Investment Environment Report - December 2017 Posted On: Thursday, 21 December 2017
In this 'Investment Environment Report' Mike Frith, Manager, Economics, explains the global investment environment and its implications for the NZ Super Fund.
Economic and market backdrop
Global growth is broad-based and appears robust across US, European, Japanese and emerging market economies. Forecasters expect this momentum to be sustained – the behaviour of central banks and US fiscal policy changes will have the biggest impacts through 2018.
Investment markets have been characterised by a surplus of funds chasing financial asset returns. This glut in global liquidity has reduced interest rates, suppressed market volatility and pushed up the prices of financial assets. As a result, investors have observed actual returns well above our expectations across most asset classes.
How has the Fund performed?
Consistent with movements in asset markets, the Fund has returned more than 20% over the past 12 months. Our reference portfolio, which comprises around two thirds of the total Fund and provides our benchmark, returned 19% while the activities of the investment professionals within the Fund delivered an additional 3% - more than a billion dollars.
While the Fund remains strongly weighted towards growth assets, our overall use of active risk remains comparatively low, reflecting our view that many assets are fairly valued. However, the Fund remains busy – over the past six months it has made new investments in an Australian farming business and a conditional offer to invest in Fidelity Life, and made changes to our global equity portfolio to reduce our exposure to carbon emissions.
This report has been prepared as a high level summary of certain matters of interest. It is necessarily generalised and may not be relied upon. It does not constitute financial, taxation, legal or professional advice. Any forward-looking statements in this report are subject to risks and uncertainties, and actual events may differ. No representation or warranty is given as to the accuracy or completeness of this report. To the maximum extent permitted by law, Guardians of New Zealand Superannuation as Manager and Administrator of the New Zealand Superannuation Fund (and its affiliates, officers, employees and agents) exclude any liability and responsibility in connection with this report.