Market Update
Global share markets continued their choppy start to 2022 during April, although the strategic diversification and ‘shock absorbers’ built into the design of Booster’s multisector funds helped manage the effect – with a Balanced fund down around 3% (after fees and before tax).
For New Zealand based investors, a fall in the NZ dollar played an important role in helping offset the volatility global share markets experienced. The NZ dollar fell against most major currencies supporting the returns of unhedged overseas assets (assets that are free to move with exchange rates). As a result, ‘unhedged’ overseas investments fell by only 1.8% for NZ based investors.
The latest data shows New Zealand’s annual inflation rate reached 6.9% in March – up from 5.9% in December. The Reserve Bank of New Zealand responded by raising the Official Cash Rate 0.5%. The OCR now sits at 1.5%, and is expected to continue to rise. However, it’s important to note that market expectations have already adjusted so that a rise to 3.5% by the end of the year is already baked into asset prices. This means the actual impact from here of future increases at this rate should reflect their not being a ’surprise’ for investment markets.
We continue to construct client portfolios with diversification and risk management principles in mind, so that clients can have confidence in their savings over the long haul.
Widening Booster’s direct investments in attractive, unlisted NZ assets
In earlier updates, we have discussed the benefits of including an allocation to ‘unlisted’ investments in your portfolio – those not traded on share or bond markets. When selected appropriately, this can help diversify some of the risks in your portfolio and enhance returns – at the same time as providing a way to invest back into New Zealand.
Our core multi-sector funds include a strategic allocation to various unlisted investments, which has grown to include productive NZ land investments, private NZ businesses, innovative NZ startups, and most recently, a direct private credit investment (expanding this concept into fixed interest investments).
Private credit (also known as direct lending) covers a broad spectrum – but can provide strong investor protections, attractive pricing, and diversification benefits by performing differently to publicly listed assets like bonds. This comes from both a ‘liquidity premium’ which tends to support the yield investors receive, as well as less volatility in returns when bond yields rise and fall. On top of the enhanced yield and diversification benefits, the interest rate on these loans typically reset monthly (floating rate), benefiting in a rising interest rate environment.
These benefits are exemplified by our most recent private credit investment – a senior secured loan to an entity of Ngāti Toa Rangatira to help them exercise their rights under a Treaty of Waitangi settlement – which we have also included in our Socially Responsible funds.
Helping local iwi fund the purchase of 40 Wellington school properties
Ngāti Toa Rangatira is a Māori iwi based in the southern North Island and northern South Island as shown to the right.
Alongside other lenders, Booster portfolios have helped Ngāti Toa Rangatira fund the purchase of 40 school properties in the Wellington area from the crown, under a Treaty of Waitangi settlement covering these properties in the Ngāti Toa tribal area (shown in the image below).
These schools will then be leased back to the Ministry of Education in perpetuity (so there is no change to how the schools operate).
The loan offers an attractive risk-adjusted return as it is backed by perpetual lease income from the government, and secured by the value of all 40 school properties.
It has the benefit of being a floating interest rate which resets quarterly, meaning the interest received on the loan will increase as interest rates rise. This means it is also not subject to the same volatility as traditional bond investments, whose market values change when interest rates are volatile.
Gowing your allocation to private credit going forward
It is exciting to be able to update you on this investment, which has a real New Zealand connection as well as being attractive in its own right. Private credit currently makes up only a small portion of our porfolios’ fixed interest allocation, however, we are focused on gradually and selectively building this allocation further, to support the future income and resilience of portfolio returns. We look forward to updating you as we do so.
The Booster KiwiSaver Scheme, Booster Investment Scheme and Booster SuperScheme are issued and managed by Booster Investment Management Ltd. For a copy of the Scheme product disclosure statements, go to www.booster.co.nz