| Welcome to the January issue of the Select Wealth Management Dashboard Newsletter. I hope 2019 has started well for you and that you have a great year ahead! After a very shaky end to 2018 in the share markets, some relative calm has been restored so far this year.
As is customary, I will start the year with my traditional crystal ball gazing and see if I can form some sort of view on the year that is 2019. Last year I did pretty well with predictions, but the fact remains that this exercise is really a lottery. Making short term predictions (as opposed to long term forecasts) is almost certainly setting yourself up for humiliation, but it’s a game I’ve been playing for years so I’ve become accustomed to the humiliation and may as well continue. So once again, here goes… 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. 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. 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. 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. 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. 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 there you have it – my best guess for the year ahead. Let’s re-convene in a year’s time and see how I went. Here are the numbers for the past 30 days: |
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In terms of your Select Wealth Management portfolio, you will receive the 31 December quarterly performance report soon, so keep an eye out for those. The fact is that the numbers aren’t pretty, and for the first time in a long time you may see a negative number for the year’s performance. Negative numbers are never nice to see on a performance report, and whilst I am disappointed with this outcome, I am encouraged by the fact that our portfolios have performed well relative to peers and the broader share markets. This is testament to the great research from JMI Wealth and the work being done by our fund managers. If you have any questions about your portfolio or want to get together to review the portfolio, then don’t hesitate to contact me. Finally, a quick update on our Giving Back program. For the first half of 2019, we are stoked to be helping a young lady of incredible character - Loren Harvey. Loren battled against Leukaemia when she was only 4 years old, spending about 6 months in Starship hospital undergoing 5 rounds of chemotherapy. Loren recovered well, but years later at the age of 12, her parents noticed that she was again bruising a bit quicker than usual when she knocked herself. After a number of trips to Auckland, Wellington and Christchurch hospitals where she had countless meetings, lumbar punctures and saw a number of specialists, Loren was diagnosed with Monosomy Seven (a gene defect resulting from the earlier rounds of chemotherapy she underwent) and has had to undergone more rounds of high dosage chemotherapy and a bone marrow transplant. Loren spent 11 weeks confined to a room in Starship, unable to leave and without energy to do much more than sleep and watch baking shows on TV. A passion was born. As Loren had no immune system, she wasn’t allowed to return to school once she was discharged from Starship, so spent her time at home (between hospital visits) doing school work, watching more baking shows and growing her love for baking. After countless episodes of the Great British bake off, Martha Bakes and MKR; Loren now has a breadth of recipes she draws on to bake treats and gifts for her family and friends. Baking is something that gives Loren some control back in her life, it’s the thing she does to relax and reflect; and until her energy levels return she feels it’s something she can do with her family or friends where she isn’t being left behind or slowing people down. We want to raise $2,500 to put towards an awesome baking pack including equipment, recipe books, ingredients and utensils. Loren totally deserves to be spoilt! You can learn a bit more at www.mifinancialplanning.co.nz/giving-back.html . Until next time, keep warm and well. 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.