Lunch with Steven Dunlop
We are pleased to invite you to a lunch with Steven Dunlop, National Head, Valuation & Advisory for Savills at 12pm on Friday 4th October at our office, 123 Carlton Gore Road, Newmarket, Auckland.
As one of New Zealand’s leading commercial Registered Valuers, Steven is well positioned to provide his views on the New Zealand commercial property market.
We encourage you to attend to see Steven’s presentation to learn more about the commercial property market and its outlook.
Trust Management News and Articles
Social Media Engagement Update
The social media engagement initiative which Trust Management joined in April 2019, has now grown to represent 60 local and global participants, with more than $5 trillion of assets under management.
The initiative was a result of the Christchurch Mosque shootings which took place on Friday, 15th March 2019. The NZ Super Fund led the establishment of the initiative which sought to engage with Facebook, Twitter and Google in respect of strengthening controls to prevent the distribution of objectionable content.
Trust Management’s CEO, Grant Hope said “It is pleasing to see more and more entities responding to the call. The movement is gaining solid traction and we continue to monitor the impact of the engagement initiative.”.
We are pleased to announce Mel Hewitson was appointed Director of Trust Management as of 1 August 2019.
Mel is a professional director, following an executive career in institutional investment management, risk, compliance and financial regulation.
Mel is a director of Simplicity NZ Limited, Heritage Trustee Company Limited and Ngāti Whātua Ōrākei Whai Maia Limited. She is Deputy Chair of Foundation North, Chair of Centre for Social Impact and chairs the Nominating Committees for the Guardians of New Zealand Super Fund and the Waikato-Tainui Group Investment Committee.
Sharon Zollner Seminar
We were delighted to have Sharon Zollner, Chief Economist ANZ present to our clients in late August.
Sharon gave us a detailed assessment of New Zealand’s economic outlook, covering all the key indicators such as GDP growth, inflation, house prices, the labour market, household debt, the external position and terms of trade, and the government accounts. Bank capital and credit availability also featured in her presentation.
She painted a picture of an economy that continues to slow, constrained by low labour productivity, weak investment intentions, easing net migration, lower house price inflation and fewer job advertisements. Tighter lending standards and lower growth in New Zealand’s trading partners were other factors contributing to the slowdown.
On the positive side, very low interest rates were keeping the high level of household debt manageable, the terms of trade (export prices relative to import prices) were still near an all-time high and the Crown’s accounts were in good shape.
In her inimitable style, Sharon expertly demonstrated that momentum in the economy was trending down and that our GDP growth rate would not match that seen in recent years. But she is still expecting growth of over 2% over the next years, a long way from recessionary levels.
Solid Six Month Revaluation Growth
The Property Fund experienced a 2.55% revaluation increase over the first six months of 2019. The like-for-like analysis sees an increase in the capital value of the property portfolio by just over $4.8m from the previous six month revaluation movement.
In addition the Manager concluded the sale of the Harbourside Retail Centre in Porirua which transacted at a 3.88% premium to the December 2018 asset value.
Other activity during the period included the purchase of 104-140 Neilson Street for $16.4m and securing of a 6 year lease extension at 9-13 Sims Road. The Sims Road lease expiry was the largest expiry to be undertaken during 2019.
Patrick O’Reilly, GM Property advised “We have been pleased with the level of activity that the Trust Management property team has achieved within the Property Fund portfolio and it is positive to see this contributing to the revaluation result. As at 30 June the Fund is valued at $215.4m”
Harbourside Retail Centre, Porirua
1-15 The Avenue, Lynfield
Trust Management is pleased to announce the securing of a eight year lease extension from 30 August 2019 with General Distributors Ltd, (Countdown) at 1-15 The Avenue, Auckland.
This supermarket property is jointly owned by Trust Investments Property Fund and St John’s College Trust Board. The lease extension provides excellent long term tenant stability for both investors. Countdown is undertaking a major refurbishment of its supermarket premises to provide the latest look and improved layout for customers together with adding a new in-store pharmacy.
The Balanced Fund invests in the other five sector funds. It has 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 3.6% for the June quarter, with continued strong performance from Shares complemented by solid returns from Property and Fixed Interest. The return for the 12 months to June 2019 was 8.8%.
The strong showing of all asset classes was largely driven by further significant falls in interest rates, as central bank rhetoric indicated a bias towards further monetary policy easing in the face of continued low inflation and signs of slowing economic growth. Investors ignored the weakening trend in company earnings growth and a range of geopolitical risk factors, most notably the lingering trade tensions between the US and China.
Global economic growth is slowing and corporate profit growth is moderating. Easy monetary policies look to be underpinning financial markets for now but valuations will become extended if the current slowdown deepens. Under most scenarios we expect returns across all asset classes to be rather more modest from here.
To 30 June 2019
Inception Date 01/06/2006
The Fund returned 3.3% in the June quarter to give 10.0% for the 12 months to June, reflecting solid rental income and further capital growth in the portfolio.
During the quarter the Fund purchased one property and sold another. 104-140 Neilson Street, Auckland was purchased in June for $16.4m. This property is a large industrial land holding of two hectares in Onehunga/Penrose which is leased as a bus depot to NZ Bus. The site has a low level of improvements.
