Key Features of Shares

 

 

 

Trust Management Educational Series

Most investment portfolios of charities have an allocation to shares. A share represents a stake in a company.

 

A typical share fund includes shares in a wide range of different companies. The New Zealand share market features companies that own aircraft, construction equipment, electricity networks, and shopping malls.

 

What is a share?

A share represents a stake in a company. The owner is entitled to part of the profits made by the company and has a stake in both its assets (what it owns) and liabilities (what it owes).

 

Elements of a share

Share price: The price at which shares are bought and sold.

Profits: The revenue the company makes from its assets, less the expenses incurred.

Dividend: The part of a company’s profits that it pays out to shareholders.

Dividend yield: The dividend paid to shareholders as a percentage of the share price.

Example: A company operating an airport makes a $50 million profit, and decides to pay this out to shareholders. The company has a total of 500 million shares on issue and a current share price of $2. Shareholders receive a 10c dividend for each share they own, which is a 5% dividend yield.

How are shares prices determined?

After shares are first sold through an Initial Public Offering (IPO), they are traded between buyers and sellers on an open market. As investors receive new information about companies, they adjust the prices at which they are willing to buy and sell shares.

 

What are the benefits of buying shares?

Shares often produce higher returns than bonds or bank deposits. Share returns include both dividend income as well as capital gains (or losses).

Contacts

Grant Hope

Chief Executive Officer

09 550 4044

 

 

 

 

 

 

 

 

Shane Coward

General Manager

09 550 4045

 

 

 

 

 

 

 

John Williams

Investment Manager

09 550 4046

 

 

Over the last 20 years:

New Zealand shares have returned an average of 7.9% per year, compared with 6.7% for bonds

International shares returned an average of 9.0% per year, compared with 8.4% for bonds

(for a fully hedged New Zealand tax exempt charity)

What are the risks of buying shares?

Shares prices can be quite volatile and go up and down unpredictably. The value of the investment in shares will fall during some periods.

Over the last 20 years:

Volatility of New Zealand shares has been 13% compared to 3% for New Zealand bonds

 

Volatility of global shares has been 14% compared to 3% for global bonds

(for a fully hedged New Zealand tax exempt charity)

Want to know more?

Trust Management can provide advice to charities about managing their investment portfolios and setting a risk profile that reflects their investment objectives. This can include the appropriate allocation to shares in their portfolio, and which type of shares to invest in.

 

If you have any questions, or would like to know more about investing in shares, please do not hesitate to contact John Williams on (09) 550 4046.

This paper seeks to provide some detail and explanation about share investments. The paper aims to provide a basic oversight of the topics mentioned, using simple terminology in easy to understand language. The paper is not intended to be the definitive guide on diversification. We recommend investors seek advice before investing.

© 2019 Trust Investments Management Limited