know the difference and avoid being taken in. Once you have purchased vouchers, it can be very difficult to get your money back if they don’t deliver the benefits you expected.” Allan says while it is understandable that people are attracted to getting discounted rates for holidays and accommodation, he advises people check any offers thoroughly before handing over their bank or credit card details to callers. “While telemarketers can be persuasive and persistent, don’t feel pressured to make a decision straight away,” he says. “Ask for details such as which providers are involved in the voucher scheme and check independently before making any commitment to purchase. This can be as simple as finding out the names of hotels who are supposed to be involved and calling them to check if they will honour the vouchers.” The Commission has previously warned consumers about telemarketed holiday and accommodation vouchers. The Commission has also taken successful court action against a group of Australian companies marketing a voucher programme in New Zealand. If you have bought vouchers for discounted hotels and believe that you have been misled, you can register your complaint via the Commission’s online form on www. comcom.govt.nz, by email contact@comcom.govt.nz or phone 0800 943 600.
FREE
investment account
– open one today
For more information or a copy of our application form call:
0800 IRG NOW (474 669)
*Subject to minimum activity. A free disclosure statement is available upon request.
www.irg.co.nz
New Zealand Investor
News briefs
9
IRG Comment
Finance companies make slow progress
By Brent King, Managing Director of IRG
The past month has seen further developments within
the finance company sector Dorchester Pacific Dorchester has made significant progress with its votes (by holders of its notes, debentures and shares). The votes were all positive for the directors and management. One factor to watch is whether the directors have learned from the major mistakes made over the past three years. Investors will have to make decisions about what to do with the three securities they will be issued. If investors are not sure what to do with these please contact IRG to discuss options.
South Canterbury I am sure all readers have read about recent developments with amazement. I have watched Alan Hubbard’s career with interest over 25 years and I am very disappointed to see what has transpired. Hubbard has been a mainstay and a point of last resort for many South Island entrepreneurs. It does seem a simple case of holding on too long. IRG reiterates Sandy Maier’s comments that the developments do not affect South Canterbury Finance Ltd. That business appears to be well managed under Mr Maier; the government guarantee is still in place and IRG continues to recommend the investments within the guarantee terms. In short, we await with interest further information from the government authorities about the statutory management of Mr Hubbard’s affairs. There are a number of other finance companies which are performing well and IRG recommends that investors regularly review whether an investment in a finance company is appropriate.
www.irg.co.nz
Life in Asia
10
I have been fortunate to travel to a number of countries in Asia recently. The overwhelming sense I get is that their economies are strong. We all read the stories about China, the ‘quiet China’ (Taiwan) and India. There is no question that those economies have massive growth. One interesting point is that Singapore is on a big bounce now. The government in Singapore has upgraded its annual growth predictions to between 13 and 15 per cent. When has New Zealand ever had a growth of this level? It has been said that it is hard to make a mature economy
grow to a double digit rate. Singapore is proving that wrong. Growth of 13 per cent is a fantastic performance. We need to learn from this. The simple fact is if your country makes a profit (a current account surplus) the country has more resources to invest in the next year.
If we wanted to we could out perform Singapore New Zealand has not achieved this year on year for a long time. If we accept the performance shown in the graph, we will be poorer each year and other countries will move ahead of us.
For a long time now we have simply been happy to allow politicians to increase the price of houses while our country has gone backwards. If we simply want to do what we have always done we will slip back in world rankings. The real question for this government is whether it will weaken and pump the money supply, or will it hold tight and allow capital to move to areas where the best return is, such as providing the world with what it wants! If we wanted to we could out-perform Singapore. It still rings in my ears the comment that Lee Kwan Yew said to Robert Muldoon; “You pay people to do nothing. How does that make your country better?” New Zealand and our government need to decide whether we want to retain our place in the world or get left behind in the dust. This is a big topic and one we should all be focusing on. I will comment more next month.
We’ve made buying life insurance simple. Protecting our family’s future is important, but applying for life insurance can be a long and complicated process.
That’s why DorchesterLife have made life insurance easy with SimpleLife. Simply choose a cover level between $50,000 and $250,000, answer 6 simple health questions and, once accepted, you’re covered if you die or are diagnosed with a terminal illness.
Now that’s simple! There’s no complicated add-on options to confuse you either. Just simple life insurance. Up to $250,000 cover
A 10% discount for joint applicants
Only 6 simple health questions
Fortnightly Payment Option
Terminal Illness Advancement Benefit
30 day free-look period
Funeral Advancement Benefit of $10,000
Call us now on 0800 733 008 to find out more or visit www.dorchesterlife.co.nz
New Zealand Investor
And for added simplicity, visit our website at www.dorchesterlife.co.nz and try out our no-obligation online SimpleLife Calculator that will give you an indicative premium* price.
* Premiums shown are for clients with no pre-existing health or medical conditions. Please refer to the Policy document for full details of exclusions, terms and conditions. 11
Cover
New Zealand’s 10 safest investments Volatile markets, sovereign debt crises and softening property prices make it hard for investors to have confidence about protecting the value of their investments. Therefore, safety first may be the order of the day, according to Marco Wong and Dan Stratful
W
e all know investments come with varying degrees of risk but it can be shocking when losses occur. Probably nobody thought that their investment in finance company debentures would result in a total loss of their capital and interest. During the credit crisis, the share prices of apparently solid ‘blue chip’ companies lost 80 per cent or more of their value, and some companies even went bust. Even bank deposits and property investments turned out to be less safe than many investors believed. Volatility in the price of almost all asset classes appears to be rising and, for all but those with the biggest appetite for risk, the time has come to make the protection of capital a top priority – more so than chasing an extra percentage point or two in capital gains or income. With that in mind, here is our guide to New Zealand’s 10 safest investments.
1
Government bonds
Domestic government bonds are generally considered to be ‘risk free’. Domestic Government Bonds also protect against exchange rate risk because they are issued in local currency. The reason why there is virtually no risk of loss investing in a domestic government bond is because, at worst, the government can always print money to
repay investors. To date, the New Zealand Government has never defaulted on its Government Bonds. These bonds have a AAA credit rating. Government Bonds are issued by the New Zealand Debt Management Office (NZDMO) and are sold to NZDMO registered buyers, known as counterparties. These parties are able to on-sell the bonds to the public. The minimum holding for members of the public is $10,000 and $1,000 lots thereafter. The table shows the yearly return for Government Bonds currently listed on the NZDX. Code GOV320 GOV340 GOV360 GOV380 GOV390
www.irg.co.nz
Current Yield 3.73 % 4.21 % 4.69 % 5.16 % 5.40 %
Coupon 6.00 % 6.50 % 6.00 % 6.00 % 6.00 %
While the returns are not spectacular, Government Bonds are the safest investment out there. The downside however is that the market for these bonds is illiquid so they can be difficult to sell at times, which means you should carefully assess your future cash-needs before investing in Government Bonds. For those worried about whether inflation might eat away at their bond returns, the government also offers an inflation-protected bond. You can access Government Bonds by requesting a prospectus through your investment advisor.
2
12
Maturity 15/11/2011 15/04/2013 15/04/2015 15/12/2017 15/05/2021
Government-guaranteed finance companies
Finance companies offer debentures and deposits to investors. Finance companies usually service second tier lenders so there is greater potential for higher returns for you as an investor. The reason finance companies can afford to pay higher interest to investors is because their income is derived from high interest loans mainly to property developers, the agricultural sector and consumers.
Cover
Local authority bonds
3
Company MARAC Finance Fisher & Paykel Finance South Canterbury Finance PGG Wrightson Finance Equitable Mortgages
Min $1,000 $1,000 $100 $1,000 $2,000
9 Mths 5.00 % 6.00 % 8.00 % 5.45 %
--
12 Mths 6.00 % 6.75 % 8.00 % 5.95 % 5.70 %
You can access government-guaranteed finance companies by requesting an investment statement from your broker.
Issuer Auckland City Council Tauranga City Council Manukau City Council
4
Maturity 24/3/2014 02/12/2013 15/09/2015
Min $5,000 $10,000 $10,000
Coupon 6.42 % 7.05 % 6.90 %
Bank term deposits
Bank term deposits have long been considered safe havens for investments. Most big banks nowadays have at least an AA credit rating. RaboBank even has AAA credit rating which means they are considered as safe as the government. Barring a truly disastrous event, it seems unimaginable that a run on any of our big four banks would ensue. Interest rates fluctuate depending on the economic environment and the term you invest for. This table shows the relative safety of some of our banks. Bank RaboPlus ANZ National ASB BNZ Westpac Kiwibank TSB Bank
Credit Rating AAA AA AA AA AA AABBB+
New Zealand Investor
Standalone, finance companies are relatively higher risk investments with credit ratings generally ranging from B to BB+, this means that under normal circumstances, there is a chance a finance company could fail to pay back investors. However, at present the government, with its AAA rating and ‘risk free’ status, is guaranteeing some finance company deposits. On 22 October 2008 the Treasury and Reserve Bank announced the Retail Deposit Guarantee Scheme until 31st October 2010. This scheme was designed to protect investors who invested their money with banks and finance companies (collectively known as financial institutions). Under the guarantee, eligible financial institutions pay a fee to the government, much like an insurance premium. This allows the government to fund potential payouts if a financial institution defaults. To date, six covered institutions have triggered the government guarantee, these are Mascot Finance, Strata FInance, Vision Securities, Rockforte Finance, Mutual Finance and Viaduct Capital. While the claims process took between a few weeks to a few months, investors were able to receive 100 per cent of their investment. Some trust deeds also stipulate that investors can receive interest during the claim period, though this is usually the exception rather than the norm. The key here is that you can gain up to 3 per cent more interest than banks without taking more risk of losing capital. In August 2009, the government extended the scheme until 31 December 2011. To date, eight institutions have been approved. Institutions approved for the extended guarantee include MARAC Finance, Fisher & Paykel Finance and South Canterbury Finance, PGG Wrightson Finance and Equitable Mortgages. Indicative guaranteed rates for these finance companies are set out in the table.
These are issued by city councils. Since the most significant source of income for city councils is rates, local authority bonds may often be secured by a charge over rate revenue. This is one of the reasons these bonds are considered relatively safe. While councils are considered government bodies, local authority bonds are slightly higher risk than government bonds for the mere fact that city councils cannot print money. However, it is hard to see that central government would let a city go under so a local authority bond is a way to secure a better rate than that offered by government bonds, with no virtually no increase in risk. Local authority bonds that are rated generally have solid credit ratings of AA- to AA+, this rating means there is a minimal chance of default. An example is the Auckland City Council bond issued earlier this year which holds an AA rating, meaning it is as safe as any of the big four banks. Local authority bonds vary widely depending on the council. Some issues such as the Tauranga and Manukau City Council bonds are not listed on the market, therefore, investors would need to treat such investments as fixed term investments in the sense that you may not be able to withdraw your funds if needed. Other issues, such as the Auckland City Council bond (ACC010) are listed and tradable on the market.
13
Cover
5
Investment grade corporate bonds
Corporate bonds differ as much as the companies that issue them. The term “investment grade” is given to companies with a BBB- and above. This rating means there are, on average, only about three defaults out of 1,000 issues. These bonds are almost always listed and tradable on the NZDX exchange. Appropriately, most of the issuers of investment grade bonds are top tier companies with utility or monopoly characteristics such as Fonterra, Contact Energy and Vector. Some issuers choose not to obtain a credit rating but may still be considered investment grade depending on a range of factors. You can reasonably expect investment grade corporate bonds to be issued at an interest rate of between 7 per cent – 8.5 per cent. The safety of these bonds depend on factors such as whether the bonds are secured by assets or earnings of the company, the amount of debt the company already has and the earnings volatility of the company. Although, the credit rating often incorporates these factors, an individual bond offering may have different qualities depending on the structure of the issue. For example, BNZ recently issued a new type of bond, a covered bond, for the very first time in New Zealand. These bonds are secured by the repayments of high quality, fully documented mortgages. Because of this, these bonds were rated AAA, while BNZ’s credit rating is AA. Here are some examples of high quality issuers. Issuer
Code
Maturity Rating Current Yield Goodman GMB010 19/06/ BBB+ 7.12 % Property Trust 2015 The WHS010 15/06/ Not 6.80 % Warehouse 2015 Rated Fonterra FCG020 04/03/ A+ 6.41 % 2016 Contact CEN010 15/05/ BBB 6.40 % Energy 2014 Auckland AIA070 07/11/ A6.39 % International 2015 Airport
Coupon 7.75 % 7.37 % 6.83 % 8.00 % 7.25 %
www.irg.co.nz
There are a few ways you can invest in corporate bonds. The first is to subscribe to them when they are first issued. The advantage of getting bonds when they are first listed is that you don’t pay any transactions cost to purchase them. You can contact your broker to find out about upcoming bond issues. Alternatively, you can purchase corporate bonds on the market through your broker.
14
6
Utility Shares
7
Rural Property
When it comes to shares, utilities are among the safer and more dependable shares there are to own. They are generally less volatile than other shares and offer defensive-like characteristics. Utility shares usually include power companies, ports or infrastructure managers that provide a vital need to the community. As a result, demand does not go down during a recession as much as it would for more discretionary items. Examples of utility companies include electricity distribution companies Contact Energy and Vector, sea ports Port of Tauranga and Northland Port Corporation and airport operator Auckland International Airport. Utility shares can display less volatile earnings which can remain steady year after year and they tend to be low growth so that healthy and reliable dividends are paid back to shareholders. Sometimes local government may have a cornerstone shareholding in the utility company. Generally investors can expect an annual dividend yield of around 7 per cent to 9 per cent with the share price also rising and falling in-line with global share market trends, however usually with lower volatility than other shares. For example, Vector’s shares currently pay a gross annual dividend of 9.1 per cent, paid semi-annually and over the last few years dividend payments have been very steady.
Property generally is an investment which goes up over the long term and Kiwis in recognising this have fuelled a spike in the residential property market over the past few years. Rural property, however, provides the base for the nation’s agricultural and horticultural products, and as ever-increasing areas of rural land are turned into residential subdivisions, good quality, well located rural land can be expected to become more scarce and increase in value. Rural property, like other investments, provides two types of return - an income return to the land owner generated through the production and sale of food or meat, or an income return to the land owner in the form of rent paid by the occupier of the land if it is not owner/occupied. The second return is the increase (or decrease) in the current value of the land over time. However, property is a tangible investment and this remains its biggest attraction. Research has found that rural property prices have risen by the greatest amount and with minimal volatility over the past two or more decades.
100% New Zealand, rural property is a solid investment
Cover
New Zealand Mint’s head bullion trader Michael O’Kane says the current demand and enquiry for gold bullion is robust, and in the past four years he has seen an increase in sales of approximately 1000 per cent. This is due partially, he says, to the onset of the global financial crisis which saw a real panic surrounding the banking system, and investors were literally withdrawing cash from the banks and investing in gold in an effort to mitigate the risk of not being able to get their money in the event of closure (more than 70 banks have closed in the USA this year alone). O’Kane says New Zealand Mint’s core product is its one ounce gold coin which currently sells for NZ$1800, and he adds there is no GST payable on gold bullion over a purity of 99.99 per cent in New Zealand. O’Kane says that the developing countries such as Brazil, Russia, India and China, are investing more of their reserves into gold, and he says that Chinese authorities have gone as far as urging its citizens to hold physical gold as a long term investment. As far as a prediction for the gold price is concerned, he says that by the end of 2010 we could see a gold price of around US$1,300 - US$1,400 per ounce up from today’s price of US$1,200 per ounce. The long term outlook for gold is strong he says, with the current gold cycle only 8 - 9 years into a typical 25 year upwards cycle. He says that history has shown that previous cycles enjoy a long slow upward trend in the first 10 - 15 years, while the last 5 years of the cycle typically sees a strong surge in the gold price. O’Kane says that if we see a renewed bout of financial market volatility or another banking crisis, he will expect a further increase in the demand for gold bullion. www.newzealandmint.co.nz
8
Gold
Gold was once used as a currency in itself, as a medium of exchange for goods and services, before paper money was invented. In the most uncertain economic times we have seen for decades there is rising investor demand for gold. As an investment gold provides no income return so investors are relying on a rise in value for a return or at least gold’s ability to keep its value when other assets do not.
Many believe that the outlook for gold is positive due to the excess money printing that has occurred by central governments around the world. The excess money printing leads to a rise in inflation which is positive for gold, as gold is thought of as a hedge against inflation. Gold bulls are predicting a future gold price of US$2,000 - US$2,500 per ounce in the near future with estimates as high as US$5,000, which would provide a good return on today‘s current gold price of US$1,200. Investors can access an investment in gold in several ways: invest in the shares of a gold mining company, buy an Exchange Traded Fund that tracks the gold price with the units owning the underlying gold asset, or through the purchase of physical gold from a gold mint.
9
Physical cash
When the world’s share markets, property markets and foreign exchange markets are in meltdown some investors cannot go past holding good old cash as an investment. Their rationale is that everything else is falling in value, or at least too risky to invest in, so they hold cash for certainty. Cash investments are also easily understood and quickly transferred into other investments and/ or goods and services. However, cash investments are at high risk of inflation which can erode the purchasing power of a dollar. An inflation rate of three per cent per annum can steadily erode away at the purchasing power of cash and a rate higher than this can be quite detrimental. Despite its ease, understandability and convenience a portfolio needs more than just cash and growth investments are also needed to keep ahead of inflation.
Expert opinion - Jerome Concisom Jerome Concisom, chief executive of safety deposit box company Commonwealth Vault, says he has seen an increased level of enquiry over the past two years and particularly during the global banking crisis. During the banking crisis, he says there was an elevated concern from clients regarding the main trading bank’s liquidity, and some clients were actively withdrawing cash from their bank accounts and storing it on-site in the company’s vaults. This, he says, means the funds are out of the bank and simply sitting in secure storage, and clients were happy to do this at a time when bank failures around the world were a daily occurrence. Concison adds that all manner of precious possisions are held on the premises. The premises remain under manned-guard and video surveillance 24 hours per day, 7 days per week. Clients have access to their assets at any time. www.commonwealthvault.com
New Zealand Investor
Expert opinion - Michael O’Kane
15
Cover
10
Collectible stamps
Rare, easily portable and always in demand, stamps have often been used as a storage of wealth during difficult times, especially when their owner may have to up and leave at short notice or wants to transport valuables across borders. Some stamps hold high value, but it is an area that needs a certain expertise or knowledge, and the naïve investor could end up over-paying for something which is either overvalued, or does not hold its value. This is particularly true when stamps go through their fad phase or are in fashion for only a brief period of time. Stamps also provide no income return so the investor is again relying on capital gains for a return. Spot the New Zealand stamps
Expert opinion - Earle Howe Earle Howe of the New Zealand Stamp Dealers’ Association tends to caution people about viewing stamps as an investment. He says that at the top end of the market there are some profits to be made at international auctions, however collectible stamps are not a shortcut to wealth and should be viewed as a fascinating hobby. He says that one of the coveted HMS Vanguard stamps sold in New Zealand for over $31,000 in 2009 and this was an increase on the $22,000 paid when the same stamp last changed hands in 1999. He often fields client enquiries as to the value of a stamp collection and that potential colletors need to bear in mind costs such as insurance. While not all stamps were created equal, Howe says that it is often the forgeries and erroneous stamps, or the stamps with an intriguing past which attract the most interest and sell for the highest price. www.nzsda.com
The Private Client Team at Hesketh Henry works with families to advise on the structuring and administration of personal property, business ownership, trusts, estate planning, wills and relationship property agreements.
www.irg.co.nz
World’s most valuable stamp
16
This is the 1858 Sweden Treskilling Yellow, which sold in Switzerland in May this year to a mystery buyer for US$2.3 million. Carrying a pricing error, and believed the only one left of its kind, the stamp has been highly sought after for over 100 years. At one stage, it was owned Romania’s King Carol and found itself onboard a train laden with treasure (including a Rembrandt painting, priceless jewels) which took the “Playboy King” and his mistress to exile from the Nazis during World War II.
