Long-term asset class returns have been marked down after the ‘difficult’ 2022 but the latest Melville Jessup Weaver (MJW) investment survey reports the old-fashioned risk relationship between bonds and equities remains in working order.
Ben Trollip, MJW principal, says in the NZ quarterly investment market survey that the relative return status of bonds and shares is roughly the same now compared to “the end of 2021 when markets were at their peak”.
“This is despite having been through one of the worst periods for investors where both share and bond values fell double-digit amounts,” Trollip says.
“Yes, the long-term average returns are somewhat lower, but the trade-off between risk and return remains as strong as ever.”
However, the March quarter MJW report highlights some short-term rotation in managers and investment styles during a period when virtually all assets caught a beat.
Benchmark asset class returns for the three months to the end of March ranged from 0.5 per cent for global listed real estate to the 8.9 per cent recorded by unhedged international shares as bonds also bounced back from the historic crash of 2022.
NZ equities continued the recent poor run compared to global peers in the first quarter of 2023, gaining some 3.9 per cent, ahead of the 3.3 per cent return for unhedged Australian shares – although the Kiwi stock benchmark underperformed during the 12-month period falling 1 per cent compared to -0.8 per cent for the cross-Tasman counterpart.
“Locally, the domestic share market again lagged this quarter,” the MJW report says. “After a long period where New Zealand shares outperformed global shares, we continue to see those invested internationally doing better. The rolling three year return has been substantially in favour of global shares since late 2021.”
Rankings among domestic managers shifted in the March quarter as growth stocks outperformed with Fisher Funds claiming the NZ shares number one spot for the three months (up 6.7 per cent) while the now NZX-owned QuayStreet slipped to near-bottom with a 3.4 per cent result: for the 12-month period, however, the Fisher and QuayStreet positions are exactly reversed, highlighting the market volatility during the previous year.
Likewise in the KiwiSaver sector the MJW data shows some short-term discrepancies in relative manager performance with Simplicity, for example, claiming top spot for the first three months of 2023 in both balanced and growth categories after languishing in the bottom quartile for December 2022 quarter.
And in a rare slip-up, Milford dropped from number one last time around to 13th in the March quarter KiwiSaver growth sector table while posting similar declines in the balanced cohort.
The Milford growth fund was conservatively positioned over the period holding just under 37 per cent in global equities, about 23.3 per cent in offshore bonds, 1.4 per cent in NZ fixed income and almost 11 per cent in cash.
By contrast the Simplicity growth fund reported almost 54 per cent in global shares,10.1 per cent in international bonds,7.3 per cent in local fixed interest and only 2.5 per cent in cash.
Milford retains the top ranking over all longer periods in the MJW survey for the growth and balanced KiwiSaver categories.
Asset allocation variance also pops up again in the default KiwiSaver sector where Kiwi Wealth, which has the lowest exposure of all six providers in the segment to NZ shares, rose from near bottom in December to number one in the March quarter (returning 5.6 per cent).
The 12-month default charts remain as is, however, with Kiwi Wealth the worst-performer over the period (-3.7 per cent) and SuperLife atop (-2 per cent) despite a rugged couple of quarters for the NZX-owned passive scheme.