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You are here: Home / Investment News / It’s all good in September but MJW cautions on bad timing

It’s all good in September but MJW cautions on bad timing

October 21, 2019

Ben Trollip: MJW principal

Almost everything went right for NZ-based investors over the September quarter as bond, equities and currency markets (for the unhedged, at least) moved in their favour, according to the latest Melville Jessup Weaver (MJW) investment survey.

The weirdly world-beating NZ share market soared once again during the September quarter (up 4.4 per cent) while topping the MJW asset class charts for the 12-month period with an 18 per cent return.

“… local investors also benefitted from a weakening New Zealand dollar,” the MJW report says. “This boosted the return on global equities from 1.5% (fully hedged) to 7.7% (unhedged).”

But it wasn’t just equities that delivered the goods for NZ investors over the quarter (and year) as tumbling global interest rates boosted capital gains in bond portfolios.

The most-cited government bond benchmark, the Bloomberg Barclays Global Aggregate, jumped 2.5 per cent in the quarter and 10 per cent over the 12 months to September 30 – gazumping both hedged and unhedged international share returns for the annual period.

Similarly, the local sovereign fixed income index rose 2.9 per cent during the latest three-month stretch even as the yield on the 10-year government bond averaged just 1.3 per cent over the quarter.

“In other words, the running yield accounted for perhaps 10-20% of the return on one’s bond portfolio, with the rest coming from mark-to-market gains from falling interest rates,” the MJW survey says.

Against a backdrop of growing economic and geopolitical pessimism, though, the September quarter celebrations could be a case of last drinks before home-time for investors.

Or as the MJW report puts it “one could be forgiven for questioning the continued upward trajectory of investment markets”.

“After several false starts, is ‘now’ finally the right time to de-risk the portfolio?” the survey says.

The answer, according to the paper (authored by MJW principal, Ben Trollip), is ‘maybe’.

“… but for our part we continue to be cautious around market timing strategies. Rather, we argue that a well-diversified strategic asset allocation with a robust review process will better serve most investors,” the report says.

While investors may have to endure some volatility, MJW says market-timing strategies are notoriously “fraught with difficulty”.

The September quarter study also includes for the first time an analysis of MJW client investment returns compared to ‘peer group’ KiwiSaver funds sharing similar growth/income portfolio characteristics.

Not everything went right for the MJW portfolios during the three years to June 30 but “over the medium-term our clients have performed very well, with most being above the 75th percentile of peers”.

“We believe that this demonstrates our ability to work with clients in different circumstances, who need to implement different portfolios for their particular context,” the MJW report says. “While market conditions will see different performance in the short-term, strong investment governance structures ensure good results over the long-term.”

 

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