Please visit our website to register for our regular e-zine on trust and estate planning issues at www.heskethhenry.co.nz or contact team leader Mary Joy Simpson +64-9-375-8776
ShareTalk
AUSTRALIA, NZ SHARE MARKET REPORT - 4 weeks to July 19 Despite continued global market turbulence, mixed housing data in New Zealand and political change in Australia, positive sentiment from the USA has offered glimpses of optimism for the domestic markets Aside from a small gain near the end of the month, the New Zealand share market entered the final week of June with a flat tone as uncertainty on the world’s financial markets discouraged buying interest. Market leader Telecom Corporation did find favour though as bargain hunters moved in at around $1.90 a share. Bank shares Westpac and ANZ were soft on concerns about the banking sector in Europe and despite announcing a deferred tax liability The Warehouse Group saw its stock little changed. Entering July, the New Zealand market clocked a series of modest gains, boosted by a better performance on Wall Street. US stocks strengthened mid-week as positive earnings outlooks boosted financials and outweighed concerns ahead of the upcoming earnings season. Leading stocks Fletcher Building and Contact Energy rallied while Telecom also firmed. By mid-July most New Zealand shares had maintained their upward momentum, though some selling interest had emerged. Telecom stock was trading well clear of its $1.83, 52-week low – despite a seemingly endless stream of bad news including an increased tax burden. In contrast Fletcher Building was struggling below $8, having hit a peak of $8.53 in April. Energy producer and explorer NZ
NZX50
ASXORDS ALL ORDS ASX ALL ORDS ASX ALL 3100
3100
5100
Moving Moving averageaverage (5 days)(5 days) Moving Moving averageaverage (20 days)(20 days) 3050
3000
2950
Jul
Contact us DAVID BUELL
Jul
DDI EMAIL
Sharon Fang
DDI EMAIL
DAN STRATFUL
DDI EMAIL
2900
source: www.findata.co.nz source: www.findata.co.nz
09 304 0223 david.buell@irg.co.nz 09 304 0235 sharon.fang@irg.co.nz 09 304 0233 dan.stratful@irg.co.nz
Moving Moving averageaverage (5 days)(5 days) 5000 Moving Moving averageaverage (20 days)(20 days) 3050
3000
2950
2900
Jul
ROB COCHRANE
DDI EMAIL
NICK O’BOYLE
DDI EMAIL
FREEPHONE 0800 474 669
5000
4900
4900
4800
4800
4700
4700
4600
4600
4500
4500
4400
4400
4300
4300
4200
4200
4100
4100
source: www.findata.co.nz Jul source: www.findata.co.nz
09 304 0229 rob.cochrane@irg.co.nz 09 304 0233 nick.oboyle@irg.co.nz
A free disclosure statement is available upon request
5100
New Zealand Investor
NZX50NZX50
Oil & Gas rallied after the company announced larger than expected reserves in its Kupe Field and offshoot Pike River Coal was also well supported. Across the ditch the Australian share market ended June weighed down by soggy offshore markets and political uncertainty as Prime Minister Kevin Rudd faced a leadership challenge from deputy Julia Gillard. Rudd had come under fire over his proposed ‘super’ tax on mining profits which drew the ire of mining sector heavyweights, many of whom operate in marginal electorates. The large banking stocks ANZ, Westpac, NAB and Commonwealth were all weak, as were mining giants BHP Billiton and Rio Tinto. The market spent the first week of July in a downtrend though as in New Zealand investors took some cheer from improvements in the US market, however news Australian construction activity contracted for the first time in four months in June dampened local sentiment. Financial stocks Macquarie Group and AMP were soft but miners BHP Billiton and Rio Tinto saw a return to favour on news the ‘super’ mining tax would be scrapped. A mid-July return of confidence in the banking and mining sectors saw stocks surge higher with all four major banks, led by Westpac, enjoying a rebound. Overall market sentiment was driven by optimism ahead of US corporate earnings and improved commodities prices. In its second quarter review Rio said growth was firmly back on the agenda and there was a range of expansion and investment opportunities competing for capital. Gold continued to trade at over US$1,200 an ounce, helping underpin gold miners Newcrest Mining and its takeover target Lihir.
17
ShareTalk
Cavalier Corporation (CAV)
New Zealand Oil & Gas (NZO)
1.00
2.00
0.90
1.80
0.80
Market Capitalisation
$2.95/$1.92
Year Rolling High/Low 15
www.irg.co.nz
22/07/10
22/06/10
22/05/10
22/06/10
22/07/10 22/07/10
22/04/10
22/03/10
22/02/10
22/11/09
22/10/09
22/07/09
22/09/09
22/04/10 22/07/10
22/03/10 22/06/10
22/02/10 22/05/10
22/01/10 22/04/10
22/12/09 22/03/10
22/11/09 22/02/10
22/10/09 22/01/10
22/09/09 22/12/09
22/08/09 22/11/09
22/09/09
22/07/09 22/10/09
22/08/09
35 30 25 20 15 10 5
22/08/09
22/09/09
22/10/09
22/11/09
22/12/09
22/01/10
22/02/10
22/03/10
22/04/10
22/05/10
22/06/10
22/07/10
22/09/09
22/10/09
22/11/09
22/12/09
22/01/10
22/02/10
22/03/10
22/04/10
22/05/10
22/06/10
22/07/10
0
22/07/09
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/07/09
22/07/10
22/06/10
22/05/10
22/04/10 22/07/10
22/03/10 22/06/10
22/02/10 22/05/10
22/01/10 22/04/10
22/12/09 22/03/10
22/10/09 22/01/10
22/09/09 22/12/09
22/08/09 22/11/09
22/09/09
22/07/09 22/10/09
22/11/09 22/02/10 22/02/10
Tui, the jewel in NZO’s crown, is expected to continue in commercial production until around 2020 and production from Tui has been higher than originally expected. The initial Proven and Probable (2P) Reserves for the Tui area oil fields have been increased several times over the years, and the preproduction estimate was 27.9 million barrels of oil equivalent (mmbbls). The most recent full-life reserves assessment in August 2009 was 50.5 mmbbls and NZO’s share of this was 6.3 mmbbls. Production from Tui for the year ended 30 June 2009 was 9.1 mmbbls, against an original forecast of 6 mmbbls and a revised forecast of 9 mmbbls, and forecast production for the year ended 30 June 2010 is for between 4.7 and 5.1 mmbbls. NZO’s investment in Pike River Coal (PRC) is about to pay off and PRC has shipped its maiden shipment of coking coal in February 2010, but the shipment of 20,000 tonnes was at the lower end of the 20,000 – 30,000 guidance range. 22/08/09
22/08/09
22/07/09
0.00
0
22/07/09
0.50
22/07/10
1.00
22/06/10
1.50
22/05/10
2.50
22/04/10
3.00
22/03/10
3.50
22/02/10
22/08/09
22/07/09
0.00
22/01/10
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/02/10
22/01/10
22/12/09
22/11/09
22/10/09
22/09/09
22/08/09
0.50
22/07/09
22/07/10
0
22/01/10
1.00
22/12/09
1.50
5
22/12/09
2.00
22/11/09
2.50
10
22/11/09
3.00
In its latest interim result for the period ending 31 December 2009 CAV reported a net profit of $7 million, down 6 per cent on the previous corresponding period, while revenue was 14 percent lower at $112.8 million. The lower result could be blamed on a cooling construction sector although CAV states that it also benefits from home and office fit-outs and renovation work. Despite a lower interim result CAV did well to maintain dividends and the company also improved its balance sheet and debt position during the interim period leaving it well placed for an eventual recovery. With about half of CAV’s products exported, mostly to Australia but to other destinations as well, the company faces some foreign currency risks and as an exporter it benefits when the New Zealand dollar falls. The company itself has provided guidance that adverse market conditions for its carpet business may have bottomed, and it expects a recovery in market conditions from here. 22/10/09
3.50
15
0.00
22/10/09
22/08/09
4.00
20
5
0.20
22/09/09
25
0.40
0.00
22/09/09
With the mammoth acquisition of Coles now behind it WES is now quietly going about integrating the supermarket into its group operations which by WES’s own admission will take 5 years. But once complete, the Coles Group could underpin WES’s earnings for many years to come and patience could pay off for shareholders. WES often appears to have an unrelated group of businesses, however this provides diversification, and its defensive businesses such as insurance and energy, often offset downturns in its highly cyclical sectors such as consumer discretionary retail and the home improvement stores which are closely related to the building cycle. In the interim result to 31 December 2009 WES reported revenue from ordinary activities of $26.53 billion up 1 percent on the previous corresponding period and net profit also lifted 1 percent to $879 million. The interim result showed that the turnaround of Coles was on track with its earnings before interest and tax increasing by 13 percent.
10
0.60
0.50
22/07/09
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/02/10
22/01/10
22/12/09
22/11/09
22/10/09
22/09/09
22/08/09
22/07/10
22/07/09
0.00
15
0.80
30
18
1.00
1.00
0.20 0.10
20
1.20 1.50
0.30
0
25
1.40
0.40
5
5c
30
1.60
2.50
0.50
10
5c
1.80
0.60
15
24.4
22/06/10
2.00
3.00
0.70
20
5c
8.9
22/05/10
3.50
0.80
25
13.7c
12-month Chart for NZO to 20/7/10
0.90 30
2010F
22/05/10
12-month Chart for CAV to 20/7/10
1.00
35
22/07/10
Dividend (cps)
22/06/10
16c
22/05/10
Dividend (cps)
22/04/10
110c
22/03/10
PE Ratio
22/02/10
EPS (cps) 0
10.6
22/01/10
23c
11.1
22/12/09
22c
PE Ratio
22/11/09
EPS (cps) 0.00
19.4
15c
2009A
5
145c
12-month Chart for WES to 20/7/10
$1.80/$1.19
10 Financial Year
22/01/10
2010F
$470.8 million
20
22/08/09
2009A
0.50
22/10/09
110c
1.00 Financial Year
22/09/09
16.5
1.50
2010F 22/05/10
22/04/10
170c
2.00
22/04/10
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/02/10
22/01/10
22/12/09
22/11/09
22/10/09
22/09/09
$166.8 million
Year Rolling High/Low
22/08/09
Dividend (cps)
25
Market Capitalisation 2.50
22/03/10
22/02/10
22/01/10
22/12/09
22/11/09
22/10/09
PE Ratio
22/09/09
22/08/09
22/07/09
22/07/10
EPS (cps)
$1.22
30
$28.24 billion 2009A
0.00
35
Price
$33.20/$23.60
22/07/09
0.40
0.20 Financial Year
0.00
ADVICE: SPECULATIVE BUY
$2.45
3.00
22/07/10
0.80
0.60 Year Rolling High/Low
3.50 Price
22/06/10
Market Capitalisation 1.00
0.20
ADVICE: YIELD BUY
4.00
$28.10
0.40
22/12/09
ADVICE: Growth BUY
1.60 1.40 Price 1.20
22/08/09
22/07/09
0.00
0.60
22/03/10
0.10
0.80
22/02/10
0.20
1.00
22/01/10
0.30
22/12/09
0.40
1.20
22/11/09
0.50
1.40
22/10/09
0.60
NZO’s primary assets include the Tui Area Oil Fields in which it is a 12.5 per cent partner and the Kupe gas and condensate field in which it is a 15 percent partner. Both these fields are off the Taranaki Coastline and NZO also has two other significant investments including a 30 per cent stake in the South Island’s Pike River Coking Coal mine and a 15 per cent stake in Pan Pacific Petroleum, one of NZO’s partners in the Tui oil fields. 22/09/09
0.70
2.00 1.80
1.60
CAV has been listed on the NZX since 1984 and has been a reliable dividend payer over the years and the company’s principal activities now include two broadloom carpet businesses, a carpet tile business, a wool scouring operation and a wool procurement business. CAV’s fortunes are tied to the building cycle to some degree, however it has proved in the past, to be a resilient performer in all types of economic conditions.
22/07/09
Wesfarmers has a diverse range of business activities that include Supermarkets (Coles supermarkets), Home Improvement (Bunnings Warehouse chain), Department stores (Kmart and Target) Insurance (Lumley Insurance) Industrial and Safety (Blackwoods) and Energy (Coregas). The company’s origins date back to 1914 and WES has evolved to become a true corporate conglomerate.
22/08/09
Wesfarmers (WES)
30 25 20 15 10 5 0
ShareTalk
Fisher & Paykel Appliances (FPA)
1.00 0.90
QBE Insurance Group Ltd (QBE)
2.00 1.80
0.80
1.60
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/02/10
22/01/10
22/12/09
22/11/09
22/10/09
22/09/09
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/02/10
22/01/10
22/12/09
22/11/09
22/07/10
22/06/10
22/07/10 22/05/10
22/06/10 22/04/10
22/05/10 22/03/10
22/04/10 22/02/10
22/03/10 22/01/10
22/02/10 22/12/09
22/01/10 22/11/09
22/10/09
22/11/09
22/12/09
22/01/10
22/02/10
22/03/10
22/04/10
22/05/10
22/06/10
22/10/09
22/11/09
22/12/09
22/01/10
22/02/10
22/03/10
22/04/10
22/05/10
22/06/10
22/07/10
22/09/09
30 25 20 15 10 5
New Zealand Investor
0
22/07/10
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/02/10
22/01/10
22/12/09
0.00
0
22/09/09
0.50
5
22/08/09
1.00
22/12/09 22/10/09
10
22/08/09
1.50
22/11/09 22/09/09
15
22/06/10
22/07/10 22/05/10
22/06/10 22/04/10
22/05/10 22/03/10
22/04/10 22/02/10
22/03/10 22/01/10
22/02/10 22/12/09
22/01/10 22/11/09
22/12/09 22/10/09
22/11/09 22/09/09
2.50
22/08/09
20
0
3.00
22/07/10
22/07/10 22/05/10
22/06/10
25
5
3.50
QBE put in an improved profit performance over 2009. Premium rates on renewed business were up 4 percent – slightly ahead of target. Premium growth of 10 per cent was in line with a revised forecast although new business was slightly behind target in US and Europe. Technical underwriting results were strong by industry standards in all markets. Insurance profit margin of 17 per cent was at the mid point of QBE’s original target range of 16 per cent 18 per cent but lower interest yields impacted the margin by 1.7 per cent. Agency businesses added $319 million to underwriting profit and agencies generated $1.6 billion of premium income underwritten by QBE. Based on management results before internal reinsurance, return on capital allocated to divisions was well above QBE’s 15 per cent minimum return on equity (ROE) hurdle rate. Australia’s ROE was 20.8 per cent, Asia Pacific’s 25.8 per cent, Europe’s 23.1 per cent and the Americas was 17.1 per cent. 30
1.00
0.00
0.00
35
10
0.50
22/10/09
0.20
15
1.50
0.40
0
3.00
2.00
22/09/09
22/08/09
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/08/09
22/07/09
22/07/10
22/06/10
22/02/10 22/07/10
22/01/10 22/06/10
22/12/09 22/05/10
22/11/09 22/04/10
22/10/09 22/03/10
22/07/09
0.60
5
22/06/10 22/04/10
22/10/09 22/08/09
22/09/09 22/07/09
22/08/09
1.00 0.80
22/11/09
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/02/10
22/01/10
0.00
1.40 1.20
22/10/09 22/08/09
0.50
1.60
15
20
2.50
130
2.00
20
22/09/09 22/07/09
1.00
3.50
128
1.80
22/09/09
1.50
25
25
4.00
22/08/09
2.50
22/12/09
10
30
30
22/08/09
3.00
22/11/09
180
9.3
30
Normalised group profit after tax for the 2009-10 year was $18 million, down on the prior year result of $33.8 million but within previously announced market guidance of $16 million - $23 million. The result reflected a second half recovery for the Appliances’ business, notwithstanding a continuation of difficult trading conditions in North America. The improvement on the first half Appliances business result was driven by financial benefits arising from the Global Manufacturing Strategy and market share gains in Australia. Appliances normalised operating profit before interest and tax for the second half of the year was $23.7 million compared to $5.7 million for the first half. Appliances full year normalised operating profit before interest and tax was $29.4 million. With the announced global manufacturing strategy now complete, one-off costs associated with the factory relocations amounted to $0.4 million in the second half compared to $15 million before tax for the first half. 22/07/09
3.50
22/10/09
193
PE Ratio
35
0
22/07/09
FRE produced an overall satisfactory result for the half year ended 31 December 2009, however tough trading conditions during the last six months meant that the result was lower than the prior comparative period (pcp). Consolidated operating revenue of $165 million for the half year was 4 per cent lower than the normalised pcp. The result was a demonstration of FRE’s resilience to market conditions and was considered very satisfactory by the company, given the impact of the economic downturn on domestic activity during the period. Earnings before interest, tax, depreciation and goodwill amortisation (EBITDA) of $32 million for the half year was eight per cent lower than the normalised pcp, while interim earnings before interest, tax, and goodwill amortisation (EBITA) of $27 million was 10 per cent lower. Consolidated net profit after tax of $14.5 million for the half year was eight per cent lower.
22/07/09
22/07/10
22/06/10
22/05/10
22/04/10
22/03/10
22/02/10
22/01/10
22/12/09
22/11/09
22/10/09
22/09/09
EPS (cps) 0
12-month Chart for QBE to 20/7/10
5
0.00
0.00
22/09/09
2010F
10
0.10
22/08/09
2009
Dividend (cps)
0.20
0.50
22/07/09
$25.70/$17.11
10 Financial Year
10
0.30
1.00
22/08/09
15 Year Rolling High/Low
15
0.40 1.00
22/07/09
4
20
0.50
1.50
0.00
8
6.6
$18.68 billion
5
25
0.60
0.50
2010F
22/10/09 22/08/09
0.70
2.50
$18.05
25
Market Capitalisation 20
22/07/09
0.80
3.00
1.50
Price
22/07/09
0.90
2.00
nil n/a nil
ADVICE: Growth BUY
30
22/09/09 22/07/09
1.00
3.00
2.50
0.00
12-month Chart for FPA to 20/7/10 3.50
3.50
22/09/09 22/02/10
Dividend (cps)
12-month Chart for FRE to 20/7/10 4.00
22/08/09 22/01/10
PE Ratio
22/11/09
16
EPS (cps)
2009
22/11/09 22/09/09 22/07/09 22/12/09 22/10/09 22/08/09 22/01/10 22/11/09 22/09/09 22/02/10 22/12/09 22/10/09 22/03/10 22/01/10 22/11/09 22/04/10 22/02/10 22/12/09 22/05/10 22/03/10 22/01/10 22/06/10 22/04/10 22/02/10 22/07/10 22/05/10 22/03/10
16.5
19 0.00
13.7
22/07/09 22/12/09
0.50 22/07/10
22/02/10
22/01/10
22/12/09
22/11/09
22/10/09
22/09/09
22/08/09
22/07/09
Dividend (cps)
9.9
0.20
$0.90/$0.52
0.20 Financial Year 0.00
22/07/09
26.6
0.60 Year Rolling High/Low 0.40
1.00 2010F 22/06/10
EPS (cps)
22/04/10
2009 22/03/10
Financial Year 0.00
0.40
$391 million
1.00
$3.46/$2.62 1.50
0.10
0.60
$0.53
1.20
Market 0.80 Capitalisation
2.00
0.30 Year Rolling High/Low 0.20
PE Ratio
Price
3.00
$411.6 million2.50
0.50
0.80
35
1.40
22/10/09
$2.65
Market Capitalisation 0.40
1.60
3.50
22/09/09
Price 0.60
1.00
ADVICE: HOLD
1.80
22/08/09
0.70
22/05/10
0.80
1.20
2.00
4.00
22/10/09
ADVICE: GROWTH BUY
0.90
QBE Insurance Group Ltd was formed and listed in 1973 as a result of the merger of two old established insurance businesses - Queensland Insurance Co Ltd (Q) and Bankers & Traders’ Insurance Co Ltd (B), each of which owned a 40 per cent interest in Equitable Life & General Insurance Co Ltd (E). Today, the company is a major general insurance and reinsurance business with over 200 offices located in 40 countries.
1.40
22/07/09
1.00
22/05/10
22/08/09
22/07/09
0.00
22/04/10
0.10
22/03/10
0.20
22/02/10
0.30
22/01/10
0.40
22/12/09
0.50
22/11/09
0.60
FPA designs, manufactures and markets a range of household appliances developed with a commitment to technology, design, user friendliness and environmental awareness. It includes three wholly owned subsidiary companies: Production Machinery Limited, Dynamic Cooking Systems Inc. and Fisher & Paykel Italy, a company that manufactures European cooking products. It also has a Finance division. 22/10/09
0.70
22/09/09
Freightways is a leading provider of express package services throughout New Zealand, with complementary businesses servicing the information management and business mail sectors. The Group’s origins date back to 1964 through New Zealand Couriers - a pioneer in the express package industry in New Zealand. Since commencing operations in Auckland, Freightways has become a leading NZ service provider.
