John Williams,
Investment Manager Retirement
John Williams has decided that it is time that he spends more time with his family which now includes three grandchildren and as such, after joining Trust Management at the start of 2015, John will be retiring from Trust Management in late February 2020 in advance of his and Joy’s move to Christchurch.

 

Over the last five years John has been responsible not only for providing advice to our existing clients but also assisting with the establishment of a number of new client relationships.  As many of you have remarked to me over the years, John’s ability to convert sometimes complex investment theories into simple terms (often using sporting analogies!) has put our clients at ease and allowed them to feel confident with the investment decisions they have made.  The performance and stability of the returns earned from your investments stands as testament to the quality of the advice John has given. 

 

So, while it is with sadness that we advise you of John’s retirement, we do wish John and Joy all the very best for their next adventure. Having known John for these past five years we can assure you he will not become a stranger to any of us at Trust Management!

February

2020

 
Matthew-Goldsack.jpg
Appointment of Matthew Goldsack
General Manager Investments 

Matthew Goldsack, has been appointed General Manager Investments of Trust Management. Matthew joins Trust Management from his previous role of 12 years with BT Funds Management (Westpac) where he was Head of Investment Solutions and responsible for the management of over $14 billion.

Matthew was responsible for the BT fund-of-funds solutions with significant input into manager selection. During his tenure, the BT internal investment team spun out to form the independently-owned Salt Funds Management.

Prior to joining Westpac/BT in late 2008, Matthew was the Head of Research for Axa Global Investors.

Trust Management
Staff Anniversary

2019 was another busy year for the Trust Investments Property Fund. Activity at fund and portfolio level was high.  Over the year the Fund grew in size to $231.2m, this reflects growth of nearly 11% over the period - made up of capital appreciation of the portfolio and further investment inflows.  The Fund achieved a pleasing gross return of 9.9% for the year – made of 5.1% income and capital growth of 4.8%. The Fund has provided an average gross annual return of 9.9% since the Fund was established in 2001. 

 

During 2019 two Auckland properties were purchased by the Fund, for a combined value of $32m while the part owned, Habourside Retail Centre in Porirua was sold for a 3.9% premium to its asset valuation.  Occupancy at year end was 99.94% - a great metric for any portfolio and a reflection of the quality of assets held by the Fund.

 

Another great metric is the portfolio’s Weighted Average Lease Term of 9.7 years – reflecting the weighted average number of years of contracted annual income within the portfolio.  The Fund was designed for non-taxing investors and continues to provide an attractive return with low risk attributes such as having no debt or development exposure.

Fund News

 
Queen Street Retail Purchase for the Property Fund

2019 was another busy year for the Trust Investments Property Fund. Activity at fund and portfolio level was high.  Over the year the Fund grew in size to $231.2m, this reflects growth of nearly 11% over the period - made up of capital appreciation of the portfolio and further investment inflows.  The Fund achieved a pleasing gross return of 9.9% for the year – made of 5.1% income and capital growth of 4.8%. The Fund has provided an average gross annual return of 9.9% since the Fund was established in 2001. 

 

During 2019 two Auckland properties were purchased by the Fund, for a combined value of $32m while the part owned, Habourside Retail Centre in Porirua was sold for a 3.9% premium to its asset valuation.  Occupancy at year end was 99.94% - a great metric for any portfolio and a reflection of the quality of assets held by the Fund.

 

Another great metric is the portfolio’s Weighted Average Lease Term of 9.7 years – reflecting the weighted average number of years of contracted annual income within the portfolio.  The Fund was designed for non-taxing investors and continues to provide an attractive return with low risk attributes such as having no debt or development exposure.

 

Fund Returns

BALANCED FUND

The Balanced Fund invests in the other five sector funds. It maintains a moderate risk profile with a well-diversified target asset allocation of 35% Fixed Interest, 35% Shares and 30% Property. The Fund has a strong focus on the distribution of income and its returns tend to be reasonably stable.

The Fund returned 1.9% in the December quarter, with solid returns from shares and property tempered by negative returns from bonds. The return for calendar 2019 was a strong 14.4%, driven by share market returns of close to 30%.

