| Welcome to the final issue of the Dashboard Newsletter for 2019. As is customary, the December newsletter is used as an opportunity to reflect on the predictions that I made in January (what a mug's game!). My historic average is about 60% correct, so let's see how I faired this year.
Predictions in black, actual outcomes in red. 1. I'll start with a bit of a left field prediction this year relating to a company that people either love or hate - Tesla. The electric vehicle (EV) manufacturer has had a massive impact on the Auto industry, and in many ways has already changed the face of the industry by forcing their competitors to up their game in the EV space. Phase 2 of this revolution will be self-driving or autonomous vehicles. This market is developing at an exponential pace, and the next few years will see massive development and legislative change to account for this. And this is where things get interesting for Telsa. They are one of the leading companies in self driving vehicles, but don't have the cash and resources to take advantage of the opportunity. So my prediction is that another big tech company (possibly Apple or Google) will partner with Tesla to create a company that will dominate this space. It may not be a done deal this year, but I think the conversation and negotiations could start. I'm going to claim this one. Whilst there has been nothing official reported, a quick google search under "tesla talks with tech giants" yields several articles from the likes of CNBC, Business Insider, Investopedia, The Conversation and several others about renewed speculation on an Apple and Telsa marriage and what beautiful children these 2 companies could have. Other prospective buyers include the battery manufacturer Panasonic and Google. Consensus seems to be that this will only happen if Telsa is forced to sell for financial reasons - their desire seems to be to make it under their own steam. Either way, I think Telsa is here to stay (in some shape) and that development in autonomous vehicles will continue to accelerate. Prediction 1 - Reality 0 2. When doing predictions, you can't ignore one regarding interest rates. New Zealand's Official Cash Rate (OCR) was introduced about 20 years ago in 1999. Since its introduction, it has been as high as 8.25%, but currently sits at the lowest it has ever been at 1.75% (where it has been for the past 2 years). The longest period the OCR ever had without change was 2 years and 8 months from April 2011 to January 2014 when it sat at 2.50%. I predict that there will be no change throughout 2019 and that we will end the year where we begin it - at 1.75%. This would mean that a new record would be set for the longest period without change, and that we will remain at record low rates - so quite a bold prediction. Interest rates in America (the FED rate) start the year at 2.25%, and I predict that this will increase to 2.5% by the end of the year - representing 1 rate increase. At the beginning of the year, it was almost unanimously agreed that interest rates in New Zealand were going up. In fact, my view on rates staying unchanged were considered bold (or foolish - you choose). But no one picked rates coming down... And yet here we are, ending the year at a record low of 1%. Never before has money been so cheap in New Zealand. Rates also fell (albeit by less) in the USA to 1.75%. So I got this wrong, but then I think just about everyone else did too... Prediction 1 - Reality 1 3. My next stab in the dark is to do with property - something close to everyone's hearts. Property is an asset that we Kiwis have a love affair with, and it has been very kind to us in the past. But if you look over the ditch, you will see that median house prices in Australia fell by about 5.6% (according to Corelogic) in 2018. If you break it down, you'll find that some areas have fallen materially more in value - notably Sydney falling by 8%. So values can - and do - sometimes fall. I predict that the Australian property market will fall in value again in 2019 - particularly in Sydney and Melbourne. I'm not sure that this will filter through to New Zealand just yet (although there has been anecdotal evidence of prices falling in Auckland), but I can't see significant increases in property values for us in 2019. Our median house price starts the year at $681,545 (according to QV), and I imagine we will finish the year at a pretty similar value. The property market in Australia continued its sluggish run with growth of just 0.1% for the 2019 year - not a loss like I predicted, but pretty close. Sydney and Melbourne both grew in value by 1.6% and 2.2% respectively, so a small recovery from the year before. Perth and Darwin were the big losers in 2019 with falls in value of 8% and 11% respectively. (You can see a copy of the Corelogic report here). New Zealand thankfully had modest growth for the year (supported by low interest rates) with the average house price up to $697,204 - an increase of 2.8% for the year according to QV. The Auckland district fell in value by 1.5% on average, with