22/07/10
Freightways (FRE)
19
Company Profile
Is recession relevant to The listed fast food group has gone from strength to strength in recent times, but rejects the view that recession has helped. Vaughan Yarwood talks to chief executive Russel Creedy
A
www.irg.co.nz
s a nation we may have cut back on discretionary spending since being hit a year or more ago by the worst recession in decades, but according to the latest sales data we have found a new appetite for takeaways – and that has helped lift earnings for fast-food operator Restaurant Brands. Figures released last month by Paymark, which processes three-quarters of the country’s electronic transactions, revealed that year-on-year spending was down in many areas, including pharmacies (7.1 per cent), travel agent sales (9 per cent) and liquor retail (2.9 per cent), and that shoppers were increasingly using Eftpos rather than credit cards for their purchases. Among sectors bucking the trend were supermarkets (up by two per cent) and cafés and restaurants (up 8.7 per cent). Big-ticket consumer durables such as widescreen televisions, white-ware and computers also did well. However, the star performer was takeaway food, sales of which which grew over the past 12 months by a massive 9.5 per cent. New Zealand is not alone in its uptake of fast food. Early last year in Britain, amid a darkening economic landscape, food chain Domino’s Pizza announced annual profit growth of almost 25 per cent and chicken outlet KFC outlined ambitious expansion plans. Across the Atlantic the same trend appeared to be unfolding. According to the report ‘US Fast Food Market
20
Outlook 2010’, by Delhi-based market research company RNCOS, fast food’s share of the total United States restaurant market reached 30 per cent in 2008. With United States households spending almost half of their food budget on restaurants, the figure represented a significant opportunity for the industry, said the report’s authors. They attributed the rapid growth of the sector at a time of recession to its comparatively low cost and concluded that this along with the increasingly busier lifestyle of Americans would continue to drive the fast food industry there through 2010. Closer to home, Paymark’s findings offered no solace for fresh-produce distributor Turners and Growers, which suffered a 34 per cent fall in annual profit as shoppers trimmed spending on fresh fruit and vegetables. The result prompted Turners and Growers’ chief executive, Jeff Wesley to strike a philosophical note. “People move from healthy foods to high-fat foods, high-salt foods, in a recession,” he told One News. “Until the recession really works its way out of the system we don’t see a great turnaround, although clearly the fast-food guys do very well”. Restaurant Brands, the local operator of the KFC, Pizza Hut and Starbucks Coffee chains, certainly gave the appearance of riding a wave when it announced profits for the year to 28 February 2010 of $19.9 million – up 70 per cent on the previous year. Driving earnings was the 85-store KFC chain which contributed more than two-thirds of revenue,
Company Profile
Restaurant Brands? sites as the economy stalled, he puts much of the credit for the improved sales down to expanded menus, more focused marketing and the progressive make-over of KFC stores. KFC has widened its range of burgers and wraps and courted the youth market with krushers – a new icedsmoothie style drink. Over the next two to three years the chain plans to introduce more drink choices, including coffee. In December 2009, Restaurant Brands renegotiated the chicken supply agreements for its flagship chain, limiting its former supplier, Inghams Enterprises, to the North Island KFC stores and sourcing its South Island chicken from the country’s other big supplier, Tegal Foods. The company says the new five-year supply arrangements are on “slightly more favourable terms” than the single contract they replace. But for KFC customers, the most noticeable change has been the store renewal programme. Starting with the $1 million flagship Hamilton store – all glass, refreshed colours, open space and remodelled furniture – the new look is being rolled out nationwide. To date some 40 stores – almost half of the network – have been refurbished, with new stores recently opened in Auckland’s Greenlane and Point Chevalier. The refresh, which includes purging the retail environment of much of its heavy branding, might be summed up as “fewer colonels, more direction”. The founder’s image is no longer etched on window glass, emblazoned on light fittings or stamped on much product packaging.
New Zealand Investor
with sales up 5.5 per cent to $223.5 million for the year. Total revenues for the year were up 2.8 per cent to $318.3 million, while same-store sales grew by 6.8 per cent. Even the underperforming 91-outlet Pizza Hut chain seemed to shake off its lethargy, with same-store sales up by 3.9 per cent, although overall sales were down slightly to $64.2 million due to the closure of two stores. It was not all good news. Same-store sales were lower across the 41-store Starbucks Coffee chain and total revenue was down 7.6 per cent to $30.5 million. Even here, though, earnings before interest, taxes, depreciation and amortisation (Ebitda) were up almost 10 per cent to $3.2 million, thanks in part to an improved exchange rate and product rationalisation. The market responded to the profit result by lifting Restaurant Brand’s share price to $2.10, its highest in eight years. Just months later, the company was announcing more of the same, with first-quarter sales up 4.22 per cent year-onyear thanks to high-performing KFC, which contributed 72 per cent of the company’s revenue. Same-store sales in the chain had now reached a lofty 10.7 per cent, with sales for the quarter up $4.3 million to $54.3 million. Despite the impressive results, Restaurant Brands’ chief executive, South African-born Russel Creedy, is not giving the ‘R’ word much credit. “I’m not a believer that this is a recession-driven success”, he says. While admitting that diners were increasingly looking for more affordable options, that labour shortages had eased and that opportunities had arisen at prime retail
21
Company Profile
www.irg.co.nz
‘It was very 1970s”, says Creedy. Change was prompted by Dallas-based master corporate franchiser, Yum! Brands, which had grown alarmed at the local doldrums into which its brands – KFC especially – had drifted. There are limits to what can be done, however, with all proposed store fit-outs and changes to product offerings subject to a tight approval process. The guiding principle, says Creedy, is “don’t bastardise the brand”. “KFC isn’t just a name above a door. It wouldn’t sell dumpling, for example – even in China, where they would be a runaway success. We can perhaps tweak a few flavours for the New Zealand market, but that is where it ends”. Meanwhile, Pizza Hut and Starbucks continue to perform sluggishly. Yes, they have improved since 2007 when Creedy took control of what by wide consensus was a “dog”. Longservice people who could not or would not adapt left, an entire layer of management was trimmed and the company stopped making its own television advertisements – the new, voiced-over American and Australian ads alone saved an estimated $1 million a year. But, although there is talk of a turnaround at both Pizza Hut and Starbucks, it is nothing to get worked up about. The Pizza chain continues to face stiff competition while low barriers to entry in the New Zealand retail coffee market thwart Starbucks. Figures for the year to to February 2010 show that while Pizza Hut improved total store ebitda to $5.4 million, from $2.8 million in 2009, that is still far short of the $13.6 million it clocked up back in 2005 – even allowing for a reduction in outlets from 101 to 91 over the five year period. Starbucks has also failed to fire. Despite a modest increase in store numbers, the total store ebitda is down from $3.7 million in 2005 to $3.2 million in 2010. Creedy admits that Restaurant Brands has just one “mega-brand”, but he insists that the others are viable businesses.
22
“It’s a question of relativity. Starbucks makes money, and given a certain expectation of return on investment it might well be what someone is looking for”, he says. “We are not actively looking to sell the chain, but if someone offered the right price we would talk. If we can get a better return by investing in KFC, or in another acquisition, we owe it to our shareholders to do that”. In fact, Starbucks was on the market some time ago, but potential buyers melted away after the financial crisis made capital raising difficult – the chain is worth an estimated $10 million to $20 million. Meanwhile, an adviser was flown in from Starbucks’ Seattle head office to advise on ways to improve performance. Among the likely changes is the introduction of additional food offerings. Pizza Hut, too, is on the blocks, with the sale of selected stores to owner-operators, first introduced last year, set to continue. However, Creedy stresses that the company is not chasing sales at any price. The cashed-up investment will either be ploughed back into the profitable KFC chain or used to fund the introduction of new franchises – California-based Mexican-styled restaurant chain Taco Bell, another subsidiary of Yum! Brands, is one contender. Any new business must have growth potential and play to Restaurant Brands core strengths, says Creedy. It must also offer returns that beat the weighted average cost of capital. He doubts that launching an entirely new brand is a likely option. “Starting from scratch with a chain is very difficult. You can burn a lot of money very easily”, he says. Neither is another trans-Tasman foray – the company’s earlier attempt to enter the pizza market in the state of Victoria ended disastrously. Pragmatist that he is, though, Creedy is not prepared to rule anything out. “Nothing is on the board at the moment but never say never”.
Property
Investors hanging on House price expectations
Changes announced in the last Budget, including the removal of Don’t know Jun10 House price expectations Mar 10 Increase by more than 10% depreciation tax breaks from investment property, appear to have done Don’t know Jun10 • 33% now expect house prices to Increase by 6-10% little to deter property investors according to the latest housing market Mar 10 Increase by more than 10% rise (up from 12% in March) Increase by 1-5% • 33% now expect house prices to survey from QV.co.nz Increase by 6-10% • 43% expect house prices to fall Remain the same
rise (up from 12% in March) Increase by 1-5% (down from 51% in March) Decrease by 1-5% • 43% expect house prices to fall Remain the same • 23% expect values to stay the same Decreasefigure by 6-10%of 51 per cent), 33 per cent expect to see , the country’s largest and the March (down from 51% valuation in March) Decrease by 1-5% (down from 32% in March) information company, found prices increase (up from 12 per cent in March) and 23 per than 10% • property 23% expect values to stay the sameDecrease by more Decrease by 6-10% that the Budget does not appear to have cent expect values to remain unchanged (down from 32 per (down from 32% in March) 0% 10% 20% 30% 40% Decrease by more than 10% had a strong impact on property investors, cent in March). Percentage of responses with over half intending to retain their current portfolio When it came to investors’ reasons for buying or selling 10% 20% 30% 40% and only 8 per cent planning to offload some or all of their property values remain0%the most significant factor, with job Percentage of responses investment properties. security increasing in importance. The survey included new questions for property investors Now they have been announced the tax changes were to gauge reaction to the Budget changes and found 54 per found to be the least significant factor, a change from March cent intend to retain their current portfolio, six per cent Factors influencing buying or selling intend to sell some properties and two per cent plan to sell all None, I'm not currently Jun10 planning to buy or sell The overall breakdown is: Factors influencing buying or selling their properties. Mar 10 Financial pressures None, I'm not currently Of those investors surveyedvalues 12 per –cent intend to buy Jun10 • Property 49% listed thisaddias planning to buy or sell The overall breakdown is: tional properties, eight per cent plan to sell before re-buying Job security Mar 10 a factor, up from 35% in March Financial pressures and 18 per cent remain undecided. • Property values – 49% listed this as Lending conditions Interest rates – 31%, up amount from 27% Overall the•survey found an increase in the of Job security a factor, up from 35% in March • Job security – 26%, up from 15% Property values people who believe now is a good time to buy property, in Lending conditions Interest rates – 31%, up from 27% • •Lending – 19%, from contrast to strong sentimentconditions that now is not a goodup time to Interest rates •14%Job security – 26%, up from 15% Property values sell. in March Tax changes announced in • Lending conditions – 19%, up from theInterest budget rates The expectation property prices will fall–over the at coming • Financial pressures stable 16% in March year has softened from14% the March survey, and unlike the Tax changes announced 0% in 20% 40% 60% the budget previous survey now significantpressures amount of people expect to • aFinancial – stable at 16% Percentage of responses see prices rise. 0% 20% 40% 60% Some 43 per cent expect property prices to fall (down from Percentage of responses
QV
House price expectations Don’t know
Jun10 50% agreed or strongly agreed that 10 Increase by more than 10% now is a good time to buyMar(44% in •March) 50% agreed or strongly agreed that ices to Increase by 6-10% now is a good time to buy (44% in Increase 1-5% disagreed or strongly disagreed • by19% March) to fall Remain the (21% same in March) • 19% disagreed or strongly disagreed Decrease 1-5% were neutral (35% in March) • by30% (21% in March) e same • by 6-10% This leads to a net 31% believing now Decrease • 30% were neutral (35% in March) is a good time to buy (23% in March) Decrease by more than • 10%This leads to a net 31% believing now 0% 10% 20% 30% in March) 40% is a good time to buy (23%
Strongly agree
•
Of those intending buy or sell, Now is a good time to to buy
Strongly agree
• •
Strongly disagree
•
Strongly disagree 0%
Percentage of responses 0%
9% intend to buy within 3 months, 29% intend to sell 31% intend to buy in 3 to 6 months, 4% intend to sell 31% intend to buy in 6 to 12 months, 16% to sell Jun10 29% intend to wait Mar at 10least 6 Jun10 months before buying, 51% before Mar 10 10% 20% 30% 40% selling Percentage of responses 10% 20% 30% Percentage of responses
40%
Not
New Zealand Investor
•
Now is a good time The breakdown is: to buy
23
ces to
greed to fall
) same ge now rch)
Increase by 6-10%
Remain the same Decrease by 1-5%
Property
Decrease by 6-10%
The breakdown is:
Decrease more than 10% Stronglybydisagree
10
10
Jun10 Mar 10
• 0% Of those intending to buy or sell, 10% 20% 30% 40%
10%intend20% 30% 3 months, 40% 9% to buy within Percentage of responses Percentage of responses sell when the uncertainty 29% was aintend concerntofor many. • 4931% intend to buy values in 3as to The survey found per cent cited property the 6 most important factor,months, up from 4% 35 per cent in intend to March, sell while 31 per cent said interest ratesintend (up fromtothebuy March • 31% in figure 6 toof 12 Themonths, breakdown is: 27 per cent). Job security was a major factor for 26 per cent 16% to sell Factors influencing buying or selling of respondents’ , up from 15 per cent, while 19 per cent cited 10 Of those intending toJun10 buy or sell, 29% intend to wait at least 6 None, I'm not currently• lendingtoconditions aisfactor, up from theto March figure of planning buy or sell r 10 Nowas months good time sell 9%aintend to buy within 3 months, before buying, 51% before Mar 10 14 per cent.pressures Financial 40% The breakdown is: 29% intend to sell selling this as The June figures also show a rise in the amount of people Strongly agree 0 Job security • aOfgood 31% intend buy in toor 3 50sell, toper6 ch those intending to buy who believe now• is time to buyto property, up 0 ongly months, sell intend to buy 3 months, 27% centLending from conditions the March9% figure of 444% perintend cent.within A to neutral stance me to is being taken by 30 per cent (35 per cent in March) while • 31% intend to buy in 6 to 19 12 29% intend to sell 15% Property values per cent disagreed or strongly disagreed that now was a good months, 16%to to sell • 31% intend buy in 3 to 6 up from Interest rates time to buy. • 29% intend to wait months, 4% intend to sellat least 6 ng Tax changes announced in When it to selling the survey included a new before thecame budget months before • 31% intend to buying, buy in 51% 6 to 12 at 16% 10 question, asking respondents’ whether they thought now 40% selling The breakdown is: months, 16% to sell eving 0% 20% 40% 60% 10 was a good time to sell. Compared to results for buying this Strongly disagree Percentage of responses • 29% intend to wait at least • 39% to leave rent the question revealed a more negative response, with 58 persame cent6 months before buying, 51% before • 31% intend on now increasing rent disagreeing or disagreeing that is a good40% time by 0%strongly 10% 20% 30% 40% selling to sell. Of the remainder 13 per cent believed now is a good Percentage of responses 1-5% time to sell and 28• per19% cent remained neutral. intend on increasing rent by In another new addition to the June survey for the first 6-10% ing 0%
Now is a good time to buy
10 eed that r 10 (44% in
ng
60%
0isagreed hin 3
0
rch) to 6 ving now oyMarch) 12 60%
60%
y
Jun10 Mar 10
40%
strongly d time to
Jun10 eed Mar 10
un10 ll
Mar 10
ell
www.irg.co.nz
elieving ell 40%
40%
24
•
3% intend increasing rent by more The than breakdown 10% oris: Timing to buy sell own home 39%intend intenddecreasing to leave rent the • 3% rent bysame 1-5% • 31% intend on increasing rent by and 1% intend decreasing by 6 - 12 months The breakdown is: 1-5% 6-10% 19% intend increasing rent by • • 39% intend to on leave rent the same 3% don’t know 6-10% 31% intend on increasing rent by 3 - 6 months • Jun10 • 3% intend increasing rent by more 1-5% Strongly disagree Mar 10 thanintend 10% on increasing • 19% Buy rent by • 6-10% 3%10% intend decreasing rent by40% 1-5% Within 3 months 0% 20% 30% Sell of responses 1% intend decreasing by • 3%andPercentage intend increasing rent byrent more 6-10% than 10% 0% 20% 40% 60% don’t know • • 3%3% intend decreasing Percentage of responses rent by 1-5% and 1% intend decreasing rent by 6-10% • 3% don’t know Strongly agree
29% intend to sell 31% intend to buy in 3 to 6 months, 4% intend to sell • 31% intend to buy in 6 to 12 months, 16% to sell • 29% intend to wait at least 6 Timing tobreakdown buy or sell is: investment property The months before buying, 51% before selling 35% considered the biggest Not in next 12 months financial impact tointention be fromtochanges time respondents’ were asked about their buy Lower to depreciation rules or sell their6own home in the coming year. Some 25 per cent to 12 months said they plan to buy within three months, while 32 per cent 27% - the GST increase intend to sell. Just over half, 53 per cent, intend to buy in six 3 to 6 months 24% - the lower personal income to 12 months while 51 per cent intend to sell. When it comes Buy totax buy or to sell investment property to buyingTiming 22 per cent intend make an acquisition within Sell Within 3 months to to LAQCs three to six months10% while -17changes per cent plan sell. and the Changes The breakdown is: Not in next 12 months use of trusts 0% 20% 40% the same 60% • 39% intend to leave rent lower corporate tax rate Timing to 4% buy-orthe sell investment property Percentage of responses 6 to 12 • months 31% intend on increasing rent by Increase b Not in next 12 months1-5% In 3 to• 6 months 19% intend on increasing rent by I Buy 6 to 12 months6-10% Sell R Within 3 • months 3% intend increasing rent by more D 3 to 6 monthsthan 10% De 20% 40% Buy 60% • 3%0%intend decreasing rent by 1-5% Plans forof rent Percentage responsesSell Decrease b Within 3 monthsand 1% intend decreasing rent by Don’t know 6-10% Increase by more than 10% 0% don’t know 20% 40% 60% • 3%
•
Increase by 1-5%
• • • • •
Percentage of responses
Increase by 6-10%
Increase by 1-5% Remain the same Decrease by 1-5% Decrease by 6 -10% Don’t know Decrease by more than 10% Increase by more than 10%
0%
Increase by 6-10%
Don’t by know Increase 1-5%
Plans for rent
10% for20% Plans rent
30% Percentage of responses
40%
Increase byRemain more than the10% same Increase by 6-10% Decrease by 1-5%
The breakdown is:
•
Increase by Decrease by 1-5% 6 -10%
35% considered the biggest financial impact to be from changes Decrease by 1-5% to 0% depreciation rules 10% 20% 30% 40% Decrease by 6 -10% Percentage of responses • 27% - the GST increase Decrease by more than 10% • 24% - the lower personal income tax 0% 10% 20% 30% 40% • Tax 10% -Percentage changes oftoresponses LAQCs and the change with biggest impact Nowbreakdown is a goodis:time to sell The use of trusts Lower corporate tax - the lower corporate tax rate • 4% 35% considered the biggest Strongly agree • financial impact to be from changes Lower personal income tax to depreciation rules • 27% - the GST increase Increase in GST • 24% - the lower personal income Changes to LAQC/ tax use of Trusts Tax change with biggest impact breakdown is: to LAQCs and the •The10% - changes Changes to depreciation rules Strongly disagree • Lower corporate tax 35%of trusts considered the biggest use financial impact to be from • 4% - the lower corporate tax changes rate 0% 10% 20% 30% Taxtaxchange with biggest impact40% Lower personal income 0% 20% 30% 40% The breakdown is: to 10% depreciation rules Percentage of responses Percentage of responses Lower corporate tax 27% - the GST increase • • 35% considered the biggest Increase in GST • financial 24% - the lower personal income impact to be from changes Lower personal income tax Changes to LAQC/ totax depreciation rules use of Trusts • 27% 10%- the - changes to LAQCs and the •Timing GST increase Increase in GST to buy or sell own home Changes to depreciation rules use of trusts
Lo
Remain thethan same Decrease by more 10%
Lower pe
Changes to
Property
Tax changes don’t dent property market A raft of new data on the state of the New Zealand housing market has prompted cautious optimism from some quarters, reports Benn Bathgate
Median house prices $400,000 $300,000 $200,000 $100,000 $0 Jul 09
Sep 09 Aug 09
Nov 09 Oct 09
Jan 10 Dec 09
Mar 10 Feb 10
May 10 Apr10
Jun10
President Peter McDonald said: “While there has been some decline in turnover from the boom times of a couple of years ago, during the past year nearly 67,000 homes were sold for a totalof of budget almost $27.5 billion so the real estate market is Impact on property investors still very healthy.” I am undecided on a course The REINZ report also noted house prices rose 0.6 per of action yet cent in June and that despite tax changes announced in the will sell all of my properties Budget there had been no significant reduction in residential property sell some of my propertiesprices or the number of sales. and buy others
The Barfoot & Thompson June update sell some of my properties also confirmed fears over the impact
I will buy more properties
of tax changes have been overblown
I will retain my current property portfolio
McDonald said that while the “post-Budget blues” had been avoided be careful interpret the 0% people should 20% 40% not to 60% modest monthly rise as a signofhouse values are still increasPercentage responses ing. “They are purely the median of all sales during the month and can be impacted by the number of properties sold at either end of the price bracket.”
Net migration
McDonald’s remarks were echoed by the Realestate.co.nz June 2010 NZ Property Report, which said the property market continued to attract sellers with 11,106 new listings coming to market in June, a 16 per cent rise on the June 2009 figure. Over the year to June 2010 145,920 new listings came onto the market, an increase of 8 per cent on the previous year. The report also claimed there had been little movement in asking price expectations, with the truncated mean asking price for June of $410,058 indicating a staunch position being taken by sellers. The Barfoot & Thompson June update also confirmed fears over the impact ofMedian tax changes have prices been overblown. house Barfoot & Thompson chief executive Wendy Alexander $400,000 said, “While the Budget has definitely contributed towards lower sales, its impact on prices has not been great, and there $300,000 is no indication that investors are getting out of the market. $200,000this are the average price in June is Factors that confirm the same as that for June last year while the number of new listings at 1194 $100,000 for the month is down 12.8 per cent on those for May and the same for June last year. If investors were $0 getting out, listings would be upSepand Jul 09 09 prices Nov 09 would Jan 10be under Mar 10 May 10 more pressure than they are.”Aug 09 Oct 09 Dec 09 Feb 10 Apr10 Jun10 Her comments on the property investment sector are also borne out by the findings of the June QV.co.nz Housing Survey, which found 54 per cent of property investors polled
Impact of budget on property investors I am undecided on a course of action yet I will sell all of my properties I will sell some of my properties and buy others I will sell some of my properties I will buy more properties I will retain my current property portfolio
0%
20%
40%
Percentage of responses
60%
New Zealand Investor
T
he property sector is still very healthy, according to a range of new figures. The REINZ monthly property market report claims that despite the coming tax changes there has been little reduction in residential property prices or sales in May.