The investment backdrop remained favourable through 2019, with moderate growth rates in most economies, continued low inflation and supportive monetary policies. Fears of a pending global recession proved overblown. Markets overcame a range of geopolitical risks, most notably the trade tensions between US and China but also Brexit uncertainty, protests in Hong Kong and friction in the Middle East.

The environment is set to be less favourable in 2020 given the likelihood of a further moderation of economic growth and lower trend growth in company earnings. Long term Interest rates can also be expected to rise, albeit gradually. We anticipate rather more modest returns across all asset classes.  

To 31 December 2019

Inception Date 01/06/2006

PROPERTY FUND

The Fund returned 2.9% in the December quarter, to give a return of 9.9% for calendar 2019. Solid rental income and capital growth again underpinned the performance of the portfolio.

In late November the Fund secured another quality asset with the purchase of 186 Queen Street in Auckland. The ground floor Unit Title property is leased to Glassons Limited, part of Hallensteins Glassons.  A new eight-year lease was entered into with Glassons from August 2019 with fixed increases of 2.5% per annum.  The Fund purchased the property for $15.75m, with the annual net rental of $788,000 representing an initial yield of 5.0%.  Settlement is scheduled for 31 January.

At year-end, the Fund comprised 18 properties with a total valuation of $210m and Cash of $21m, most of which will be allocated to the Queen St purchase.   

Occupancy of the portfolio at 31 December was 99.9% with a Weighted Average Lease Term (WALT) of 9.7 years.

The Fund has a strong emphasis on generating regular income for investors with quarterly distributions. The performance of the Fund is compared against the returns of the NZX 90 Day Bank Bill Index +2.5%. Solid revaluation gains have underpinned the returns in recent years.

To 31 December 2019

Inception Date 01/03/2001

 

The NZ share market (S&P/NZX 50 Portfolio Index) returned 4.2% in the December quarter to be up 29.3% in calendar 2019. The Australian market rose 0.7% in the quarter (2.7% in NZD) and closed 2019 up 23.4% (22.5% in NZD).

Cyclical sectors outperformed defensive sectors over the quarter as economic risks declined. Merger and acquisition activity in the retirement village sector boosted returns, while Rio Tinto’s announcement of a review of its Tiwai Point Aluminium smelter activities led to weakness in the electricity sector.

The Fund outperformed its benchmark in the quarter and calendar year, returning 5.9% and 30.3% respectively.

Overweightings in structural growth stocks Summerset, CSL, a2 Milk, Serko and Xero boosted returns. An underweight position in underperformer Z Energy also enhanced relative returns. Underweight positions in outperformers Fisher & Paykel Healthcare, Chorus and Port of Tauranga detracted, while weakness in Pacific Edge, Goodman Group and Afterpay also dragged on returns. The Australian stocks in the portfolio had a positive impact on performance for the quarter, with strong returns from CSL and Xero offsetting weakness from Goodman Group and Afterpay. No exposure to ANZ and Westpac boosted relative returns.

During the quarter the Fund increased its investment in Ryman, Ebos, Summerset, Metlifecare and James Hardie. Investments in Spark NZ, Auckland Airport, Contact Energy, Gentrack, Sky TV and Macquarie were reduced over the quarter.

The dividend yields of many stocks in both markets remain attractive in relation to prevailing interest rates. However we expect more modest returns for the Fund from here, given that catalysts for further capital gains are becoming harder to identify.

SUSTAINABLE AUSTRALASIAN SHARE FUND

To 31 December 2019

Inception Date 01/12/2002

INTERNATIONAL SHARE FUND

Most major share markets generated strong returns in the December quarter, as sentiment improved on the back of a reduction in US/China trade tensions, the resolution of Brexit and a decline in the risk of a global recession. Continued buoyancy in the US jobs market and signs of a recovery in activity in China and Europe boosted investor confidence despite ongoing weakness in the manufacturing sectors in the US and Europe.

The Fund returned 4.6% in the quarter (benchmark 4.7%) to give a return of 27.7% for calendar 2019 (benchmark 28.1%). In local currency terms the US market (S&P 500 Index) rose a strong 8.5% (28.9% for the year), while most other large markets returned over 5%. The NZ Dollar gained almost 8% against the US Dollar, reversing the decline of the September quarter and blunting the return for unhedged investors.