In late June the Fund completed the sale of the Harbourside Retail Centre in Porirua which was held in 50/50 joint ownership with Rātā Foundation. The parties identified this property for sale as part of a strategic review of the portfolio. The sale price of $7.5m (100%) was above the assessed valuation.
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 30 June 2019
Inception Date 01/03/2001
SUSTAINABLE AUSTRALASIAN SHARE FUND
The NZ share market (S&P/NZX 50 Portfolio Index) rose a strong 6.8% in the June quarter, following the 11.0% surge in the March quarter. The Australian market returned 8.0% for the quarter (8.3% in NZD).
The quarter was characterised by volatility as investors battled the crosscurrents of slowing activity and easier monetary policy, with lower interest rates holding sway. Interest rate sensitive sectors such as utilities and real estate outperformed despite no change in their earnings outlook, with Mercury up 21% and Auckland Airport and Meridian up 12% in June alone.
The portfolio marginally underperformed the benchmark over the quarter. Growth companies such as Mainfreight, Serko, Vista Group and Xero were standout performers but this was offset by underweight positions in outperformers Infratil, Mercury and Port of Tauranga and weakness in Summerset, Pacific Edge and GTN. Fisher & Paykel Healthcare, one of the portfolio’s largest underweights, underperformed after a soft earnings result.
The Australian holdings in the portfolio had a neutral impact on performance, with positive returns from Xero, CSL and Volpara offsetting weakness in GTN, Syrah and Hub24.
Key portfolio changes over the quarter included increasing investment in Infratil, Spark, Ebos, Auckland Airport and Contact Energy. Investments in Trade Me, Westpac and Sydney Airport were exited, and investments in Fletcher Building and a2 Milk reduced.
To 30 June 2019
Inception Date 01/12/2002
INTERNATIONAL SHARE FUND
Share markets continued to rally in the June quarter, adding to the strong March quarter. As was the case earlier in the year, lower long-term interest rates and a bias towards monetary policy easing overcame concerns about the slowdown in global economic growth and corporate earnings and lingering US/China trade tensions.
The Fund returned 4.7% in the quarter (benchmark 4.6%) to give a return of 7.6% for the 12 months to June (benchmark 7.4%). In local currency terms the US share market (S&P 500 Index) rose 3.8% to be up 17.3% for the year to date and 8.2% for the 12 months to June. The other major markets also generated strong returns. The NZ Dollar eased slightly over the three months, enhancing returns for unhedged investors.
The US market (S&P 500 Index) reached a new all-time high on 20 June, extending one of the longest bull runs in history. Markets continue to be supported by easy monetary policies. From here we expect more modest returns than those seen recently as the current slowdown impacts company earnings.
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 30 June 2019
Inception Date 01/12/2005
NZ BOND FUND
The NZ Fixed Interest market performed well again in the June quarter, extending the strong rally since June last year. The benchmark S&P/NZX NZ Government Stock Index returned 1.9%, with the yield on the 10-year Government Stock (2029) maturity falling further to 1.57%, about 0.4% below the yield on the US Treasury 10-year maturity and well under the midpoint of the Reserve Bank’s 1-3% inflation target range.
The fall in NZ’s long-term yields was consistent with the trend offshore prompted by signs of weakening economic growth, continued low inflation and ongoing US/China trade tensions. Locally, the fall in business confidence to the low levels of late 2017 and the decline in consumer confidence to the lowest level since 2012 added to the cautious sentiment.
In May the Reserve Bank lowered the Official Cash Rate to 1.50%, noting that a further easing may be needed given the weaker global economic outlook and the risk of subdued domestic growth.
The Fund returned 1.8% in the quarter (benchmark 1.9%) to give a 7.3% return for the 12 months to June 2019 (benchmark 8.2%).
We remain cautious on the market, which we believe is overpriced given that NZ Government Stock yields are negative after allowing for actual and expected inflation. We continue to adopt a shorter than market duration, while managing the Fund to maximize income.
The Fund’s strategy continues to prioritise the level and stability of distributed income.
To 30 June 2019
Inception Date 01/09/2005
INTERNATIONAL BOND FUND
Global bond markets rallied further in the June quarter amid signs of weaker global economic growth, continued low inflation and ongoing US-China trade tensions. The bullish sentiment was reinforced by the Bank of Japan, European Central Bank, People’s Bank of China and the US Federal Reserve all signalling a willingness to undertake further monetary stimulus if needed.
Long-term sovereign bond yields fell by a further 0.2-0.4% in most markets. The yield on US 10-year Treasuries fell to 2.01% and comparable securities in Japan and Germany closed at -0.17% and -0.33%. At quarter-end, only a small proportion of investment-grade debt in Europe and Japan had a positive yield.
The Fund returned 2.7% for the quarter (benchmark 2.9%), giving a return of 6.8% for the 12 months to June 2019 (benchmark 7.3%).
It is difficult to see value in most bond markets at current yields. In time the long phase of easy monetary policies can be expected to come to an end and funding a very large US budget deficit may well become an issue. We expect rather more modest returns from the Fund over the next few years.
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 30 June 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.