25
0%
20%
40%
60%
Percentage of responses
Property
Net migration Net all arrivals (3 month average)
Net annual inflow
intend to retain their current portfolio with just six per cent planning to sell some properties and only two per cent planning to quit the market altogether. 80000 The ANZ Property Focus report joins the chorus in downplaying the 60000 effects of Budget changes, noting “it 40000 was not the king-hit a lot had feared” though in a note of caution the report 20000 says it may take some months for the effects of the Budget to filter through 0 into data. On a more optimistic note the -20000 report argues the case for a ‘bigger 92 93 picture’ view, saying, “If the overall Budget package delivers better economic performance, then the housing market will actually be better off over time. The tax package announced in the Budget is not going to deliver economic nirvana – the Treasury puts the economic benefit at around 0.9 per cent of GDP over seven years as changes to the incentives to work and invest take time to accrue.
prices look set to remain below their November 2007 high for the foreseeable future
www.irg.co.nz
In the near-term future there is certainly going to be gestation issues for the property market, especially those whose cashflow was reliant on the tax advantages. The key point is that the medium-term story is positive.” However, in a note of caution, Goldman Sachs JBWere’s New Zealand economist Philip Borkin has pointed out that at present activity remains weak in the housing market, turnover is low, the time it takes to sell is increasing and house price growth is slowing.
26
Net permanent and long-term migration
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Sources: ANZ, National Bank, Statistics NZ
“We are not getting overly excited by the relative movement in prices in June and still see the trend as softening.” Borkin also claimed that with house prices under pressure the conditions are not conducive for a wider economic recovery, especially consumer spending. On the plus side he does not foresee a sharp fall in house prices as he does not believe there will be a significant rise in distressed sales, though he cites a mix of factors including a drop off in migration and tax changes combining to make property a less attractive investment, one less trigger to stimulate higher prices. Borkin’s wider concerns on the prospects for the housing market have been summed up by ASB economist Chris Tennent-Brown, who said that while the tax changes had not led to a wave of selling, they have “reduced the attractiveness of holding investment property”, which added to falling immigration numbers and rising interest rates means prices look set to remain below their November 2007 high for the foreseeable future.
Property
Leaky home costs to weigh on consumer spending
A
NZ Bank has estimated that nearly three-quarters of the cost of leaky homes will be borne by the affected households. In its latest Market Focus newsletter the bank said that under Government proposals 23,500 homes would qualify for a package announced back in May that would see 25 per cent of repair costs borne by Government, 25 per cent by local authorities and the remainder by homeowners. However a PricewaterhouseCoopers report has claimed the number of affected properties could be as high as 89,000. Taking the central estimate of 42,000 houses, the PWC report estimated the total economy-wide cost of the leaky buildings would stand at $11.3 billion. In that case Government and local authorities would still provide $1.6 billion for the 23,500 affected properties, but for the 42,000 figure they would only be providing 14 per cent of the total $11.3 billion cost.
ANZ said for the 42,000 figure homeowners’ would need to find 72 per cent of the costs, $8.1 billion. Assuming repair work under the plan took place over a 10-year period at an average of 2,350 properties per year, the boost to the construction sector would be around $600 million in 2008 dollars, or around 0.2 per cent of GDP a year over the next decade. ANZ said that while the construction sector was set to benefit from the work, the bulk of costs would be borne by the household sector. The report said the additional costs for households would also affect the consumer sector as “owners affected by leaky homes will be significantly out of pocket, and this is likely to weigh down on consumer spending.” The $8.1 billion repair cost, if borne by households, amounts to around 1.3 per cent of total net household wealth.
IRG Bay of Plenty PROFESSIONAL • PASSIONATE • PERSONAL Investment Advice Life & Medical Insurance Retirement Planning Estate Planning Sharebroking & Fixed Interest Financial Planning
Phone us or call in to see one of our advisors: Ross Sheerin, Andrew Parkinson and Jonathan York. Phone: 07 578 3863. 143 Durham St Tauranga.
Disclosure document available on request free of charge.
New Zealand Investor
• • • • • •
27
Trusts
Making family trusts easy In her new book, Family Trusts 101, Janet Xuccoa provides an easy-to-understand guide to family trusts. In this exclusive excerpt she explains the compelling reasons for establishing a family trust, outlining how you, your children and future generations can benefit Reasons for Creating Trusts At the beginning of this book I said people historically created Trusts to protect their assets and to minimise their tax liabilities. These two reasons for establishing a Trust still hold true today. Asset protection and tax minimisation would be for many, primary goals for creating a Trust. There are however, other reasons people move their assets into Trusts as I have noted below.
www.irg.co.nz
Asset protection
28
People are subject to many risks in life. Risks can arise from a variety of circumstances and situations such as personal living, business dealings and even relationships. Individuals tend to protect themselves and their assets against risks by taking out insurance. But in some cases, insurance cannot be taken out. For example, you cannot insure against creditors suing you nor can you insure against your relationship demising. When a risk comes home to roost, any assets you own in your personal name may be attacked. For this reason, people move their assets to Trusts because by doing so, they generally protect those assets. That protection arises because when assets are transferred to a Trust, the legal ownership of those assets moves from the individual to the Trustees. When people move their assets into a Trust, they are engaging in a practice known as ‘asset stripping’ and if this process is completed in a timely manner and in the correct way, asset protection should be conferred. Let me give you an example to demonstrate asset protection in operation. Let us assume Mr Brown owns his own home and also a business installing security alarms. Mr Brown wins a contract to install security alarms in an apartment block. He accordingly goes to Alarm Company Limited which supplies him with 300 security alarms. The company invoices him and Mr Brown installs the security alarms in the apartment block. Once the job has been completed, Mr Brown invoices the owner of the apartment block. The apartment block owner has financial problems and fails to pay Mr Brown. When this occurs Mr Brown does not
have the money to pay Alarm Company Limited. Eventually, the company sues Mr Brown and bankrupts him. When the bankruptcy occurs, Mr Brown’s home is seized and sold by the Official Assignee. The Official Assignee steps into an individual’s shoes when they are declared bankrupt. Their power to do this comes from legislation. When the Official Assignee sells Mr Brown’s home, it gives the net sale proceeds to Mr Brown’s creditor, being Alarm Company Limited. Any surplus sale proceeds are then given to Mr Brown. By having his home in his personal name, Mr Brown has put his asset at risk. If the home had been owned by someone else, such as the Trustees of a Family Trust, the home would have been safe. This is because the Official
Trusts
Tax minimisation As previously stated, a Trust can be used to reduce an individual’s tax liability. Tax is however a very complicated subject, full of traps. Tax lawyers and structuring experts spend years studying and developing their craft. It’s a very specialised area of the law, to be treated with the utmost respect. Get it wrong and it could literally cost thousands and thousands of dollars. For this reason, I think it important to note that anyone establishing a Trust must ensure they obtain the correct advice from a professional who truly understands tax and Trusts. To help you understand how tax can be minimised I am going to provide you with the following example. This example comes with a caveat, it’s a very simplistic illustration and to make it easy to follow, I have omitted quite a lot of detail. Assume Kerry Jamieson owes shares in a company called KJ Company Limited. During the year after 1 October 2010, the company pays a dividend to Kerry. Tax has to be paid on the dividend income Kerry receives and the tax that Kerry is liable to pay is calculated using Kerry’s personal income tax rate which is 33 per cent. Now rather than Kerry owning the shares in KJ Company Limited personally, let’s assume the shares are held by the Jamieson Family Trust. This means that when the company pays a dividend, it will pay that dividend income to the Family Trust, as opposed to Kerry. Tax still has to be paid on the dividend income received but there are a couple of choices in this respect. First, the dividend income can be retained by the Family Trust and the tax that has to be paid can be calculated at the Trustee income tax rate. The Trustee tax rate is, at 1 October 2010, the same as the maximum individual income tax rate, being 33 per cent. This means that no savings in tax can be made. An alternative way of dealing with the dividend income would be for the Trustees of the Family Trust to pay it out to a Beneficiary of the Family Trust. Tax would still need to be paid on the dividend but the tax would be calculated using that Beneficiary’s personal income tax rate. This personal income tax rate may well be lower than the Trustee income tax rate. As at 1 October 2010 the personal income tax rate
could be as low as 10.5 per cent. Accordingly if the dividend income was paid out to a Beneficiary on this personal income tax rate a savings in tax could be achieved. A couple of important points to note is that the dividend we have talked about would need to be distributed in accordance with the terms of the Trust Deed and most importantly, within the time limits stipulated by law. That time is within 12 months after the end of the relevant income tax year.
Asset testing At the time of publication, eligible New Zealanders can apply to Work and Income New Zealand (‘WINZ’) for a subsidy to help them pay for any rest home care they need. When a rest home subsidy application is made, WINZ requires an individual to list all of their assets and liabilities. If a person’s assets are over a specific value, WINZ are likely to decline the application for a subsidy. As at 1 July 2009, individuals are permitted to have $190,000 worth of assets in their own name. This includes the value of the family home. Because the above threshold is low, people transfer their assets into Trusts. As I have said before, by doing this the assets become legally owned by the Trustees and are not therefore attributable to the individual’s wealth. When assets are transferred to a Trust, they must be sold to the Trust at their market value. If they are not sold at market value, Inland Revenue might deem that a gift of the shortfall has occurred and gift duty is then likely to be payable on that shortfall. To avoid this, a valuation of the assets is obtained. The Trustees will usually provide a Deed of Acknowledgment of Debt to the Vendors (the individuals who are selling their assets to the Trust) for the amount stated in the valuation. The balance owing under this Deed is then forgiven annually at a rate of $27,000 per person. When an individual applies for a rest home subsidy, WINZ will look at factors such as how much did the Trust pay for the assets and when did the Trust purchase the assets. The reason WINZ examines these factors is because WINZ currently has the legal ability, when calculating an individual’s current assets, to disregard any gifts that have been made within the last five years before an application is made for a rest home subsidy. For this reason, it’s vital that a Trust is established and assets are transferred to that Trust as soon as possible. Janet Xuccoa holds degrees in accounting and law and is a partner at accounting firm Gilligan & Rowe Associates, where she leads the Professional Trustee Services division. www.gra.co.nz
FREE COPIES! To go into the draw to win one of five free copies of Janet’s book, please email bookoffer@irg.co.nz or call 0800 474 669 to go into the draw, which will be made on Friday, August 20th.
New Zealand Investor
Assignee would not have possessed the legal power to seize the home and sell it to satisfy the debt Mr Brown owed to Alarm Company Ltd. Of course, asset protection can only be achieved if there are not any problems on the horizon. You cannot move your assets into a Trust if you already have creditor problems. If you did this, it is likely a Court would deem you to have established the Trust and transferred in assets simply to avoid paying your creditors. If a Court found this, it would likely unwind the Trust and make the assets available to satisfy your creditors.
29
Classifieds
(09) 921 0232 0800 43 43 33 www.lowthers.co.nz
Tax Consultants Property & Trust Structures Business Advisors Auckland: L10, 34 Shortland Street, Auckland
Tauranga: 1432 Cameron Road, Tauranga
Christchurch: L1, Victoria Business Centre, 53 Victoria Street, Christchurch
Jacques Vannoort
LLM Barrister and Solicitor Family Trust Specialist info@sanctuarytrustlaw.co.nz
King Legal North Shore – Auckland
Experienced Specialists in Modern Trusts, Business, Property, Asset Protection & Estate Planning Contact
Graeme Ogier (Trust Manager, MemberTrustees Association) Peter
or King (Principal) admitted 1974 Member ADLS Inc & Property Law Section NZLS
(09) 480-7096
or
king@kinglegal.co.nz
for efficient, effective and comprehensive advice
INVESTOR NEW ZEALAND
www.irg.co.nz
INVESTMENT RESEARCH GROUP
30
To advertise here call David Rennie on
0800 474669
Lesson
The joy of compounding David McEwen revisits the old, but effective way of building wealth
I
magine you are offered a job for a month by a wealthy but eccentric uncle. He offers you the choice of taking $1 million on the first day, to cover the month’s work, or taking payment on the last day of the month based on an extremely modest payment of 1cent on the first day, doubling every day. At first glance, the former option sounds better than the first. Who wants to put in a full day’s work for a measly 1 cent, then do the same job the following day for 2 cent, and so on, especially when the other option is a million dollars in cash right now?
You invest wisely and you research investment wisely... After all, you subscribe to and read New Zealand INVESTOR magazine! Tass Print would be a wise option if you are looking for value and return on your investment in printing services.
However, this scenario is designed to demonstrate the power of compounding. If you start with 1cent and double it every day of a 30-day month, you would end up with a staggering $5.4 million. US investment advisor Richard Stoyeck points out the reason almost everyone would jump at the $1m up-front offer is because the way the human mind works. “You might say that we are hardwired to think in this linear fashion. The software in our brains compels us to think about progressions as being simple arithmetic ones,” he says. One person who thinks exponentially is US share market legend Warren Buffett. He drives a VW beetle when he can afford a Maserati. When asked why, he points out that $1 investment now at a 10 per cent annual return over 25 years will turn into nearly $10. Therefore, whenever he buys something, he counts not its face value, but the lost opportunity. Such an approach is quite an eye opener if you think about day-to-day living. That $4 coffee is actually costing you $40, that $9 magazine is actually costing $90 and so on. The lesson: it doesn’t matter how small you start, you will make money by letting compounding work for you.
COMMERCIAL PRINTERS
We would welcome the opportunity of an obligationfree appointment to discuss your requirements. Ph: 09 834 6338 E: info@tassprint.co.nz 534 Te Atatu Rd, Te Atatu Peninsula, Auckland. PO Box 45 052, Te Atatu Peninsula 0651.
For S ALE
$1,250 call
,000
Wa rr e
n
New Zealand Investor
Quality offset and digital imaging quickly without compromising attention to detail!
31
Economy
The abiding mystery of the The International Monetary Fund coined the term ‘The Great Recession’ after the global financial crisis. Michael Coote looks at the measures put in place to counter it and WONDERS whether it is poised to return
A
www.irg.co.nz
ccording to a US institute, the National Bureau of Economic Research (NBER), the Great Recession officially commenced in December 2007, based on its reading of statistical indicators for the American
32
economy. Technically, a recession is defined as being at least two successive quarters of negative economic growth or shrinkage. The Great Recession delivered many more negative quarters than that. Countries that felt the recession hardest were Northern hemisphere developed economies, especially the US, Japan and member states of the European Union (EU), including Britain. A moot point is whether the Great Recession is even over yet, and it should be borne in mind that many countries – perhaps most notably China and Australia – didn’t experience economic contraction during the period. New Zealand suffered a short, shallow recession, but was officially declared to be back in growth again before very long, and so for many of us living here the question asked is, “What Great Recession?” For New Zealand, the Great Recession must seem more like a near miss reported through the news media than a searing memory of bitter direct experience. The US economy started producing positive economic statistics again around June and July of 2009, leading many commentators to declare the Great Recession over. However, NBER has so far refused to agree, issuing a statement in April to say that according to its statistics, the US economy was still in recession notwithstanding some evidence of improvement. NBER was careful to point out that it relies on statistics that are subject to revision and that it does not take forecasts into account. It is still debatable whether the Great Recession is (1) over, (2) ongoing, or (3) returning. Indeed, a real mystery.
Austerity Binge Toward the end of 2009 there was a lot more optimism around and so recession seemed to be a thing of the past, but along came the Greek sovereign debt crisis that in the space of a few months blew out into a systemic financial contagion within the Economic and Monetary Union (EMU), the group of EU members states that share the euro as their common currency. Evidence suggests that Europe is headed back into recession again thanks to the Greek fiasco and its aftermath, and there will be knock-on effects felt across other countries that rely on trade with Europe, not least the likes of the US, the UK, Japan, and China. New Zealanders have been assured by economists that they shouldn’t worry about the risk of a “double-dip” or “Wshaped” recession hitting Europe because we do most of our trade with Australia and Asia, which came through the Great Recession pretty much unscathed. However, that view overlooks that if China’s export trade with Europe gets dented due to collapse in demand, then the Chinese economy, which is already being deliberately slowed down by government authorities there, will feel the effects. Lower demand out of China must inevitably affect New Zealand via the trade we do with that country but also through our other trading partners in the Asia Pacific region that depend substantially on Chinese markets for selling their exports. Therein lies the rub with the Great Recession, in that its lingering effects are persistent and keep mutating into different forms and migrating to new climates.
Economy
Great Recession
“Doing a Japan” The concern is that the European approach may be premature and trigger another round of contagious recession, and perhaps beyond that a deflationary spiral. Most countries that borrowed heavily to fund fiscal stimulus to mitigate effects of the Great Recession believe they cannot afford to borrow more to finance another dose of stimulus if recession returns. But recession is the lesser of the two evils compared with deflation. Deflation occurs when the general level of prices falls yearby-year and is destructive of consumption and thus economic activity because households cut their spending in anticipation of lower future prices for goods and services. Japan notoriously experienced a long, debilitating period of deflation over the 1990s and up until 2005. It wasn’t until around then that Japan got inflation back again and could celebrate what it thought was final closure of the painful deflationary era. Ominously, Japan has tipped back into deflation courtesy of the Great Recession. The worry is that other economies – but most particularly the US and member states of the EMU – could be headed the same way in “doing a Japan”, and that austerity economics in Europe will prove to be the catalyst. Deflation is extremely difficult to extract from the economy once it has taken root – witness the case of Japan – and central banks find it much harder to deal with than the opposite problem of inflation. The stakes are very high over the controversial European decision to embrace fiscal austerity, but having done so, European governments should at least enable us to know before too long the answer to our question as to whether the Great Recession is over, ongoing, or returning.
New Zealand Investor
One of the latest of its mutations is being expressed in the fiscal austerity programmes being unveiled by European governments in the wake of the Greek crisis. European governments, including the UK government, have taken fright at the vast amount of public debt they have incurred during the Great Recession to provide emergency fiscal stimulus to their economies and fix the balance sheets of their battered banking sectors. The desire in Europe now is not merely to unwind fiscal stimulus gradually, but to go quickly into active policy reversal and even outright contraction by way of tax increases and spending cuts. For example, the new coalition government in the UK announced in an emergency budget that, among other belttightening actions, it was going to slash public spending by 25 per cent over four years in all its departments except health and overseas aid. That is a lot of public sector demand to suck out of the already weakened British economy over a short period, and there is no guarantee that ailing private sector demand will recover and grow enough over the same period to compensate. Austerity budgets are a topic hotly contested between newly thrifty European governments, on the one hand, and the US and emerging market economies, on the other hand, because of what it may portend for the likelihood of return or prolongation of the Great Recession. The Americans and others in their camp want to try and prolong fiscal stimulus funding by borrow-and-spend even though they recognise that there is a limit to the amount of borrowing it is safe to undertake and that at some stage the resulting increased fiscal deficits must be scaled back. The Europeans, by contrast, have opted for rapid exit from and reversal of fiscal stimulus in order to start cutting their fiscal deficits as soon as possible.