 

Growth in company earnings continues to slow. Factset reports that for the December quarter the earnings of the S&P 500 companies as a whole show a year-over-year decline of 2.1%, despite growth in revenues of 2.7%. There are therefore some concern in the market about the decline in net profit margins, although they remain at healthy levels. 

We expect rather more modest returns for the Fund from here, given the likelihood of low company earnings growth and the absence of further monetary policy easings.

The Fund invests in an indexed product that excludes companies involved in the manufacture of tobacco, controversial weapons or nuclear weapons. Relative to the MSCI World ex-Australia Index, the Fund also targets a 20% improvement in the ESG score as well as a 50% reduction in current and potential carbon emissions. The Fund’s foreign exchange exposures are 50% hedged to NZ dollars.

To 31 December 2019

Inception Date 01/12/2005

NZ BOND FUND

The NZ Fixed Interest market weakened significantly in the December quarter. The benchmark S&P/NZX NZ Government Stock Index reversed its gains of the September quarter, falling 2.9% to return 4.9% for calendar 2019. The yield on the 10-year Government Stock (2029) maturity rebounded from 1.09% to 1.65%, if still under the midpoint of the Reserve Bank’s 1-3% inflation target range.

The increase in NZ’s long-term yields in the quarter was consistent with the trend offshore, if more pronounced (see International Bond Fund comments below). This occurred despite the GDP growth rate of 2.3% for the September year being the lowest since 2013. However the recent lift in business confidence, an increase in infrastructure spending, the recovery in house prices and healthy net migration augur for stronger economic activity. The likelihood of further monetary policy easing is low.

The Fund outperformed its benchmark in the quarter and year, returning -2.0% (benchmark -2.9%) and 5.0% (4.9%) respectively. The Fund continues to adopt a relatively defensive strategy, holding higher grade securities than the market as a whole and having a shorter maturity profile.      

  

We believe there remains a risk of some further capital loss from here, given that interest rates across the curve are still under the inflation target range midpoint of 2.0%. We are maintaining a duration of around one year shorter than the market, while managing the Fund to maximize income.

To 31 December 2019

Inception Date 01/09/2005

INTERNATIONAL BOND FUND

Global bond markets sold off in the December quarter, with increased optimism about the global economy, an easing of US/China trade tensions and signs of improved activity in Europe and China. Commentary from the three major central banks suggests that the likelihood of further monetary policy easing during 2020 is low. 

Long-term sovereign bond yields increased by around 0.3% in most markets, reversing the decline in the September quarter. The yield on US 10-year Treasuries rose from 1.67% to 1.92%, while comparable yields in Germany increased sharply from -0.58% to -0.18%.  

The Fund returned -1.6% for the quarter (benchmark -1.6%), to give a return of 6.6% for the calendar year (benchmark 6.9%).

Global inflation remains well controlled. Current rates are 2.3% in the US, 0.5% in Japan, 1.3% in the Eurozone, 1.3% in the UK and 2.9% in China. 

Despite the recent sell-off, most bond markets continue to look overpriced at current yields. Monetary policy support is likely to tighten at some stage in the future. We continue to expect modest returns from this asset class, given that most sovereign yields are at or below underlying inflation rates.

The Fund invests in an index fund that invests only in sovereign securities. This product tracks the FTSE World ex-Australia Government Bond Index hedged to Australian dollars. A further hedge is applied to hedge the Fund’s Australian dollar exposure to NZ dollars. Returns tend to lag the benchmark slightly as the cost of hedging is excluded from the benchmark return calculation.            

           

To 31 December 2019

Inception Date 01/09/2005

Under the Financial Markets Conduct Act this communication may be deemed to be an advertisement for an offer of units. Trust Investments Management Limited is the issuer of the units to be issued under the offer to which this advertisement relates. A product disclosure statement for the offer, which sets out the terms and conditions of the offer, is available, and can be obtained at www.trustmanagement.co.nz/investment-products.