Overall the NZ economy is humming, up 3% for the year, with exports up by 10% to nearly $49 billion in total.
Export growth in the past year was dominated by the forestry and dairy sectors, which both had increases of 30 per cent.
However all other categories combined to register less revenue than the previous year. Indeed all other export receipts have not grown since April 2009.
Five major concerns for NZ Investors
1/ Milkfat solids are priced at auctions around the world on a regular basis. Over the past few months the price has fallen by over 35%.
2/ Bigger NZ export baskets, but less of them.
3/ China - one big customer - our exports had grown by $5 billion in the past five years but exports to China have grown by $7 billion, meaning exports to other countries fell by $2 billion. Competition is growing, and the Chinese are sharp. They will talk to (plenty of) other countries who want to horn in, if it helps get the price down, and they are rapidly developihg their own farms too.
4/ The high NZ dollar is considered by most commentators to be over priced, and we agree.
5/ The Reserve Bank of NZ (RBNZ) is determined to contain inflation by using one blunt instrument – interest rates. This is despite many well known adverse effects, such as pushing the NZ$ higher, and raising borrowing costs for businesses.
The risks - a crude RBNZ policy - falling milk solid prices - the NZ economy could stop - abruptly.
The NZ sharemarket is up on the back of good NZ growth by over 50%. As a result, funds that concentrate money in NZ have done well. Now they look attractive, but beware. Nothing goes up forever.
Past returns and future returns will not be the same, and too much money in NZ increases an investors risk.
What to do
NZ is a tiny country exposed to all sorts of internal and external risks. Diversify on and offshore.
The research we use indicates that a balanced portfolio should be about 50% to 60% offshore. Makes sense to me.
Hedging & the NZ$
There are a number of offshore hedged funds available that protect your money if the NZ$ goes higher, but you cannot gain if the NZ$ falls.
An unhedged fund will not perform as well if the NZ$ rises, but can gain if it falls.
If in doubt, do half - half in an NZ$ hedged fund, and half in an unhedged fund.
Most Kiwis have 70% to 90% of their assets in property already – their home, and maybe a rental or two.
Diversify some money into bonds and shares, and don’t add any more NZ property.
Remember too bonds and shares are liquid – you have more or less instant access to cash if you need it in a hurry.
Same old same old
Do you need income from your investments ? if so, you may need 60% to 70% bonds and 30% to 40% shares.
How long are you investing for ? If less than 3 to 4 years, stay in the bank.
Work out your risk profile – conservative, balanced or growth.
Then adopt an asset allocation, and stick to it – chopping and changing will only reduce returns.
A balanced portfolio might be 20% NZ bonds, 20% offshore bonds, 10% offshore property, 10% NZ shares, and 40% offshore shares.
Select high quality low cost efficient funds that are well diversified. High quality share funds will go up and down, but they won’t go away.
Just common sense really.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media & on line.
His second book is now available on line at www.acfs.co.nz
“The Great NZ Work, Money & Retirement Puzzle”
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.