33
Profile
Golden opportunity in Vietnam A listed gold company with territories in Vietnam and Malaysia has a strong New Zealand connection. David McEwen talks to Olympus Pacific Minerals chairman David Seton
www.irg.co.nz
D
34
eep in the jungles of Vietnam, three enterprising Kiwi brothers find old gold mines deserted by the French during World War II. By digging under the mines, they find significant new deposits of gold, worth tens of millions of dollars. While this sounds like a story line from an Indiana Jones movie, the three Seton brothers and their company Olympus Pacific Minerals, have really achieved this remarkable feat and remain the only western company to be producing gold in Vietnam. Despite the New Zealand connections, with brothers John, David and Paul Seton still active with the company, Olympus does not have a high profile in this country. One reason is that its primary listing is on the mining-oriented Canadian TSX market, with a secondary listing in Australia (code: OYM), and its mines and exploration territories are all in Vietnam or Malaysia. It deserves more attention. In the year to 31 December 2009, the company reported sales of US$16.4 million and shareholders’ equity of US$48.3 million. Operating cash flow was negative US$1.4 million but this was a significant improvement over 2008’s US$6.6 million. Chairman and chief executive officer David Seton says the company is cash flow positive in 2010 and this is likely to continue as Olympus continues to ramp up production. In addition, it has over US$25 million in the bank. Olympus has been in Vietnam for around 20 years and remains the only western gold mining company there. It has two mines in production – at Bong Mieu and Phuoc Son and an extensive exploration area. It is a building a second ore processing plant, which by the end of this year should take its annual gold production to at least 80,000 oz. “That will give us significant production by junior production standards and will put us on the map with investors,” he said. The company does not intend to stop there. With a new mine planned for Bau in Malaysia, it expects production to go to 300,000 oz per annum by 2014. Of course, new mines don’t come cheap and Seton estimates the company will need a further US$60 million in capital to achieve its goals. However, that is based on gold
at its current price. If it were to rise to US$1,400 oz from around US$1240 now, then the company won’t need any more capital – it could finance growth out of cash flows. That’s because its costs are relatively fixed – and likely to run at US$500 - $550 oz – its profitability goes up as the world gold price appreciates. Why choose Vietnam to look for gold? Seton says it was based on a contrarian instinct. Vietnam had been overlooked by western mining companies and he and his brothers believed that alone offered opportunities. There was a steep learning curve doing business in the region and Seton admits to having learned a lot by trial-and error. This probably gives the company a big lead over any other companies that try to move into the region. One challenge was finding a lot of illegal miners on its land at one stage, digging holes with picks and shovels. “It was like the gold rush days of last century in central Otago,” he says. They have since been cleared out. While much of the company’s activities are in Vietnam for obvious reasons – it has 900 staff there - it still has an office in New Zealand offering technical support. The company was formerly known as Olympus Holdings Ltd and changed its name to Olympus Pacific Minerals in November 1996. Olympus merged with related company Zedex Minerals in February this year to give the company a greater scale. Zedex subsequently delisted from the ASX market. Since the merger, investor interest in Olympus has been strong, with the share price doubling in just two months. The company is planning a feasibility study to justify increasing Bong Mieu’s annual production to 100,000 oz of gold. Over the next three years, total gold production between Bong Mieu and Phuoc Son is expected to be 160,000 - 170,000 oz a year. Ban should add a further 100,000 over the next few years. Olympus is planning further exploration and hopes to further exploit its estimated reserves of three million ounces. For more information about Olympus shares call IRG’s transactions desk on 0800 474 669 or visit www.olympuspacific.com
“I find $60 per annum goes a long way when caring for an employee”
If you have a minimum of six employees, DorchesterLife’s Group Accidental Death Policy is a simple and effective way to show your employees you care. While we cannot predict or prevent accidents, we can take steps to lessen the financial impact of death on the lives of loved ones.
For more information please call 0800 733 008 or visit www.dorchesterlife.co.nz
Benefits of Accidental Death insurance for your employees • Guaranteed acceptance without the need for medical questionnaires or form-filling for anyone between 18 and 79 years of age • No need to declare pre-existing medical or health conditions • Ease of financial worries for your employee’s family should they die as the result of an accident • For your peace of mind, your policy is re-insured by Hannover Life Re, one of the world’s leading Insurance Groups based in Germany
New Zealand Investor
“That’s because for just $60.00 per year per employee I am able to provide Group Accidental Death Insurance of $50,000 for each of my employees.”
Please refer to the Policy Document for full terms and conditions. NZI GAD 0209
35
Feature
Yuan for the money China is running red hot. Steve Hart finds out how it is bucking the trend and how kiwi investors can take advantage
C
www.irg.co.nz
hina is booming with no outward signs of its economy slowing any time soon. That’s great news if you are a manufacturer with goods and services to sell in a country that is reminiscent of the United States 50 years ago. But if you are not in business, and you don’t want to set up shop in what could be the global economic powerhouse of the next decade, how can you get a slice of the action? For investors there are many opportunities – from shares in Kiwi firms already doing business in China (Chinese imports have risen 50 per cent year on year and its penchant for our wines and dairy is on the up and up), to firms already on the ground. These include a handful of local companies as well as international names such as Bombardier, Intel, Boeing and PerkinElmer to name a few. There are also plenty of investment portfolios to choose from that concentrate on Chinese firms or its sharemarket. But where are the investment opportunities? Jack Chow, a partner at KPMG, specialises in capital markets activities in China and says there will be a surge in manufacturing and agriculture activity in the coming years – fuelled by an increase in domestic industry consolidation and overseas investment. “China is strongly positioned as a leader in the drive toward global economic recovery,” he says. “There will always be challenges, but we have great confidence for the future and are preparing for continued growth in China’s dynamic economy.” It’s a view shared by his Auckland colleague Gary Ivory, a KPMG corporate finance partner. He says China is a developing economy with a high demand for the products made there and for high quality luxury imported goods such as cars and brand named clothing lines. “As people’s standard of living goes up so they look to buy higher priced products,” says Ivory. “It is an economy within an economy. It’s a little bit like India, there is a huge population there and they have developed a taste for wine and high-end western products. French winemakers are now setting up joint
36
venture operations there. For example, in June there was a wine expo in Beijing that featured many New Zealand firms. The automotive industry is another one that’s doing well…so you can see the people of China are moving up.” And it appears the Chinese have the money to buy the goods Western countries produce. The income of China’s urban and rural residents continued to increase in the first quarter of this year, data from China’s National Bureau of Statistics shows. In the first three months of the year, percapita disposable income for urban people was US$778, up 9.8 per cent year on year. However, after taking inflation into account, actual growth was 7.5 per cent. The Economist Intelligence Unit says urbanisation is expected to lead to a shift in consumption away from grain and towards foods such as red meats, vegetables and dairy products. In terms of beverages, it says urbanisation will encourage a shift from consumption of basic tea and local beers to flavoured tea, fruit juices, premium beers and wines.
China is strongly positioned as a leader in the drive toward global economic recovery In fact, China’s retail sales grew 18.2 per cent in the first half of the year from a year earlier according to the National Bureau of Statistics. And according to HSBC, New Zealand exports to China grew by 459 per cent during the past 10 years – including a 116 per cent increase during the past five years. China is also seen as a key potential growth market for coffee. British coffee chain Costa Coffee (part of the Whitbread group) opened its first store in Shanghai with an initial investment of US$4.6 million in 2007 as part of a joint-venture with Chinese partner Yueda Group. Glen Tonks HSBC’s manager private clients says as we go through the 21st century so China and India will become the most dominant countries on the planet. “What’s driving them is the high level of savings in China,” says Ivory. “But the thing that is going to provide the most growth is their low level of debt. The emerging
Feature
China’s economy The easiest way for New Zealand investors to benefit from the Chinese boom is through a managed fund. This approach offers significant benefits and will keep your investment clear of some of the pitfalls that can accompany investing in an emerging market. The main benefit of a unit trust is that your investment will be looked after by an experienced fund management team. This will be made up of individuals with extensive contacts in the country in question’s business world as well as knowledge of that country’s language, business culture and way of life. A managed fund also provides access to numerous investment opportunities, with a fund holding anything from 10 to several hundred different shares. This not only broadens your access but spreads your risk, reducing the impact of market fluctuations. An investment fund will also have a buying power unmatched by the individual investor, enabling the fund to reduce costs through economies of scale solely available thanks to its buying power. The final benefit is the sheer convenience that a managed fund provides. The paper work, buying, selling, decisions on rights issues, collection of income, dividends and so on are all handled by the fund manager, who then reports to you on a regular basis on the performance of the fund – and your investment. The table below outlines some of the local fund options available to New Zealanders wanting to access the Chinese market.
Asian Funds Name
Size (Total assets)
1yr 5yr return return
AMP SIP PRP – Asian Share
$18.35 million
10.41%
4.68%
AMP SIP Unit Trust - Asian Shares
$2.23 million
10.96%
5.24%
Asteron Superplan 2000 Far East Fund
$1.49 million
5.62%
-5.25%
Asteron Superplan Far East Fund
$15 million
5.62%
-5.25%
ING PPS Asian Equities Fund
$22.47 million
12.21%
NAv
HSBC China Fund.
US$247.1 million
-1.36%
11.82%
Source: Morningstar.net.nz.
New Zealand Investor
nations just don’t have the hang over of debt the western world has. “The West is going to be borrowing to cover its deficits for the foreseeable future. Where as the East will be borrowing for capital expenditure. The Bric nations – Brazil, Russia, India and China – hold 40 per cent of the world’s currency reserves. These four countries will – over the coming years – spend US$4.3 trillion in infrastructure spending. “So China is among those that are spending to build their economies while the West is borrowing to cover debt – the legacy of consumer spending over the past decade.” As for investing in China, Tonks says you can read a lot about the country, but unless you have been there you don’t know the country at all. “One of the keys to successful investing is diversification,” says Tonks. “And having a good financial advisor.” However, Tonks says there are murmurs about China being hit by an economic slowdown, but he likens it to more of a pause that a stop. “Our view is that China, at least in the short term, has taken a deep breath and is ready for the next stage of its evolution,” he says. “But what I’d say to investors who are looking in that direction is that it is very much a long term investment – at minimum five years for these markets. Potentially these are exciting markets.” The Dagong Global Credit Rating, a Chinese credit ratings agency, rates the Chinese government as a safer investment than the US, the UK and Japan. The firm rated both Chinese and German sovereign debt AA+ with a stable outlook, while the US was given AA with a negative outlook, and Japan was awarded AA-. This Beijing-based company’s rating is at odds with those released by Fitch, Standard & Poor’s and Moody’s which rated China AA-, A+ and A1, respectively, while the United States, Britain and France all ranked AAA. Despite all the positive signs that careful investments in China could deliver good returns, the country ranks the bottom of one particular list – the one prepared by the Ethical Investment Research Service. It says China is among a group of countries that are the “worst performers in terms of environmental, social, and governance indicators”. But that, as they say, is another story and more of a matter of conscience than financial judgment.
37
Between 2005-2009 demand for investment gold grew 214%*
Are you missing out?
www.irg.co.nz NZM557
Contact us today www.nzmint.com • 0800 NZ MINT (696468)
38
QUALITY
•
SERVICE
•
SECURITY
*Source: World Gold Council - increase from 595 tonnes in 2005 to 1271 tonnes in 2009 based upon identifiable investment - see www.gold.org for more details.
QUALITY Producing and selling only the highest quality precious metal products, the internationally recognised New Zealand Mint Gold Kiwi was one of the first bullion products minted in 99.99% pure gold. Selling only certified and internationally recognised bars, we are the exclusive authorised distributor for PAMP Suisse (Produits Artistiques Metaux Precieux) in New Zealand.
SERVICE Dedicated people, custom built facilities and world class systems make New Zealand Mint the only full service bullion provider in New Zealand. Whether your order is $100 or $1,000,000, our services and pricing are tailored to fit your needs. Check out our website at www.nzmint.com/bullion to learn more.
SECURITY Committed to your confidentiality and security, New Zealand Mint provides safety deposit boxes and secure vault services ensuring peace of mind that your investment is safe. Buying and selling is easy and secure with our insured storage services. Buy confidently, knowing that our internationally recognised products can be sold globally.
Contact us today! www.nzmint.com • 0800 NZ MINT (696468)
New Zealand Investor
No other gold merchant in New Zealand offers such quality, service or security!
39
Feature
Investments that are In the first of a series, David McEwen looks at investment strategies inspired by mystical events and powers
H
umans are hotwired to identify patterns, a heritage of our long past as hunter-gatherers. This was a big help when spotting predators or prey hiding in the jungle undergrowth. Unfortunately, the complexity of the modern world means most people look for, and believe they find, patterns where none exist. Others believe powers beyond our knowledge have an important part in day-to-day life and that various patterns indicate such omnipotent tinkering with our world. For most of human history, there has been a medicine man, shaman or priest whose job is to communicate with the gods and foretell the future based on their reading of various mystical signs. As a result, another feature hotwired into our brains is the capacity to instantly believe whatever an ‘expert’ tells us. Presumably once upon a time those with the genetic tendency towards cynicism didn’t live long enough to pass on their genes. Whatever the reason, many people today still believe that there is knowledge, power or an intelligence beyond the capacity for humankind to easily understand. By unravelling the pattern, trail or message from such sources, they believe they can predict the future of investments and the markets. However, many doubt that foretelling the future with any accuracy cannot be achieved. After all, if only one person was clever enough to accurately predict the future of currency, bond or share markets, they would quickly be rich enough to buy a large chunk of the world. Curiously enough, most people who claim to have such wisdom tend to make their living by telling others how to do it – for a large fee.
www.irg.co.nz
Financial Astrology
40
This month we look at Financial Astrology. Belief in astrology has existed for millennia and still pervades society. Today, even the most sober and conservative of newspapers carries a daily horoscope that claims to forecast the fate of readers. Share market investors are not immune to the belief in the awesome power of the planets and there is no shortage of practitioners who say they can use the movements of the stars to make money for themselves and their followers (for a fee, naturally).
While astrology was originally used to divine the outcome of wars, decide when to sow crops or forecast the love life of a king, it inevitably became a popular concept to use these methods to help get rich. Using the stars for such an outcome is known as ‘financial astrology’. Financial astrology has been used for centuries. Traders in grains and precious metals in India are said to have used it thousands of years ago decide the most auspicious times to buy and sell at the markets. Greek philosopher Aristotle recorded the story of Thales of Miletus (699-635 BC), who used his knowledge of heavenly cycles to predict a bumper olive crop, and made huge profits by cornering the olive press market (using futures contracts, naturally). The popularity of financial astrology has not waned in more modern times.
The popularity of financial astrology has not waned in more modern times Entertainment baron Walt Disney apparently used astrology to pick the best times for launching his next movie. Several decades earlier, in the early 1900s, legendary stock and commodities trader WD Gann is said to have used astrological principles when making accurate market forecasts months, and sometimes years, in advance. Around the same time, Wall Street billionaire J P Morgan scandalised New York society by consulting with astrologer Evangeline Adams to gain advice on the best timing for major business and investment moves. Morgan famously once said, “Millionaires don’t use astrology; billionaires do!” Those who promote financial astrology claim it is on the verge of becoming an accepted method of market analysis, ranking equally in popularity with fundamental and technical analysis techniques. Some say it is actively used by many Wall Street firms but kept a secret for fear of attracting ridicule. Practitioners of financial astrology believe planetary forces exert their influences on the mood of investors, which is reflected in the overall direction the market. All they have to do is figure out where the planets are and what they are doing to read what the markets are going to do next. They believe their methods work not because of some mumbo-jumbo about the position of planets and stars millions of
Feature
written in the stars astrology and a regular radio show. At the time, fortune telling was a crime and twice she appeared in court to face charges. However, she was acquitted both times, successfully arguing that there was a difference between fortune telling and astrology. She pointed out that fortune tellers dealt in prophecy, while astrologers merely looked for indications. In other words, prophecies foretold events while astrology acted as a pointer to future events, that, having been forewarned, people could make happen or avoid through their subsequent actions. Another prominent astrologer of the era was LJ Jensen, who wrote the book: Astro-Cycles and Speculative Markets & Astro-Economic Interpretation in 1935. Many devotees of financial astrology, even today, consider this a classic work. Jensen wrote the book at the age of 77, using it to pass on knowledge he had accumulated after a lifetime of research and trading in financial markets. While astrology was particularly popular early last century, it hasn’t died out and financial astrologers continue to operate today.
SOME say a good time to buy or sell is when the moon is full According to US magazine Timer Digest, an independent reviewer of market forecasts, two of the top five market timers of 2002 were financial astrologers: Arch Crawford of Crawford Perspectives and Bill Meridian of Cycles Research. Their recommendations during that year, if followed, would have produced gains of 51 per cent and 36 per cent respectively. Bill Meridian got his MBA from New York University in 1972 then worked on Wall Street as an analyst and market technician. Meridian quickly became fascinated by stock market cycles and observed after much research that they were similar to many astronomical cycles. In 1983, he developed software that connected planetary positions with market trends, and began using it to make forecasts. Meanwhile, Arch Crawford worked at investment bank Merrill Lynch as a chalkboard operator, before moving to New York in the 1960s. Crawford became fascinated with astrology after reading a Wall Street Journal article about financial astrologer Lt. Commander David Williams, author of the 1982
New Zealand Investor
miles away, but because those bodies are affected by the same patterns or cycles that influence everything on earth. For example, the Jupiter-Saturn cycle of 19.86 years is believed to coincide with the change of market emphasis from bull (rising) to bear (falling) roughly every 20 years. The Jupiter-Uranus cycle, which lasts 13.81 years, has been found by some adherents of financial astrology to match changes in the popularity of investment techniques (such as momentum investing or day-trading) by investors and their advisors. The Saturn-Uranus cycle of 45 years is thought to point to major economic booms and busts. One particularly significant set of planetary movements are known as planetary retrogrades. From an astrologer’s viewpoint, the Earth and planets appear to rotate in a forward motion. At times the planets slow and seem to halt their rotation entirely. Then, after resting in a stationary position, it looks as if they are beginning to rotate backwards. This reverse spinning is known as a retrograde. Apparently, a retrograde can have an equally inverse effect on the earth, by having a negative impact on world events or individual actions. Retrograde effects can change people’s emotions or actions, alter the way people communicate, even affect their ability to see or understand information. Financial astrologers say Mercury retrogrades make good times to trade government stock on the share market. When Mercury goes retrograde, bonds and shares tend to hit a low point, or so the story goes. Others say solar eclipses tend to happen around the same time as significant changes in the markets and a good time to buy or sell is when the moon is full. One of the more notable financial astrologists of the past century was Evangeline Adams (1868-1932). Distantly related to two American presidents, John Adams and his son John Quincy Adams, she was considered a shame to the family because of her attachment to practices disdained by polite society at the time. Ignoring the naysayers, she went on to develop a thriving astrological practice that lasted 40 years. She claimed as clients such society leaders as filmstars Mary Pickford and Douglas Fairbanks, the King of Siam and the aforementioned Wall Street banker JP Morgan. Her prominence grew further with a series of popular books about
41
Feature
book “Financial Astrology.” Since then, Crawford has specialised in this area.
How it is supposed to work Financial astrologers try to spot “turning points,” – shown as the top of a peak or bottom of a trough on a share chart. These are important times when a price trend changes. If identified correctly, they are the most profitable times for buying and selling a share. Share prices are linked to the movement of the stars, astrologers believe, therefore the direction of the markets can be determined by gazing at the heavens. Astrologers start their search for the future peaks and troughs of any share or market analysing the historical price data – sometimes over decades - and looking for corresponding astrological influences. Once these influences are identified, a repeat of an astrological event can be used to predict the future movement of a share, sometimes years in advance.
evidence exists that stock returns are lower on days around a full moon As with human beings, every share is believed to have a specific date of birth, such as the underlying company’s date of incorporation. Once this is known, it is possible to draw up a star chart and analyse the future stellar and planetary influences that will have an impact on it. Strong astrological alignments have been identified around major financial market events. Many investors have noted that charts around the US market collapses of 1929 and 1987 and 2008 stock market charts look similar. When moon cycles and Fibonacci numbers are crunched, some say the two charts are identical.
Independent analysis
www.irg.co.nz
There is some independent evidence that points to the effectiveness of financial astrology. A research project by researchers at the University of Michigan Business School in 2001 investigated whether there was a relation between lunar phases and the stock market. They studied the returns in 48 countries
42
and concluded there was “strong global evidence that stock returns are lower on days around a full moon than on days around a new moon”. The magnitude of the return difference was 5.4 per cent per year, annualised. “The return difference is not due to changes in stock market volatility. Moreover, the lunar effect is independent of other calendar-related anomalies such as the January effect, the day-of-week effect, the calendar month effect, and the holiday effect,” they say. As much as financial astrologers and their followers maintain the accuracy of their methods, there are many people who remain equally convinced that there is no connection between the planets and the share market. Professional skeptic James Randi, of the UK-based James Randi Educational Foundation, has run a series of tests that found astrologers were unable to produce the goods. Some years ago, during a TV series in the UK, he pitted a professional financial advisor - John Piper - against “astroanalyst” Roy Gillett, giving them each a hypothetical sum of 10,000 pounds to invest in the stock market over a five-week period. The results: John the advisor made 1,793 pounds, and Roy the astrologist lost 4,039 pounds. In 2002, in another such experiment in the UK, this time for National Science Week, using a hypothetical 5,000 pounds to invest in a bearish market, financial analyst Mark Goodson lost 360 pounds, and astrologer Christeen Skinner dropped 498 pounds. This experiment, designed by psychologist Dr Richard Wiseman from the University of Hertfordshire, also involved an acknowledged market amateur Tia Laverne Roberts, who lost only 231 pounds, thus outperforming the other two investors. Tia’s stocks were chosen entirely at random; the names of the different shares were written on fake money, fluttered over her head, and “eventually she grabbed four,” according to Dr Wiseman. By comparison, astrologer Christeen Skinner made her investing decisions by looking at the “birthdates” of the companies and drawing up their astrological charts. “So much for that technique,” says Randi. “Despite all these high-tech state-of-the-art advantages used by the two adults, four-yearold amateur Tia was consistently ahead throughout the experiment.”
The earliest Stone Exchange?
When a loved one passes away, the last thing you should have to worry about is paying for their funeral
applying for a DorchesterLife Funeral Plan Policy is easy as their acceptance is guaranteed. There is no medical and we do not ask any health questions, not now or at any time after they have become a Funeral Plan policyholder.
