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[The Wrap] Random thoughts on an indiscriminate virus

It seems there is only one talking point at the moment - and it's not regulation. Rather Covid 19 is dominating the headlines. What does it mean for you?

Friday, March 13th 2020, 5:08PM 5 Comments

by Philip Macalister

Until recently it seemed coronavirus was just something others had to worry about; now it's become real with people not travelling, disruptions to supply chains, markets tumbling and battles for the bog rolls.

Pity the poor fund manager (not that I have ever come across a poor one) trying to make sense of what is going on. Yesterday was a wild ride on the US stock markets and the bull run which started in 2009 is now officially over.

Mind you a few may be poorer than they thought they'd be at the start of the year. With the end of the financial year only weeks away any thought of banking a big fat performance fee for massive outperformance over the year will have well and truly evaperorated.

I looked at my own share portfolio just before and the exceptional returns generated over the past 11 and a bit months have now pretty much all gone.

I'm not too worried and expect at some stage it will be a good time to pick up some bargains.

No doubt financial advisers are getting plenty of calls from clients too. (That won't help with getting things together for a transitional licensing application!)

We are hearing there is plenty of switching going on with KiwiSaver funds too. I know mine is down around $7,000 but again I'm not too worried.

I reckon the passive funds operators are now facing their worst nightmare; explaining 20% losses.

An interesting discussion I had the other day was with a RI manager who noted that funds which take an responsible investing/ESG approach had help up pretty well.

While shares and bonds are not looking to be a particularly comfortable place to park money, those holding property are probably feeling pretty good. If the Reserve Bank follows its peers overseas and cuts the official cash rate we could see even cheaper money available. Home loan rates are already falling here (see the rates table here).

This pandemic is likely to make changes to the way we live our lives in the future. One of those is working remotely. It's something we are well-acquainted with as most of the people who make Good Returns, ASSET and TMM work remotely.

Financial services people do a lot of travelling - I normally meet someone I know at the airport - but that is likely to stop; if it hasn't already. A good example is one of the invited guests for ASSET Magazine's KiwiSaver Round Table has declined the invite due to travel concerns.

All these things will reshape the corporate world too. Stocks like airlines, hotels, travel agents and the like face structural change. Meanwhile, companies like tech firms which support remote working are bound to flourish.

The question I couldn't answer today was this: Where are airlines going to park all these planes no longer flying across the Atlantic and on other routes?


Tags: Opinion

« Passive funds get time to shine: KernelAdviser clients largely calm through Covid storm »

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Comments from our readers

On 13 March 2020 at 8:59 pm Pragmatic said:
Good summary Phil

Without diminishing the deaths that have/are occurring with Corona Virus, I can’t help reflecting on Y2K, SARS & other recent occurrences that threatened to bring the world to its knees. I’ve also been reflecting on the role of media (dailies) in reporting past events, & their contribution towards elevating the paranoia around the Corona Virus. But then, this is real so I guess we all must learn to live with it. I wonder though if we will - at some point in the future - be critical of how the messaging around corona virus was dealt with.

And to complete my gloomy reflections: I’d hate to be that adviser, who had diligently built a portfolio of passive investments (because philosophically I subscribed to the theory that markets are all efficient), when clients run out of patience of going backwards - despite previously acknowledging that markets go up & down - in the pursuit of cheaper fees. From previous experiences, the time frame for clients to start questioning the “value proposition” is around 18 months... which is about the time that they try to understand why they’re paying their adviser. Fingers crossed for a quick rebound eh...
On 14 March 2020 at 12:25 pm Kimble said:
@Pragmatic, the adviser who built a portfolio of passive investments will at least be able to point to a large proportion of actively managed funds that under-performed, and likely several that will have imploded completely. And of those that outperformed, a common reason was likely to be their cash exposure (asset allocation) not security selection (which they market as the reason for their active fee).
On 14 March 2020 at 9:09 pm Graeme33 said: you mean cash exposure...or crash exposure..better to ask them,your friendly asset managerin a month if USA citizens..start the italians. .why didnt you hedge us ehen the emini took out 3103 and then 2855.its going to be a masdive nxt 90 days..Graeme Adams
On 15 March 2020 at 9:56 am Sam Handwich said:
It’s more than a little irresponsible to speculate on how active and passive funds have fared without the data. Let’s wait for the results. However in the meantime you can see daily price and performance for some NZ managers on Bloomberg, and that will show you that some well known active Australasian equity managers (with high cash positions) have seen -20% to -25% returns in the last month. So I reckon it’s actually ‘absolute return’ active managers facing the nightmare of explaining -20% returns.
On 15 March 2020 at 5:13 pm Graeme33 said:
A 15 to 20 percent drawdown..i can live with..we see nxt 90 days..if they start talking 35 to 40 percent losses..we see how much clever talk these guys spin then...G

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 ▼2.89 3.25 3.39
ANZ Special - ▼2.29 2.69 2.79
ASB Bank 4.45 ▼2.29 2.59 2.65
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - ▼2.29 ▼2.59 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 ▼2.89 ▼3.19 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.45 2.65
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 ▼3.20 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 ▼2.35 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.20 3.24 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.99 3.09 3.15
SBS Bank Special - 2.49 2.59 2.65
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.69 2.79
The Co-operative Bank - Standard 4.40 2.99 3.19 3.29
TSB Bank 5.34 ▼3.09 3.29 3.59
TSB Special 4.54 ▼2.29 2.49 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 2.29 2.69 2.79
Median 4.54 2.89 2.99 2.97

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