the North Shore being hardest hit with declines of 4.3%. No points for me here... Prediction 1 - Reality 2 4. The 9th Rugby World Cup kicks off in September in Japan. Can the AB's make it 3 in a row, or are there genuine contenders to knock them off their perch? Of the 20 teams in the competition, I can't see that anyone will be able to tip them up. I'm picking NZ to make it 3 in a row. And for the cricket world cup in England, I'm going for the double and saying that the Black Caps will surprise the world and lift the cup. Well - is it too soon to talk about still? Who would've thought that it would be the English that tipped New Zealand out in both world cups? And in such bazar circumstances too in the case of the cricket! Crazy stuff. Nothing more to say about that. Prediction 1 - Reality 3 5. 2019 is crunch time for Brexit. It's anyone's guess how this plays out. The existing Brexit deal has little support, the "Thelma and Louise" option of driving off the cliff with no deal seems little better, and a second referendum is likely to split the nation again and leave a large portion of the population disgruntled - whether the new vote is to stick with Brexit or change to remain. It's impossible to pick which of these outcomes will eventuate, but my prediction is (and has been since day one) that whatever the outcome, Britain is going to feel pain. MAKE IT STOP! I can't believe that we still don't have resolution for this. Boris Johnson has now been elected Prime Minister with a clear mandate to execute Brexit, and is promising it'll be done by January 2020. (Didn't he promise it would be done by October 2019?). I'm claiming this one - it pains me at how much of a debacle this has been. I can't imagine what it must be like for the poor folk of the United Kingdom... Prediction 2 - Reality 3 6. In terms of share markets, 2018 saw the return of volatility for the first time in several years and I believe it will continue throughout 2019. In 2007, Warren Buffet famously offered to bet $1 million that a passive index fund would outperform a collection of active hedged funds for the following 10 years. Only 1 hedge fund manager was brave enough to take the bet, and it ended up costing them $1 million in 2017 (which Buffet donated to a charity called Girls Inc.). Buffet's rational was that the share markets were so beaten up at the end of 2007, that the only way was up. When the whole market is in a strong bull market cycle like that, it's difficult for an active manager to outperform - all shares are increasing in value. Now if Warren Buffet were to offer the same bet today, I would be inclined to think that several active managers would put their hand up and fancy their chances. I think the "free ride" of a rising tide is over, and managers will have to earn their salt in the coming years. So my prediction is that active managers outperform passive managers in the year ahead. To measure this, I'll use some funds (that are comparable in all aspects except the active vs passive style) as benchmarks. The matchups will be:
So this is interesting. As you can see, 2 of the 3 active managers in the global shares outperformed their passive counterpart (materially), whereas only 1 of the 3 of the Australasian managers managed the same. So what can we take from this? I'm not entirely sure. But perhaps an acknowledgement that "picking" the best managers is not an easy task, and that a combination of both passive and active managers would be a prudent approach. I would also observe that I would happily take any of those returns on display most years - they're all more than acceptable. And finally, I would be interested in going through this exact same exercise in 12 months' time to see if the results are similar or materially different (for example do Salt and Antipodes outperform?). All said and done, I'm going to call this one a draw. Prediction 3 - Reality 4 So there you have it - not my best effort, but enough there to entice me back to have another go next year... Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, the next quarterly performance report will be for the 31 December quarter, and these will be mailed out in January. There have been a few small changes to the model portfolios in the past month, but nothing too material – just the usual fine tuning. Finally, a quick update on our Giving Back program. Thank you all so much for the very generous referrals to your friends and family. Thanks to your referrals, I am very pleased to confirm that we will be making a donation of $2,359 to Hutt Valley Gymnastics to put towards the cost of building a new Gymnasium facility for the Lower Hutt community. We couldn't do this without your support - thank you! All that's left to do now is wish you and your loved ones a fantastic Festive Season. I hope Santa fills your stocking with all the goodies you want, and that you get to spend some quality time with friends and family. Travel safe, and see you in 2020! Thank you for your continued support. Warm regards Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.