For more information please call 0800 733 008 or visit www.dorchesterlife.co.nz
Business Partner
• Premiums are fixed at the start and are guaranteed never to increase • Guaranteed acceptance for 50–79 year olds, even for smokers! • No medical checks or health questions
New Zealand Investor
If someone you love is aged between 50 and 79,
Please refer to the Policy Document for full terms and conditions. NZI FP 0209
43
www.irg.co.nz
Fundsource
44
Fund Exit $ Diversified Balanced PIEs AMP Lifesteps Moderate Balanced Fund 1.1498 AMP Select Balanced Fund 1.1109 AMP Select Balanced Trust 1.0753 ANZ Balanced Growth Fund* 1.7601 ANZ Retirement Plan Balanced 2.0502 ASB EasyFund Balanced 0.8934 ASB EasyFund Moderate 0.9916 Asteron Managed Fund* 9.2614 Asteron RSP Mgd Neutral* 1.8323 Asteron Superplan Balanced Fund* 1.9601 Diversified Wealth Mangmnt Blncd Fnd 1.0702 ING Balanced Fund 1.5661 Public Trust Balanced Growth Fund 1.1227 Public Trust Conservative Fund 1.1861 Public Trust Moderate Growth Fund 1.1531 SIL 60s Plus Super Balanced Plus Fund 2.1924 SIL Personal Retiremnt Blncd Plus Fnd 2.1924 Thoroughbred Balanced Flexible 1.5676 Thoroughbred Balanced Locked-In 1.5449 Thoroughbred Balanced Trust 1.7886 Thoroughbred Education Fund 1.7886 TOWER FreedomPlan Balanced* 2.4104 TOWER FuturePlan Balanced* 2.4299 TOWER IP Balanced Fund* 2.4299 TOWER Multi Sector Fund 1.8525 Westpac Diversified Trust 1.2285 Westpac Retire Plan Balanced Fund 2.1353 Diversified Defensive PIEs AMP Select Conservative Fund 1.2805 AMP Select Conservative Trust 1.2642 ASB EasyFund Conservative 1.0384 ASB EasyFund Defensive 1.0972 Lifestages Capital Stable Portfolio* 2.0764 Public Trust Defensive Fund 1.2483 Thoroughbred Cons Flexible 1.5684 Thoroughbred Cons Locked-In 1.6759 Westpac Income Plus Trust 1.2701 Diversified Growth PIEs AMP Select Growth Fund 0.9612 AMP Select Growth Trust 0.9245 ANZ Retirement Plan Growth 1.8102 ASB EasyFund Growth 0.8006 Asteron RSP Managed Growth* 1.7460 Asteron Superplan Dynamic Fund* 1.6449 Thoroughbred Growth Flexible 1.4574 Thoroughbred Growth Locked-In 1.4388 Thoroughbred Growth Trust 1.5244 TOWER FreedomPlan Growth Fund* 1.6434 TOWER FuturePlan Growth Fund* 1.6602 TOWER IP Growth Fund* 1.6602 Westpac Growth Trust 1.0988 Westpac Retire Plan Dynamic Fund 2.1890 NZ Equity (Active) PIEs Asteron Socially Rspnsble Invstmnt Trst 1.0535 Fisher Funds NZ Growth Fund 2.7480 Fisher Funds Premium NZ Fund 0.6376 ING Equity Selection Fund 1.1304 ING New Zealand Share Fund 1.8580 Milford Aggressive Fund 1.3032 SIL Personal Retirement NZ Share 2.3958 TOWER NZ Equity Trust 2.2615 NZ Equity (Passive) PIEs ASB NZ Shares Trust* 1.0182 SmartFONZ 1.2108 SmartMIDZ 2.0562 SmartTENZ 0.7996 NZ Equity (Australasian) PIEs Asteron Superplan Trans Tasman Fund* 2.4677 Brook Alpha Fund* 3.0396 Brook Tasman Fund 1.0168 Devon Trans-Tasman Fund 2.2025
1Yr
3 Yr
5 Yr Size $M Label
5.22 5.17 5.07 10.57 9.97 9.79 9.13 8.82 8.85 7.23 5.39 11.08 8.15 7.77 8.34 11.57 11.57 11.37 11.64 11.54 11.54 8.78 9.34 9.34 11.26 6.89 6.91
-2.10 -2.11 -2.23 -1.66 -0.79
-1.27 3.54 2.45 3.18 3.54
-3.23 -3.90 -4.99 2.39 -1.21
2.48 2.14 0.91 9.85 4.86
-1.40 -1.40 -1.00 -0.63 -0.67 -0.67 -0.78 -0.51
3.98 3.98 4.11 4.51 3.86 3.86 4.01 4.18
5.27 5.19 8.28 6.31 1.93 7.16 6.59 7.20 6.32
3.88 4.05
4.97 4.74 11.09 9.63 8.14 6.62 12.29 12.65 12.60 9.59 10.11 10.11 7.05 7.10
-7.84 0.95 29.70 -8.10 -0.32 12.32 -3.01 2.95 9.09 13.82 -6.06 1.33 22.29 -7.23 -0.02 16.19 -3.58 3.45 8.40 -3.27 3.79 12.90 -3.42 3.16 8.21 -7.14 1.65 82.43 -6.84 1.85 82.43 82.43 33.92 94.56
6.37 12.06 10.56 9.15 10.43 10.76 8.12 11.65
-9.28 -0.62 9.43 -16.54 3.55 71.03 28.27 -7.76 1.62 22.23 -11.31 -1.67 28.15 93.00 -9.63 -0.71 13.80 -10.12 -0.15 10.09
7.81 54.44 33.14 20.73 27.08 54.32 56.40 23.05 14.68 64.63 15.10 23.97 10.90 15.09 8.22 21.19 74.17 20.16 29.12 17.84 16.57 162.51 162.51 162.51 11.44 57.54 104.03
9.92 13.84 141.50 77.22 4.64 11.00 15.77 5.27 8.08 5.80 9.55 22.14
-1.07 5.65
2.72 3.82 4.31
5.94 5.68
5.34 10.08 5.62 -11.62 -0.06 68.72 4.87 -12.78 -0.02 34.86 3.51 -12.57 -3.33 49.70 6.44 -10.15 -1.36 6.29 8.08 11.62 -6.54 3.89
13.36 98.33 74.66 36.80
Fund Exit $ Elevation Capital Multi Strategy Fund 0.7927 Guardian Small Companies Fund 3.0121 Milford Peak Fund 1.0233 Tyndall Aggressive Austrlsn Equity Fnd 0.9893 NZ Property PIEs ING Property Securities Fund 1.3099 MFL Property Fund 1.6919 TOWER FreedomPlan Property Fund* 3.1216 TOWER FuturePlan Property Fund* 3.1365 TOWER IP Property Fund* 3.1365 NZ Mortgage PIEs ANZ FlexiMortgage Income Trust* 1.0000 ASB Residential Mortgage Trust* 1.1819 Capital Mortgage Income Trust 1.0000 Perpetual Trust Mortgage Fund 1.0000 Westpac Home Loan Trust 1.0000 Westpac Mortgage Investment 1.0000 NZ Fixed Interest PIEs AMPCI NZ FI Index Fund 1.3659 AMPCI NZ FI Trust 1.4187 ASB NZ Fixed Interest Trust* 1.2947 Asteron Corporate Bond Trust 0.9971 Asteron NZ Fixed Interest Trust 1.0685 Asteron Superplan Capital Fund* 2.2497 Craigs Invstmnt Partners Fxd Intrst Fnd 1.0541 ING Secure Income Fund 1.2139 Tyndall Corporate Bond Fund 1.0491 NZ Cash PIEs AMP ING NZ Cash Trust 1.1462 ANZ Retirement Plan Deposit Portfolio 1.1435 ASB Cash Fund 1.0000 ASB Money Market Trust* 1.1474 Asteron Deposit Fund* 8.8236 AXA UT34 - Selected NZ Cash Fund 1108.5690 Guardian Cash Fund 1.0000 Public Trust Cash Management 1.1289 Thoroughbred Cash Fund 1.0000 TOWER Cash Fund 1.0902 Westpac Cash Plus Trust 1.1110 Westpac Retire Plan Accumulation 2.7028 Int’l Equity (Australian) PIEs Fisher Funds Aust Growth Fund 1.9288 Fisher Funds Premium Aust Fund 0.8316 ING Australian Share Fund 2.7034 SmartMOZY 4.8436 SmartOZZY 3.2108 Int’l Equity (Regional) PIEs ASB Emerging Mkts Shares Trust* 1.6871 Asteron Superplan European Fund* 1.5968 Asteron Superplan Far East Fund* 1.6390 Asteron Superplan Nth American Fund* 1.7471 TOWER FreedomPlan Asia/Emerging* 2.3346 TOWER FuturePlan Asia/Emerging* 2.3612 TOWER IP Asia/Emerging Mkts Fund* 2.3612 Int’l Equity (Global) PIEs AMPCI Global Shares Index Fund 1.0279 ASB EasyFund World Shares Trust 0.7333 ASB World Shares Trust* 1.1539 Asteron Superplan Global Fund* 1.4862 Craigs Investment Partners Equity Fund 0.9823 Fisher Funds International Growth Fund 1.1447 Fisher Funds Premium Interntnl Fund 1.1595 Fisher Morrison Prem Infrstrctre Fnd 1.1982 Guardian Global Equity Fund 1.1105 ING International Share Fund 1.0226 SIL Personal Retirement Int Share 1.5933 Thoroughbred Intl Equity Trust* 1.1429 TOWER FreedomPlan Intl Companies* 1.6862 TOWER FuturePlan Int’l Companies* 1.7129 TOWER Global Fund 2.9023 TOWER Global Gateway Fund 267.5224 TOWER International Equity Fund 1.1395
1Yr 5.95 16.63 10.72 14.59
3 Yr 5 Yr Size $M Label -9.54 12.65 -6.02 2.57 10.25 17.00 2.38 7.94
11.44 20.60 15.04 15.38 15.38
-10.74 -12.72 10.94 11.11
1.97 -1.82 15.28 15.39
2.34 4.10 6.04 7.87 2.67 2.37
4.60
5.61
5.10
32.21 80.67 30.50 77.69 244.16 5.90 485.85
7.70 8.31 8.13 9.96 9.65 2.64
8.49 9.63
6.49 7.05
4.15 6.44 5.50
4.65 5.21 5.90
9.33
5.84
5.02
2.16 2.23 3.22 2.36 2.95 2.74 2.74 3.12 2.19 2.42 3.00 5.41
3.50 5.21
2.29 5.82
28.13 27.04 12.11 13.69 11.54
-8.56 10.01 81.67 71.20 1.24 11.04 34.14 -9.91 3.63 46.13 -1.51 8.36 92.03
12.67 7.24 4.82 7.85 18.65 19.40 19.40
-17.96 -16.34 -11.78 -3.84 -3.48
5.64 5.78 5.16
47.47 344.57 10.06 10.06 10.06
10.65 9.45 18.02 42.79 12.57 50.44 31.05 7.68 25.04
16.47 35.23 467.71 10.64 6.22 14.83 49.93 6.18 89.91 35.88 5.94 100.59 23.95 151.22 28.79
-2.97 0.82 -4.04 13.60 13.86
2.03 -7.56 -0.52 6.49 6.76 4.31 -11.52 -1.36
8.60 11.91 15.00 10.21 35.20 35.20 35.20
11.39 67.16 38.51 15.97 31.82 11.57 12.84 12.56 22.24 13.19 8.73 6.71 -6.91 2.13 12.83 10.02 -2.63 4.81 15.88 7.03 -4.59 3.41 12.35 8.22 -3.59 4.08 52.57 12.70 -12.53 -0.18 30.02 13.51 -12.07 0.13 30.02 15.34 -4.54 6.72 55.52 3.97 -2.43 2.32 39.88 5.91 -8.06 0.84 20.76
Fundsource 3 Yr
5 Yr Size $M Label 30.02
8.90
6.36
8.03
8.31 33.43 40.24 5.94 107.23
-2.10 0.61 2.75
20.69 17.17 17.30 25.69 19.34 79.67 17.72 75.24 51.60 44.27 29.84 106.30 129.44 49.56 24.76 33.44 10.68 9.52 7.68 29.70 23.83 48.95 14.56 24.68 65.63 38.18 88.98 35.40 86.48 112.05 19.61 277.32 32.24 600.79 324.66 13.72 13.22 15.74 34.19 8.07 296.49 321.99 45.51 27.00 106.94 276.23 12.14 254.38 65.63 71.77 31.26 75.59 102.90 9.18 37.60 25.43 18.40 8.27 10.87 131.60 29.09 66.42
Fund Exit $ 1Yr 3 Yr 5 Yr Mercer KiwiSaver High Growth Fund 0.7926 13.10 NB KiwiSaver Balanced Growth Fund 0.9184 11.65 NB KiwiSaver Growth Fund 0.8504 12.50 SIL KiwiSaver Balanced Growth 0.9260 11.75 SIL KiwiSaver Growth Fund 0.8593 12.72 TOWER KiwiSaver Growth 0.9043 12.57 Westpac KiwiSaver Growth Fund 0.8865 7.79 KiwiSaver NZ Equity (Active) PIEs Milford KiwiSaver Aggressive Fund 1.3032 10.76 KiwiSaver NZ Equity (Australasian) PIEs Smartkiwi Growth Fund 0.6732 7.44 KiwiSaver NZ Cash PIEs AMP KiwiSaver Cash Fund 1.1772 3.75 ANZ KiwiSaver Cash Fund 1.0653 2.01 ASB KiwiSaver NZ Bank Deposit Fund 1.1528 2.39 AXA KiwiSaver Cash Portfolio 1.1542 3.93 National Bank KiwiSaver Cash Fund 1.0657 2.01 SIL KiwiSaver Cash Fund 1.1414 1.79 Westpac KiwiSaver Cash Fund 1.1213 2.87 KiwiSaver Int’l Equity (Global) PIEs SIL KiwiSaver International Share 0.8090 7.61 TOWER KiwiSaver Equity Fund 2222.3911 11.13 KiwiSaver Other PIEs Fidelity Life Options Kiwi Fund 3.9067 18.86 Diversified Balanced Unit Trusts & Gif’s AMP Balanced Trust* 1.4633 6.84 -2.62 1.70 AXA - PMF Active Growth Fund 1.5443 9.61 -2.06 1.38 Diversified Defensive Unit Trusts & Gif’s AXA - PMF Balanced Fund 1.8548 7.11 0.37 2.02 Diversified Growth Unit Trusts & Gif’s AMP Dynamic Trust* 1.2772 7.78 -8.36 -0.73 NZ Equity (Australasian) Unit Trusts & Gif’s Sovereign CFS Tasman Shares* 3.8340 8.07 -2.65 3.33 NZ Mortgage Unit Trusts & Gif’s ASB NZ Mortgage Income Fund* (30%) 1.3558 2.88 4.57 4.90 AXA - PMF Mortgage Investment Fund* 156.2383 -0.26 2.56 3.44 NZ Cash Unit Trusts & Gif’s Perpetual Trust Cash Fund (net @ 30%) 1.9514 1.39 3.31 3.86 Int’l Equity (Australian) Unit Trusts & Gif’s Sovereign CFS Australian Shares* 2.2890 9.44 -2.81 4.17 Int’l Equity (Global) Unit Trusts & Gif’s AXA - PMF International Equity Trust 1.7139 2.63 -11.18 -3.13 Int’l Fixed Interest Unit Trusts & Gif’s Sovereign CFS Global Bonds Trust* 2.8172 3.85 5.21 3.87 Unit Trusts, Gif’s & Other Sovereign CFS Global Prop Shares* 1.7449 30.54 -11.39 -2.08 Diversified Balanced Ins. Bonds AMP Balanced Bond* 1.4018 4.42 -3.68 1.01 AMP Managed Balanced Fund (C)* 3.3573 3.67 -4.57 0.44 AMP Managed Balanced Fund (CN)* 1.6434 3.09 -5.10 -0.11 Asteron Lifeplan/Go Kidz Balanced* 1.8539 5.13 -4.79 -0.35 Asteron Saveguard Plus Managed 5.4140 5.91 -3.90 0.54 Fund* Asteron Yield Global Fund* 7.4583 6.62 -3.65 0.76 Fidelity Life Balanced Portfolio 2.8650 7.06 0.23 3.18 Sovereign Balanced Growth Fund* 0.2430 4.29 -4.50 0.17 Diversified Growth Ins. Bonds Sovereign High Growth Fund* 0.2430 5.65 -5.72 0.42 Diversified Defensive Ins. Bonds Fidelity Life Conservative Portfolio 3.1639 6.69 2.98 4.10 NZ Equity Ins. Bonds AMP NZ Share Based Fund (R)* 3.3380 3.58 -10.50 -2.39 AMP NZ Share Based Fund (RN)* 2.1016 3.00 -10.99 -2.93 Asteron Saveguard Plus Equity Fund* 5.3873 10.76 -10.86 -2.90 Sovereign NZ Select Equities Fund* 0.4320 7.20 -5.81 4.36 NZ Capital Stable Ins. Bonds ANZ Capital Protected Fund* 3.2652 1.78 2.70 2.94 Sovereign Income Fund* 0.3280 1.55 3.72 4.36 Int’l Equity (Regional) Ins. Bonds Sovereign North America Fund* 0.3750 6.53 -1.21 0.27 Int’l Equity (Global) Ins. Bonds Asteron Saveguard Plus Int Equity * 1.8754 2.73 -11.26 -2.97
Size $M Label 9.85 53.44 117.93 84.71 62.67 26.52 72.26 8.40 8.52 17.46 13.19 97.13 10.44 21.76 8.07 63.49 8.89 10.76 24.84 18.89 19.23
39.74
10.79
17.51 64.58 38.84 49.78
10.56 22.33
13.93
10.41
12.06 82.92 82.92 12.47 96.50 20.74 13.78 51.66 16.30
60.05
11.78 11.78 8.18 12.92 36.01 13.18
7.57 7.65
New Zealand Investor
Fund Exit $ 1Yr TOWER IP Intl Companies Fund* 1.7129 13.51 Int’l Fixed Interest PIEs AMP State St Global FI Index Fund 1.3822 6.86 ASB Diversified Income Trust* 1.1639 6.17 ASB World Fixed Interest Trust* 1.2409 6.54 TOWER BondPlus Fund 1.3894 17.46 Other PIEs ASB EasyFund Global Property Fund 0.6686 30.10 Brook Walter Scott Global Share Fund 0.9678 -3.22 Pathfinder Commodity Plus Fund 0.9401 -7.55 TOWER Global Commodity Fund 0.8558 2.53 TOWER Global Hedge Fund 292.9516 -1.89 KiwiSaver Diversified Balanced PIEs AMP KiwiSaver Balanced Fund 0.9350 7.27 AMP KiwiSaver ING Balanced Fund 0.9759 13.16 AMP KiwiSaver Moderate Balanced 0.9690 7.18 AMP KiwiSaver Moderate Fund 1.0338 6.94 ANZ KiwiSaver Balanced Fund 0.9847 10.52 ANZ KiwiSaver Cnsrvtive Blncd Fund 1.0492 9.47 ASB KiwiSaver Balanced Fund 0.9176 10.35 ASB KiwiSaver Moderate Fund 1.0154 9.67 AXA KiwiSaver Balanced Portfolio 0.9191 11.20 Craigs Investment Partners Balanced 1.0382 7.13 Fidelity Life Balanced Kiwi Fund 5.4106 7.06 FirstChoice KiwiSaver Actv Blncd Fund 0.9253 9.43 FirstChoice KS Tracker Balanced Fund 0.9157 10.41 FirstChoice KS Tracker Moderate Fund 1.0075 9.71 Grosvenor KiwiSaver Balanced Fund 1.0801 9.13 Huljich Blncd Diversified KiwiSaver Fnd 1.0988 Huljich Cnsrvtve Diversified KiwiSaver 1.2013 Mercer KiwiSaver Balanced Fund 0.9279 13.71 Mercer ST KiwiSaver Active Blncd Fnd 0.9270 13.46 National Bank KiwiSaver Blncd Fnd 0.9860 10.53 NB KiwiSaver Conservative Blncd Fund 1.0494 9.51 SIL KiwiSaver Balanced Fund 0.9937 10.76 SIL KiwiSaver Conservative Balanced 1.0571 9.75 TOWER KiwiSaver Balanced Fund 2771.8032 10.61 Westpac KiwiSaver Balanced Fund 0.9429 7.60 KiwiSaver Diversified Defensive PIEs AMP KiwiSaver Conservative Fund 1.1294 6.74 AMP KiwiSaver Default Fund 1.0910 5.05 ANZ KiwiSaver Conservative Fund 1.1169 8.21 ASB KiwiSaver Conservative (default) 1.1106 6.88 AXA KiwiSaver Income Plus (default) 1.0849 8.97 Craigs Investment Partners Consrvtive 1.1105 5.36 Fidelity Life Capital Guarntd Kiwi Fund 2.1857 4.96 Fidelity Life Conservative Kiwi Fund 5.5749 7.82 FirstChoice KS Tracker Cnsrvtve Fund 1.1091 6.86 Grosvenor KiwiSaver Conservative Fund 1.1207 8.26 ING KiwiSaver Conservative Fund (dflt) 1.1228 7.85 Mercer KiwiSaver Cnsrvtive (dflt) Fnd 1.1419 12.30 NB KiwiSaver Conservative Fund 1.1197 8.25 SBS Lifestages KiwiSaver Scheme 2.0967 2.78 SIL KiwiSaver Conservative Fund 1.1251 8.33 TOWER KiwiSaver Cash Enhanced Fund 1.1145 6.77 TOWER KiwiSaver Conservative Fund 1.1300 11.05 Westpac KiwiSaver Conservative Fund 1.0600 7.18 KiwiSaver Diversified Growth PIEs AMP KiwiSaver Aggressive Fund 0.7784 7.71 AMP KiwiSaver Growth Fund 0.8334 7.65 ANZ KiwiSaver Balanced Growth Fund 0.9188 11.61 ANZ KiwiSaver Growth Fund 0.8533 12.44 ASB KiwiSaver Growth Fund 0.8284 10.38 Asteron KiwiSaver Balanced Grwth Fnd* 0.8691 11.85 AXA KiwiSaver High Growth Portfolio 0.8096 10.90 Craigs Investment Partners Growth 1.0282 6.67 Fidelity Life Growth Kiwi Fund 5.0794 6.07 First Choice KS Tracker Growth Fund 0.8264 10.44 FirstChoice KiwiSaver Actve Grwth Fnd 0.8474 9.03 Fisher Funds Growth KiwiSaver Fund 0.9993 16.60 Grosvenor KiwiSaver High Growth Fund 0.8822 8.42 Huljich Grwth Dvrsified KiwiSaver Fnd 1.0491
45
www.irg.co.nz
Fundsource
46
