| Welcome to the May issue of the Dashboard Newsletter. Today is of course a significant day in that we have moved from Level 3 to Level 2. Like many others, it's my first day back in the office, and I would be lying if I said I wasn't excited to be getting back to some semblance of normality. The past few months have definitely given me an opportunity to re-calibrate some of my thinking and emphasized how many things we usually take for granted. A simple haircut, meal out, or game of football has taken on a whole new significance. Not to mention the physical company of family, friends and work colleagues. (Virtual online meetings have worked well, but honestly, I'm all "Zoomed" out!).
During lockdown, there has been so much "noise" about how social distancing will become the new normal - how people will choose to continue to work from home, and all businesses will now move to online or remote service delivery. To some degree, I think there is some truth in this, but I also think that the past few months have highlighted the importance of a physical office space and personal human interaction. Lots of people I talk to are surprised by how much they missed the collaboration of a physical office environment. Their physical workplace is where they are most productive, and they want to isolate this from their home life. They also missed being able to pop out to a physical store - the local Mitre 10 on a Saturday morning, or being able to go through the sales racks at their favourite clothing shop. Yes - there will most likely be long term structural changes with respect to work environments and consumer behaviour (particularly in cities where traffic congestion is traditionally a problem), but I don't think we have seen the death of the physical location just yet... There is no doubt that the past month has been nothing short of extraordinary. To illustrate this, consider the following - in the past month, the cost of a roll of toilet paper was higher than the cost of a barrel of oil. That may sound like a joke, but it's a fact! Lockdowns the world over has driven the demand for oil so low, that there has been a glut of supply. Nobody is driving their cars to work, construction sites shut down, factories closed, airlines not flying - all of this leading to an unprecedented slowdown in demand for oil. The result - oil producers had too much oil and nowhere to store it. So much so, that for a couple of days, they were willing to pay you $25 a barrel just to take it off their hands. Paying to get rid of it was cheaper than paying to store it. A surreal scenario that even the bravest economist could not have forecast at the beginning of the year... Extraordinary market environments do throw up extraordinary opportunities from time to time. Closer to home, the New Zealand stock and bond market have also thrown up some interesting opportunities. An example is the SKY TV Bond traded on the New Zealand Bond Market. This bond (or fixed interest contract) matures in March of 2021 - about a year's time. Prior to lockdown, the yield (the interest you would receive if you held the bond to maturity) was about 3.70% - reasonably healthy in the prevailing environment at the time. However, when NZ went into lockdown this yield shot up to 65%! That's right - an interest rate of 65% for a 1 year deposit with Sky TV. This has since come down to 33% today - still a very tempting return. The risk of course is that SKY TV may not be able to make it's interest payments or may not be able to pay back your principal - a real risk heightened by the fact there is no live sport for them to broadcast, and that many subscribers might lose their jobs and cancel their subscriptions. So time will tell if this is a good investment opportunity or a trap, but it does highlight how extraordinary opportunities can present at times of market stress. Examples like this are pretty rare in the bond / fixed interest market, but they are more common in the stock market. The Kathmandu price has gone from 0.49 cents on 24 March to $1.00 today - a return of 100% in 7 weeks. PushPay has gone from $2.56 to $6.55 over the same time - more than 100%. These opportunities are very difficult to pick, virtually impossible to time to perfection, and can just as easily go against you as in your favour. They require deep knowledge and a fair dose of luck to get right. But they do exist for those willing to assume the risk. I know for a fact that I don't have the skill set to pick these winners consistently - in fact I don't believe that anyone does. At best, I hope that our fund managers get more right than they do wrong. But what I do know is that a well diversified portfolio of shares, property and bonds will deliver a reasonable return for the level of risk you take on. And if this is married up with a robust Financial Plan, then there is a very high probability that you should achieve all your long term financial and investment goals. And at the end of the day, that's what is most important - achieving your long term financial goals. The other significant development later today is Grant Robertson's budget announcement. Given the circumstance, there will no doubt be more interest in the budget announcement this year than is customary. Businesses and individuals alike will be waiting to see if there is going to be any further assistance which might be targeted at them. In particular, hospitality and tourism will be listening in with intent, as will those who are concerned about their employment. The numbers over the past month have been relatively muted. Mortgage and deposit rates continue to come down, and you can now get a mortgage at under 3% for 2 years (conditions apply). The NZ$ has been stable against its trading partners, and share markets are modestly up (although the New Zealand and Japanese markets had very strong months up 8.1% and 6.9% respectively). So for now, markets are holding on to the big re-bound they enjoyed late March / early April. Here are the numbers: |
||||||
|
||||||
In terms of your Select Wealth Management portfolio, I remain very comfortable with the performance of our portfolios at this stage. Our fund managers continue to perform in line with peers (and in some cases well ahead of peers), and the small changes that have been made to portfolios in the past 2 months have added value. We are meeting (virtually) with researchers JMI Wealth on the 27 May to continue the ongoing discussion on how best to manage portfolios through these challenging times. Finally, a quick update on our Giving Back program. Given the developments over the past while and the disruption this has caused, we have decided to extend our campaign with Kapiti Birthright until the end of the year. This seemed the most practical way to ensure that we will be able to make a meaningful donation to their great cause. Thank you for your continued support and the referrals of your friends, family and colleagues - they are greatly appreciated. You can follow progress of the campaign at https://mifinancialplanning.co.nz/giving-back.html Until next time, keep safe. Warm regards Dave and the team at Isaacs Financial Planning dave@mifinancialplanning.co.nz |
||||||
 |
||||||
This newsletter is intended for general distribution and does not constitute personal financial advice. Copy of my primary disclosure statement and secondary disclosure statement.