Fund Exit $ 1Yr 3 Yr Other Ins. Bonds Fidelity Life Options Portfolio 3.2607 13.00 6.89 Diversified Balanced Superannuation AMP Pers Super Balanced (A)* 16.9802 2.10 -4.42 AMP PRP Balanced - Other Fund* 1.2742 3.99 -4.81 AMP PRP Balanced* 1.4234 4.22 -3.65 AMP PRP Legg Mason Balanced* 1.2890 13.22 -6.01 ASB Easyplan Balanced Fund* 1.9140 9.93 -3.76 Asteron Retirement Plus Managed* 5.4140 5.91 -3.90 AXA - FLP Balanced Growth Fund 1.5740 6.19 -1.35 Fidelity Life Super Super Blnced Fund 2.8650 7.06 0.23 Sovereign Personal Super Balanced* 21.4100 5.74 -3.18 Sovereign Super Balanced Growth* 0.1940 4.86 -3.67 Sovereign Vision Balanced* 1.9120 5.42 -3.48 Diversified Growth Superannuation AMP Pers Super Performance (U)* 2.2998 1.53 -9.82 AMP PRP Dynamic* 1.2587 4.77 -8.72 ASB Easyplan Growth Fund* 1.2040 10.68 -6.80 AXA - FLP Dynamic Growth Fund 1.4005 7.52 -3.81 Fidelity Life Super Super Growth Fund 2.5827 6.84 -3.35 Sovereign Prsnl Super Entrprneurial* 21.1581 5.07 -5.67 Sovereign Super High Growth Fund* 0.1920 6.67 -5.15 Sovereign Vision Entrepreneurial* 1.7163 4.75 -5.96 Diversified Defensive Superannuation AMP PRP Conservative* 1.5399 3.80 1.69 ASB Easyplan Conservative Fund* 1.9177 7.62 0.86 Sovereign Personal Spr Cpital Stable* 17.8000 5.45 1.09 NZ Capital Stable Superannuation ASB Easyplan Cash Enhanced Fund* 1.9935 2.22 3.78 AXA - FLP Capital Enhanced Fund* 1.6146 1.06 2.19 Sovereign Vision Capital Assured* 1.8116 0.42 2.50 TOWER FreedomPlan Capital Protected* 1.0706 1.51 5.61 NZ Equity Superannuation AMP PRP NZ Shares* 1.5164 4.84 -10.35 Asteron Retirement Plus Equity* 5.3873 10.76 -10.86 Int’l Equity (Australian) Superannuation AMP PRP Australian Shares* 1.8796 13.55 -5.55 Int’l Equity (Regional) Superannuation AMP PRP Asian Shares* 1.3673 10.41 -2.27 Int’l Equity (Global) Superannuation AMP PRP Intl Shares* 1.1429 9.31 -11.57 AMP PRP Passive Int Shares* 0.7235 1.93 -9.12 Asteron Retirement Plus Intl Equity* 1.8754 2.73 -11.26 Fidelity Life Super Super International 1.5301 4.97 -8.47 NZ Fixed Interest Superannuation AMP PRP NZ Fixed Interest* 1.8502 5.67 6.74 NZ Cash Superannuation AMP PRP NZ Cash* 1.3787 1.97 3.76 NZ Property Superannuation AMP PRP NZ Property* 1.2297 -21.45 -11.39 Australian Unit Trusts Diversified BT Active Balanced Fund - NEF* 1.2560 8.12 -2.56 BT Balanced Returns Fund* 1.3467 7.29 -1.66 BT Diversified Share Fund - NEF* 0.9800 6.97 -6.90 BT Future Goals Fund 1.4293 8.03 -4.69 BT Income Plus Fund 1.0190 7.91 1.57 BT Split Income Fund* 0.9087 8.25 3.44 GSJBWere Diversified Growth Fund 1.7934 10.38 -1.18 Perpetual’s Balanced Growth Fund 1.0410 9.35 1.28 PM Cap Enhanced Yield Fund 1.1029 6.61 9.77 Australian Unit Trusts Equity Alphinity Australian Share Fund* 1.9259 11.55 -8.65 Alphinity Concentrated Aust Shre Fund* 1.2800 10.16 -14.98 BT Australian Share Fund 2.9175 8.87 -3.12 BT Core Australian Share Fund* 2.9080 8.70 -3.41 BT Imputation Fund 1.3800 7.79 -4.74 BT Smaller Companies Fund 1.4410 22.81 -5.72 GSJBWere Australian Equities Fund 0.9235 10.72 -0.85 GSJBWere Emerging Leaders Fund 1.8612 10.36 -10.25 GSJBWere Leaders Fund 1.9430 10.31 -4.91 Hunter Hall Australian Value Trust 1.2774 24.45 -1.94
5 Yr Size $M Label 8.14
31.02
1.06 -0.25 1.11 -0.27 1.47 0.54 1.68 3.18 0.95 0.74 0.65
61.09 10.42 160.27 17.11 109.09 96.50 152.66 17.49 112.94 18.60 85.68
-0.99 -0.89 0.51 0.87 1.75 0.03 0.85 -0.28
26.37 98.43 50.07 36.01 10.56 174.22 7.89 55.41
3.01 2.90 2.49
10.70 48.81 8.99
3.80 3.18 2.91 4.76
19.52 24.09 33.47 54.74
-1.53 16.00 -2.90 8.18
2.15
23.35
4.68
18.34
-3.11 33.10 -1.46 35.38 -2.97 7.65 -1.03 17.80 4.84
23.95
3.92
39.97
-1.85 36.48
4.26 98.09 4.37 160.44 2.43 10.78 3.76 641.00 4.41 52.00 5.11 45.00 4.76 19.32 4.58 24.00 8.90 365.15 4.33 0.60 7.49 7.21 7.85 8.51 7.61 1.86 8.52 9.11
9.02 27.22 1263.56 139.71 215.27 206.40 21.45 180.36 131.42 83.00
Fund Exit $ 1Yr 3 Yr Perpetual’s Industrial Share Fund 1.5770 11.28 -4.55 Perpetual’s Smaller Companies Fund 0.9730 22.41 -6.41 PM Cap Australian Opportunities Fund 1.0973 22.87 -5.59 Wilson HTM Priority Growth Fund 2.3592 20.92 6.11 Australian Unit Trusts Fixed Interest BT Australasian Bond Fund* 1.0987 7.22 10.39 Challenger High Yield Fund* 0.7135 9.54 -6.79 Australian Unit Trusts Regional Equity BT American Share Fund 1.5794 5.48 -5.28 BT Asian Share Fund 5.6122 15.55 0.66 BT European Share Fund 2.1093 4.00 -9.85 Platinum Asia Fund 2.3439 12.76 8.25 Platinum European Fund 1.7911 19.71 -0.89 Platinum Japan Fund 1.8783 -2.85 3.57 Australian Unit Trusts Intl Equity ANZ Ascent World Equity Strategies 0.9151 13.10 -10.64 BT Global Share Fund* 1.2420 5.25 -9.11 BT InTech High Opportunity Fund 0.7198 9.12 -9.39 BT International Fund 1.7023 5.08 -9.71 BT Platinum International 0.9487 10.21 2.28 BT Split Growth Fund* 2.1382 8.31 -7.46 BT Technology Fund 0.2563 8.83 -2.60 GSJBWere Global Small Companies 0.7616 7.43 -11.43 GSJBWere International Fund 1.1303 6.80 -5.20 Hunter Hall Global Deep Green Trust 0.9448 11.56 Hunter Hall Global Ethical Trust 1.0805 6.02 -7.68 Hunter Hall Value Growth Trust 2.0806 14.99 -3.68 MLC - Platinum Global Fund* 1.3684 8.37 2.69 Perpetual International Share Fund 0.7140 1.55 -7.48 Perpetual Split Growth Fund 0.9570 5.43 -5.94 Platinum International Brands Fund 2.0775 30.91 9.30 Platinum International Fund 1.5734 10.65 7.54 Platinum International Health Cre Fnd 0.9711 12.24 2.80 Platinum International Technology Fund 1.0485 6.40 6.46 Platinum Unhedged Fund 1.1396 28.94 7.66 Russell World Equity Strtgies - Class B 0.7472 14.03 -11.20 Australian Unit Trusts Intl Fixed Interest ANZ Ascent World Bond Fund 1.2770 13.23 8.31 BT Global Bond Fund* 0.7715 -3.01 10.53 Russell World Bond Fund - Class B 1.0423 18.03 9.79 Australian Unit Trusts Resources BT Natural Resources Fund* 5.9930 15.06 -1.48 GSJBWere Resources Fund 2.8541 6.40 -0.01 Australian Property Securities BT Property Securities Fund 0.8423 17.00 -17.53 Australian Cash Management Trust Macquarie - Cash Management Trust 1.0061 1.43 8.37 Macquarie - Gilt Edge Access 1.0000 1.50 4.63 Australian Mortgage Trust LM Currency Protected Aust Incm Fnd* 1.0000 4.75 7.33 Australian Other UnitTrusts PM Cap Absolute Performance Fund 1.0962 17.16 -10.85
5 Yr Size $M Label 4.87 1667.00 7.35 73.00 5.19 73.00 104.20 7.32 23.77 -1.48 34.92 -0.35 9.85 1.40 16.67 7.76 6.16
28.78 455.74 89.68 3640.00 159.88 461.62
-0.16 -1.46 -1.20 -1.55 6.89 1.70 2.82 -1.95 1.32
64.42 13.02 10.00 401.88 97.00 255.14 10.10 16.85 21.74 9.00 334.00 1103.00 766.00 69.00 14.00 467.96 9400.00 17.99 42.25 72.19 125.00
4.16 8.66 8.35 -0.71 1.74 12.82 10.97 6.66 10.87 8.36 -0.46
5.96 53.12 3.80 9.73 6.97 114.00 14.21 36.15 11.43 21.16 -3.93 242.40 7.10 12007.90 5.26 166.80 7.89 575.00 -1.98 293.88
PIE fund returns are measured pre-tax. Returns for funds that have become PIEs (e.g. from 30/09/07) are shown ‘grossed-up’ (pre-tax) to transition date. These indicative returns are approved by fund managers and are for fund comparative purposes, and are not suitable for calculating an investor’s investment return. Non-PIE NZ fund returns are reported post-tax assuming a marginal tax rate of 30%. All returns are measured post management fees but before upfront fees. All distributions are assumed to be reinvested. Australian fund returns are in NZ dollar terms and are measured pre-tax but Australian exit prices are in A$ as are fund sizes. FundSource Fund Ratings are calculated from risk-adjusted returns over the past three years to 28/2/2010 comparing similar funds across all legal fund types. The top 15 per cent of funds attain 5 stars, next 20 per cent 4 stars, next 30 per cent 3 stars, next 20 per cent 2 stars and bottom 15 per cent 1 star. Funds with less than a three year history have no fund rating. Past performance is not necessarily a guide to future performance. Any representation or statement expressed in this document is made in good faith on the basis that FundSource Limited is not able to be liable in respect of such representation or statement. FundSource does not guarantee the accuracy of third-party information used to calculate fund returns. This information should not be relied upon as a substitute for detailed advice from a professional financial adviser. Copyright © FundSource Limited. [* represents a closed fund]. For more information please see: www.fundsource.co.nz. Email fundsource@fundsource.co.nz
Rates for Tradeable Fixed Term Investments This list is intended to provide investors with a guide only and contains debt instruments such as Bonds, Capital Notes and Preference Shares, each of which has a particular structure . We recommend that investors consult with EQUITY Investment Advisers to determine the most appropriate risk exposure for their individual portfolio. Yields are changing daily and some issues have annual rate resets. Call IRG on 0800 474 669 to discuss. ISSUER Government stock NZ Government NZ Government NZ Government NZ Government NZ Government
Credit Rating
NZDX Code
Maturity Date
Minimum Holding
Current Yield1
Coupon
Payment Frequency
AAA AAA AAA AAA AAA
GOV390 GOV380 GOV360 GOV340 GOV320
15 May 2021 15 Dec 2017 15 Apr 2015 15 Apr 2013 15 Nov 2011
10,000 10,000 10,000 10,000 10,000
5.32% 5.07% 4.66% 4.20% 3.70%
6.00% 6.00% 6.00% 6.50% 6.00%
Six-Monthly Six-Monthly Six-Monthly Six-Monthly Six-Monthly
A+ AAAA+ A+ AA A+ A AAAA-
ANBHA ANB080 ASBPB BISHA BNSPA BNZ080 CBAFA CASHA RBOHA RCSHA
Perpetual 09 Jun 2014 Perpetual Perpetual Perpetual 15 Jun 2012 15 Apr 2015 Perpetual Perpetual Perpetual
10,000 10,000 5,000 5,000 5,000 10,000 5,000 5,000 5,000 5,000
9.03% 5.80% 5.07% 9.33% 8.48% 6.25% 4.51% 11.40% 5.11% 8.19%
9.66% 8.50% 3.86% 9.89% 9.10% 8.42% 3.82% 10.04% 4.12% 8.78%
Six-Monthly Six-Monthly Quarterly Quarterly Quarterly Six-Monthly Quarterly Quarterly Quarterly Quarterly
BBBBBB BBB BBB Not Rated Not Rated Not Rated BBB BBB+
OCFHA PWC050 PWC040 PWC080 TPW080 TPW060 TPW020 VCT040 VCT050
Perpetual 29 Mar 2013 30 Mar 2011 28 Sep 2012 15 Dec 2014 15 Mar 2014 15 Sep 2012 15 Jun 2012 15 Oct 2014
5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
6.88% 6.30% 5.40% 6.00% 6.75% 7.00% 7.00% 6.75% 6.10%
4.95% 6.39% 6.22% 6.59% 7.60% 8.50% 8.50% 8.00% 7.80%
Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Quarterly Six-Monthly Six-Monthly
AAANot Rated BBB Not Rated Not Rated Not Rated Not Rated BBBBBB-
AIA050 AIA070 AIA080 BPF020 CEN010 FBU190 IFT060 IFT070 IFT090 WKS010 WKS020
29 Jul 2011 07 Nov 2015 15 Nov 2016 15 Nov 2011 15 May 2014 15 Mar 2011 15 Sep 2013 15 Nov 2015 15 Feb 2020 15 Jun 2012 15 Sep 2012
10,000 10,000 10,000 5,000 5,000 2,000 5,000 5,000 5,000 5,000 3,000
5.40% 6.55% 6.50% 9.60% 6.20% 7.25% 7.90% 9.00% 9.30% 15.00% 7.90%
6.83% 7.25% 8.00% 9.95% 8.00% 7.55% 8.50% 8.50% 8.50% 9.80% 9.65%
Six-Monthly Six-Monthly Quarterly Quarterly Quarterly Six-Monthly Quarterly Quarterly Quarterly Quarterly Quarterly
AAA A+ Not Rated BB+ BB Not Rated Not Rated Not Rated BB+ BB+ A
AQN010 ACC010 FCG010 GFN030 MAR010 NFFHA PWF030 SFF030 SKTFA SCFHA SCF020 TCN540
01 Apr 2019 24 Mar 2014 10 Mar 2015 15 Nov 2012 15 Jul 2013 24 Nov 2011 08 Oct 2010 15 Dec 2010 16 Oct 2016 Perpetual 15 Jun 2011 15 Jun 2013
5,000 10,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000
6.70% 5.75% 6.10% 9.65% 10.55% 9.59% 8.10% 14.50% 4.56% 40.00% 10.90% 6.40%
9.80% 6.42% 7.75% 8.30% 10.50% 6.71% 8.25% 10.25% 4.01% 5.61% 10.50% 8.20%
Quarterly Six-Monthly Quarterly Quarterly Quarterly Six-Monthly Quarterly Quarterly Six-Monthly Quarterly Quarterly Six-Monthly
Banks ANZ National Bank ANZ National Bank ASB Capital No. 2 BNZ Bank BNZ Bank BNZ Bank CBA Credit Agricole Rabobank Nederland Rabobank Nederland Power Companies Origin Energy PowerCo PowerCo PowerCo Trust Power Trust Power Trust Power Vector Vector Building & Infrastructure Auckland International Airport Auckland International Airport Auckland International Airport Burns Philp Finance Contact Energy Fletcher Building Infratil Infratil Infratil Works Infrastructure Finance Works Infrastructure Finance General AMP Group Financial Services Auckland City Council Fonterra GPG Finance Marac Finance Nufarm Finance PGG Wrightson Finance Silver Fern Farms Ltd Sky Network Television South Canterbury Finance South Canterbury Finance Telecom Finance Ltd 1
= Current yields listed are indicative, subject to availability and exclude brokerage payable.
These rates are current as at 20th July 2010 Rates are subject to change at anytime and should be reconfirmed by calling IRG on 0800 474 669
New Zealand Investor
CORPORATE
47
Fixed Term Investments All rates below (unless otherwise specified) are offers under the Government’s Retail Deposit Guarantee Scheme. For enquiries regarding non-guaranteed rates, please call us on 0800 474 669. FINANCE COMPANIES - Debenture Stock STANDARD TERMS Allied Nationwide Finance* Broadlands Finance*
Minimum Investment $ 1,000
3 Months
6 Months
9 Months 7.50
$ 500
12 Months 8.50
18 Months 9.00
2 Years 9.25
3 Years 9.25
4 Years 9.25
5 Years 9.25
8.50
9.00
9.25
9.25
9.25
9.25
5.70
5.90
6.00
6.50
7.00
7.25
Equitable Mortgages**
$ 2,000
3.00
5.50
Fisher & Paykel Finance**
$ 1,000
5.00
5.25
6.00
6.75
6.75
7.25
7.50
7.50
7.50
Marac Finance**
$ 1,000
4.75
5.25
5.00
6.00
4.00
7.00
7.50
7.75
7.75
NZF Money*
$ 1,000
4.25
4.75
6.75
7.25
7.50
8.25
8.25
7.75
7.75
$ 10,000
4.50
5.00
6.75
7.50
7.75
8.50
8.50
8.00
8.00
PGG Wrightson Finance** South Canterbury Finance** UDC Finance* NON - STANDARD RATES Broadlands Finance
$ 1,000
4.45
5.20
5.45
5.95
5.70
6.45
7.20
7.45
7.70
$ 10,000
4.65
5.40
5.65
6.15
5.90
6.65
7.40
7.65
7.90
$ 100
4.50
4.75
8.00
8.00
$ 5,000 Minimum Investment $500
7 Months
10 Months
15 Months
4.70 16 Months
5.10 20 Months
5.75 21 Months
6.15 22 Months
6.40 28 Months
6.80 30 Months 9.50
8.00
8.00
8.00
South Canterbury Finance**
$ 100
Marac Finance
$1,000
(Non Guaranteed rates)
7.25
CREDIT RATINGS - Finance Companies Standard & Poor’s
Govt. Guaranteed until Oct-10
UDC Finance*
Dec-11
AA
3
BB+
3
3
South Canterbury Finance**
B+
3
3
Equitable Mortgages**
BB
3
3
PGG Wrightson Finance**
BB
3
3
Fisher & Paykel Finance**
BB
3
3
Allied Nationwide Finance*
B
3
BB-
3
Marac Finance**
Broadlands Finance*
* Participant of Government Guarantee Retail Deposit Scheme until October 2010 (up to $1,000,000 per eligble depositor per institution) ** Participant of Government Guarantee Retail Deposit Scheme Extension until December 2011 (up to $250,000 per eligible depositor per institution)
www.irg.co.nz
NOTE: • We are mindful that historic data may not be a predictor of the future. We recommend that clients review each investment to ascertain that it’s appropriate for their needs. In this market we believe caution is appropriate and clients should not take undue risks. • IRG recommends that before investing investors consider the size of the investment contemplated in relation to their total portfolio and overall risk as the level of risk and return varies considerably between Finance Companies. • We recommend investors call IRG to assist in determining the appropriate risk exposure for their portfolio and to receive the relevant Investment Statement and Research on these and other investments. • Rates for Finance Companies not mentioned in this listing are available upon request. • There are no Entry or Exit Fees payable on investments held for the full term in the above Finance Companies. • Brokerage received by IRG in connection to a Finance Company investment is paid by the issuer at standard industry rates. These rates are freely available from either the Finance Company or IRG and are summarised in the investment statement.
48
These rates are current as at 19 July 2010. Rates are subject to change, and often do, therefore they should be reconfirmed by calling IRG on 0800 474 669. A disclosure statement is available free of charge upon request by phoning 0800 474 669.
IRG Comment
Heads or tails? into increased hiring. On the other side of the coin we have the micro story, individual companies and sectors experiencing increased earnings and revenues. While the slowdown in the global economy is a reality, I believe the micro story to be compelling and a reason to invest selectively. At any given time value can be bought at bargain prices. To assist us with our search for value this earnings season, I want to discuss two terms that will be discussed frequently - bottom line and top line growth. A company’s bottom line is its net income. More specifically, the bottom line is a company’s income after all expenses have been deducted from revenues. These expenses include interest charges paid on loans, general and administrative costs and income taxes. A company’s bottom line can also be referred to as net earnings or net profits. The top line refers to a company’s gross sales or revenues. Therefore, when people comment on a company’s “top-line growth”, they are making reference to an increase in gross sales or revenues. Both these figures are useful in determining the financial strength of a company, but they are not interchangeable. Bottom line describes how efficient a company is with its spending and operating costs and how effectively it has been controlling total costs. Top line, on the other hand, only indicates how effective a company is at generating sales and does not take into consideration operating efficiencies which could have a dramatic impact on the bottom line. However, this is not to say that a company cannot experience both top-line and bottom-line growth at the same time. This can be achieved if a company earns more revenue (top line) and reduces its operating costs (bottom line). In your search for value this earnings season, try taking a bottom up approach. Look for sectors that are experiencing growth and have expectations for further growth despite global headwinds. Then search for the companies within those sectors that are showing growth in both their top and bottom line numbers. Once a short-list has been formed, volatility in the markets now becomes your friend. Broad large percentage falls in the market can now be taken advantage of. There are many more criteria a value investor can use when assessing earnings numbers. For further assistance with screening the market for value opportunities, give me a call on 0800 474 669, (09) 304 0223 or email: david.buell@irg.co.nz
New Zealand Investor
R
eporting season has kicked off state side once again. At the time of writing we are in the middle of the first week and so far so good. However, minutes released from the Fed’s June meeting show officials are more concerned with the pace of economic recovery. That added to jitters stoked by a weak report on June retail sales. The reality of a slow recovery has brought resistance to a market that wants to push higher. Moving downunder we have an earning season ready to go. In the resource sector, my favoured space, increased profits are expected to be driven by strong iron ore and gold prices. Balance sheets are expected to show continuing strength on the back of strong cash flows and earnings. The outlook for the next 12 months is uncertain, especially with the slowing pace of GDP in China as a backdrop. Despite this, analysts’ are expecting the large caps, BHP, RIO and NCM to report record profits. Average analyst forecasts’ point to Rio more than doubling last year’s first-half underlying profit of US$2.6 billion to report a record first-half earnings of US$5.6 billion, while Newcrest’s full-year profit is expected to grow from $483 million last year to a record $660 million. BHPs’ full-year profit is expected to jump from US$10.7 billion last year to US$13 billion. These optimistic forecasts follow soaring iron ore and gold prices, with strong increases in coal. The death of annual iron ore pricing and a drop in shipping costs mean spot prices have not soared to the heights of 2008, but Australian iron ore miners have received more cash per tonne than ever before. With consensus expectations for increased earnings, the market will be looking for indications of how all this extra capital will be deployed. The question of an increase to dividends has been asked, but I wouldn’t be surprised to see companies take a cautious view going forward, holding onto cash in case the markets take a negative turn. But on the flipside, with new Australian Prime Minister Julia Gillard putting to death the RSPT and opting rather for the Mineral Resource Rent Tax (MRRT), miners may revisit their capital spending and expansion plans. For investors this is a tough environment in which to make decisions. Your decisions on what to buy will be based on whether you call heads or tails when flipping a coin. On one side we have the macro story, a global recovery that is slowing in pace, with GDP numbers being revised down across the globe. While jobless claims are reducing, this is not flowing
By David Buell
49
CFDs
Why the kiwi dollar may keep falling This year, the New Zealand dollar has fallen almost 10 per cent against the US dollar. Stephen Calder looks at where the kiwi is headed next and how traders ensure they’re not caught by short-term swings
www.irg.co.nz
C
50
an the Kiwi dollar recover? Like the Australian currency, the New Zealand dollar is considered high-risk, and right now the world’s financial markets – investors and traders alike – are suffering risk exhaustion. The alarming fall in the world’s major sharemarkets in late May is one of the results. When risk is seen as too great, investors retreat to safe havens. That means possibly gold, but more likely US dollars, still the world’s strongest and most liquid currency despite the affliction of gargantuan US government debt. The Kiwi dollar is a commodity currency – one whose underlying economy is dependent on exports of raw materials – and that makes it a hostage to global growth, or lack of it. In the current climate, global growth, including the budding recovery in the US, is being threatened by the new debt crisis. The crisis – for which there appears to be no quick solution – emerged when a slew of European governments, notably those in Greece and Spain, but also Italy, Portugal and Ireland, came under pressure as a result of their sovereign debts and the perception that default on their official borrowings was a distinct possibility. “The situation in Europe is at the forefront and the Kiwi is being bundled in with other high-risk currencies,” says Francisco Solar, senior dealer at foreign exchange specialist Easy-Forex Australia. “There was some respite with the bail-out package but recently problems have emerged within Spanish banks and contagion is still a danger, putting both the Aussie and the Kiwi on a weak footing. “It’s an issue that’s not going to go away any time soon. It’s made worse by anything that suggests commodities are weakening. There are fears that problems in the eurozone may bring about a double dip recession,” Solar adds. He suggests traders keep an eye open for any indication
of increasing interest rates, which would help support the Kiwi. But he says the European situation reduces the probability of hikes in rates. Adam Lewis, market analyst with IG Markets, comments, “All fundamental factors [affecting the NZ dollar] are external to what’s happening in the country. It’s all about European sovereign debt and how that’s affecting global risk appetite. We are seeing the de-risking of financial markets as loss of risk appetite by investors leads them to bring funds back to the US and to safe havens like the US dollar.” The plague of uncertainty on the markets means that the euro as a currency is likely to fall even further – though it has been declining all year – and that means the US dollar will probably keep rising against most other currency units. That includes the NZ dollar. But the Kiwi won’t go down in a straight line, any more than it rose in a straight line in 2009. A glance at the accompanying chart will show that, while profits have been lavish for those who got the timing right, it would also have been possible to make big losses selling NZ dollars at the wrong time. A CFD trader who sold NZ dollars against the US currency at around US70c late in February, for example, would be ahead today if he or she had managed to hold on while the price leapt to US73c. But that’s an unlikely scenario unless the trader has both deep pockets and strong convictions. CFD traders must pay up paper losses as they go, and on a typical CFD contract size of US$10,000, the jump from US70c to US73c would mean
CFDs
...the likely price for the NZ dollar in the short term is US66¢ to US70¢... Adam Lewis of IG Markets says that the technical indicators currency CFD traders use can be divided into the following three types, and that an indicator from each type should be used to confirm that entry into the trade has a good chance of success. 1 Trend indicators These include trend lines like those shown on the accompanying chart, and moving averages, in which the average price over a number of days (often 10, 20 or 100) is recalculated daily and plotted against the current price. A price moving up or down through a moving average is a signal to buy or sell. 2 Momentum indicators These include price oscillators, relative strength indicators and moving average convergence and divergence (MACD) indicators. “Use them to assess current momentum and if the currency is range trading [keeping within a narrow price band] use momentum to give direction within the range,” Lewis says. 3 Volatility indicators These include average true range (ATR) and the Bollinger bands discussed in last month’s issue. “These are used for setting stop loss orders [orders to exit at a given price] and profit targets,” he says. “Look at the overall trend, and check whether overall momentum is with or against the current trend,” Lewis suggests. “If there is no trend, look
to range trade.” Range trading involves buying close to the bottom of the current range – the support level – and selling when the price is close to the top – the resistance level. He says the NZ currency moved from a bull to a bear market late in November 2009. “A key level of support is US66c and we are looking for support there; if it holds it could bounce and move up; if it were to break that level that would make a new leg down [a bearish sign]” he says. “The top of the recent range is close to US72c, but to get there we would have to see things change in Europe,” Lewis contends. He says the “safe and conservative answer” to the question of the likely price for the NZ dollar in the short term is “US66c to US70c – but we expect it to bounce between trading ranges until we see a break into a solid bear or bull market.” He advises traders who have experience in shares, but not in currency trading, to be aware of the differences – currency markets don’t behave like shares. “You can’t look at a priceearnings ratio, and shares have an upward bias – the market may crash but it consistently recovers. “Foreign exchange is not like that – it’s just trading what one currency is worth in terms of another. It’s both a long and short game and traders need to be mentally prepared to switch from long to short and back.” Unlike long-term investors who carefully research stocks and invest for value, forex traders cannot expect a high success rate. “What you’re looking for is a weighted opportunity in your favour with a greater than 50 per cent probability,” Lewis says. Being wrong and getting stopped out is not that bad, he says, because sound money management helps traders to win overall despite a percentage of losses.
New Zealand Investor
losses – and therefore margin payments – of around NZ$580. That’s a loss of several times the NZ$100 it takes to enter the trade. Both the NZ and Aussie dollars fell precipitously throughout May, and further falls of this magnitude are not likely. But if you had sold NZ dollars at US73c early in the month and held the trade until the rate dropped to US67c, you could have turned a NZ$100 initial margin into a profit of around NZ$1200. The keys to making profits from trading currencies without getting caught by short term moves against the trend are sound risk management – never risking more than one or two per cent of your trading capital on any one trade – the flexibility to sell short, rather than just buy for an upturn, and the recognition that you won’t win on every trade.
51
Comment
Why investors need a ‘super regulator’
By Kirk Hope
The new Financial Markets Authority is a bold, but necessary, step to restore investor confidence, says The Financial Services Federation’s executive director, Kirk Hope
www.irg.co.nz
B
52
y this time next year, the Financial Markets Authority (FMA) should be up and running. The super regulator is eagerly anticipated by consumers, policymakers, and financial markets participants alike. If it functions optimally, it will provide investors with greater confidence to continue to invest in the non-bank financial services sector, which remains important for the New Zealand economy. As the experts continue to pore over the fallout from the US subprime crisis that precipitated the Global Financial Crisis and closer to home New Zealand’s finance company failures, it’s clear that gaps within both policy and regulatory functions worldwide contributed to the devastation. Businesses were too easily able to achieve fast growth in risky markets without any co-ordinated regulatory oversight. So the question everyone has been asking is how do we ensure that we get the benefits of strong growth in our financial markets without the emotional and financial costs that we have recently experienced? And what is the best policy and regulatory model to help achieve this? One part of our Government’s response has been the establishment of the FMA. In announcing its formation through the merger of the Securities Commission, parts of the Companies Office and the stock exchange’s regulatory arm, Commerce Minister Simon Power is taking a bold – but entirely necessary – step to
restore investor confidence. There are considerable benefits to having a regulatory authority that can see across our capital markets, understand the themes emerging from a business and product sense, and respond when necessary from a regulatory perspective. But commentators have pointed out that the devil will be in the detail, and I couldn’t agree more. What hasn’t been talked about much is what the detail should look like in order to help restore that confidence. To be truly effective, the FMA’s powers will need to be wide. In particular, it should combine both a policy and regulatory function rather than being limited to a strictly technical regulatory role. This is because to be truly effective, it needs to have future market developments firmly within its purview, so that changes such as new products, business structures, or forms of operation can be met with crisp policy responses and regulatory intervention if necessary. However, at the current time it appears that the overall policy function will remain with the Ministry of Economic Development, which I would argue will compromise the FMA’s potential from the outset. To be effective, the FMA needs to be able to act quickly, rather than having to rely on another agency to first set the policy framework. The success of the FMA depends on regulatory responses that can be measured in weeks and months, not years as has been the case in the past.
In order to be able to effectively exercise those wider powers, the FMA also needs to be adequately resourced. Within this context, the FMA’s policy developers and regulators will need to tread a fine line and balance priorities so that the FMA does not become overly resource-intensive. They will be required to be well informed and close to market developments, but not meet every development with undue suspicion. Where suspicion is warranted, they will need to be equipped – through law and resources – to act quickly without having to rely on another agency to write the rules first. The Financial Services Federation strongly supports the increased regulatory oversight that a well-designed FMA promises because it will provide investors with greater confidence to invest in the non-bank financial services sector. This will ultimately also benefit the wider economy, given this sector’s crucial role in continuing to provide investment opportunities for many New Zealanders, and in doing so providing vital consumer, business, farm and property financing that is not met by the banking sector.
The Financial Services Federation is an incorporated society that has represented New Zealand’s non-bank financial sector since 1965. Today the Federation represents 38 members including finance and leasing companies, building societies, and other major financial service providers. www.fsf.org.nz
TRIALS
No Obligation Online Research service – analysis and recommendations on over 380 shares McEwen investment Report – the active investor’s advantage
Join those investors already newsletters and quality online research. Discover how our clients have been able to improve their investment returns – since 1963! Take the guesswork out of sharemarket with the McEwen Investment Report. Gain access to detailed information and trading recommendations on over 380 companies through our Online Research service. Find out how to increase your investment income without taking unnecessary risks.
New Zealand Investor
FREE
Risk FREE!
Contact sales@irg.co.nz NOW!
53
Health
Stop smoking, start saving The health benefits of giving up smoking are clear but, as Steve Hart discovers, the long-term financial savings go beyond the obvious
W
ho would have thought investing in your health and well-being could actually help save you money? It appears that not only can you save thousands of dollars every year by giving up some bad habits, but the long-term benefits include a healthier life resulting in fewer visits to the doctor and lower insurance premiums. One person who’s looking after her health after almost a lifetime of being a smoker is Porirua District Court stenographer Mandy Cairns. She realised just a few months ago that giving up smoking not only saves her money every day, but that her healthcare and life insurance payments could be cut in half. By stopping smoking, the 49-year-old is looking forward to saving more than $600 a month. “I have tried to give up smoking many times, but once I realised what being a smoker was costing me it was a real motivator for me,” says Cairns. “Everyday at work I print out an updated list of how much I have saved and that keeps me motivated.” Cairns says she is saving money not only because she How Mandy Cairns will th on m y er ev has stopped buying ey on m ve sa 03 $3 cigarettes, but also in Tobacco: : ath bre sh buying less chewing fre for m Chewing gu $33.36 gum and toothpaste e: tim rk wo g rin – which she’d use at du Toothpaste used $13 work between smoke 7 $8 breaks. She also had Antihistamines: 4 $4 an ongoing medical : its vis r’s Docto condition that
www.irg.co.nz
Future savings
54
counts for Insurance premium dis $129 being a non-smoker: Unspecified Dentist bills: $609.36 TOTAL:
required treatment with antihistamines that has now cleared up as a result of not smoking any more – that in turn means her monthly visits to the doctor have stopped. Cairns has two life insurance policies as well as a disability insurance policy. The premiums for these will be cut by more than half after she has been smoke free for 12 months. “That will mean a saving in insurance costs of more than $126 a month,” she says. “I’ll also save on dental bills as
people who stop smoking can save thousands of dollars in premiums smoking causes damage to gums and teeth – but as yet I don’t know what the savings will be. But I’m sure the long term savings will be quite significant.” Cairns says the first she heard of being able to save money on her insurance premiums was when her broker explained why she was paying so much for a new policy she wanted to take out. “For one policy I was quoted $40 a month, but when they asked if I smoked the price went up to $84,” says Cairns. “I don’t think many people really understand the total savings that can be made when you stop smoking. They just factor in the savings in tobacco and don’t take into account all the other savings that can be made. “But when I sat down and did the maths I realised there is so much more than just the cost of cigarettes.” Kerry Vaughan of online insurance firm Pinnacle Life agrees that people who stop smoking – even though the savings may take a while to kick in – can save thousands of dollars in premiums. As an example, she cites a 50-year-old male smoker wanting $250,000 of life insurance cover. A smoker would be charged $115.84 a month by Pinnacle, while a non-smoker would pay $55.05 a month. “The savings are huge,” says Vaughan. “Smoking is very bad for you.”
Health
“The low claim reward kicks in after two years and replaces the 10 per cent discount,” says Tynan. “There is a direct financial benefit for people with good health – whether you have good behaviour when you join us or develop them while you’re with us. People who make few claims on their policy are probably doing their best to look after themselves and we want to reward that.” However, Tynan is keen to acknowledge that lifestyle alone is not a reflection of the full picture when it comes to people’s health. “People are born with latent risks, but your lifestyle can make them worse over time,” he says. “It can get very complicated, but the thing you have most control over is your own lifestyle and behaviour, so it makes sense that that is the best place to start. “You’re born with what you’ve got – your genes – but you can do things to look after yourself and this can lead to financial savings. It seems that as a population we are not as healthy as we once were.”
Another smoker saving money thanks to living a healthier lifestyle is Sarah Leighton. She used to describe herself as a ‘social smoker’. In fact, she didn’t really consider herself a smoker at all – even when it came to census time. “I’d smoke heaps when I was out socialising, and maybe just a couple during the day,” says the 30-yearold who started smoking when she 17 and gave up three years ago. Currently in training for the Auckland Harbour Crossing swim in November, having already taken part in it previously, she is planning to complete a Half Iron Man contest - “the full Iron Man is just too hard” - and has saved thousands of dollars as a result of having stopped smoking. Not only that, her nagging cough has gone and she’s feeling healthier than ever. “After I stopped smoking I did feel sick for a while as my body started to recover and my lungs got back to normal,” says Leighton. “I started exercising even more than before and was able to do things I didn’t have the energy for when I was smoking.” Not only is Leighton feeling better, she has more cash in her pocket too.
New Zealand Investor
The firm’s definition of a smoker is someone who has smoked within the last 12 months. People who have given up smoking need to be totally smoke free for 12 months before the company will reduce their premiums. “For people who look after their health there are benefits as you could pay less for your life cover,” says Vaughan. “Although premiums are set on a case by case basis.” Not all insurance firms operate in the same way, so it’s always worth shopping around after you’ve changed your lifestyle. Diabetes is another financially costly health issue that many people could avoid with healthier eating habits and regular exercise. Marguerite Durling of Diabetes Auckland says the condition is a growing problem in New Zealand, but says if people can act on the early warning signs then they may avoid a life of daily injections, deteriorating health and higher medical bills. “Type 2 Diabetes is often caused by eating too many calories and not burning it off,” says Durling. “This upsets your body’s ability to produce quality insulin, and then your blood glucose goes up to unacceptable levels. “It is the long term effect of running high glucose levels that causes major damage such as blindness, heart attacks, kidney failure, strokes and impotence. “Once you get diabetes then you are in for a lifetime of regular visits to the doctor, the cost of prescriptions and unless carefully managed, severe complications. All this can compromise your ability to work productively.” And that can mean a hit to your income and more expenditure. A double whammy that could send your disposable income spiralling. It’s something Peter Tynan, chief executive of Southern Cross Health Insurance is keen to help people avoid. And by way of a carrot, his not-for-profit organisation offers discounted premiums to people who are making an effort to look after their health. Southern Cross offers new members a 10 per cent discount on premiums so long as they live a healthy lifestyle. After two years members are switched to a low claim discount option of 10 per cent. “We are wary of offering a no claim discount because we don’t want to put anything in the way of our members seeing a doctor,” says Peter. “So we offer a low claim discount.” According to figures from Southern Cross its low claim discount has reduced premiums for 317,443 of its members – saving them $32.8 million a year. And the 21,843 people claiming the healthy lifestyle discount are saving $2 million every year.
55
The Fridge Door
What’s new with IRG and friends Editorial addition ial IRG has boosted its editor ent of Benn tm rui rec operations with the tor. edi sub Bathgate in the role of ong writing str a h Benn comes to IRG wit ess news, both in sin bu d background in general an . New Zealand and the UK nd after ala Ze w Ne to e Benn cam and a decade writing business e Media, cis Pre for investment news business d an l London’s top financia . news monitoring agency on After a year at Gulf News d ite Waiheke Island Benn is exc ess to be getting back to busin ’s nd ala Ze w Ne for – literally – . ine gaz ma nt me premier invest
Did you know?
www.irg.co.nz
When flipping a coin, more than 75 per cent of people call heads rather than tails.
56
Money matter:
The term “Blue Chip” when referring to the shares of lar ge, solid companies with reliable earni ngs is believed to stem from the colour of the highest value chips when playin g poker.
month: Quote of the ts me respec ''Money is in so a very life's fire. It is t, but a excellent servan '' terrible master.
1810 - 1891 - P.T. Barnum