What will the Auckland lockdown mean for Kiwi stocks? As Pathfinder CIO Paul Brownsey explains, it’ll depend on the length of the latest shutdown and the scale of the business.
Many small and medium-sized businesses in New Zealand right now will be feeling the pain of the latest lockdown. For larger companies listed on the NZX stock exchange, the impact is cushioned.
There are some supportive factors for the bigger companies on the NZX that both Pathfinder and CareSaver KiwiSaver invest in.
Export revenue – Many of the companies we like aren’t too exposed to the local economy. Exporters that get most of their revenue from overseas like Fisher and Paykel Healthcare, Pushpay and Scales Corporation are doing well.
Stable domestic revenue – Companies like Spark and Meridian Energy have stable cashflows from within New Zealand a much of their business is contract-based. Other companies are having a tougher time- especially those reliant on tourism like Air New Zealand and Tourism Holdings, but we are not currently invested in them while uncertainty about the resumption of international travel persists.
Government support – The Government is being very supportive – there is considerable business support and employee assistance in the pipeline and this should keep the economy ticking over. The Reserve Bank of New Zealand has essentially said they will do whatever it takes to keep the economy moving by keeping interest rates low. This is very important as low-interest rates make companies that pay higher dividends more attractive. For instance, right now a great company like Spark is paying a dividend yield (before tax) of 7% – compare this to the 1% or less you can get in a bank deposit account.
Overseas experience – The experience overseas provides some positive guidance. Despite second waves of COVID-19 surging through many countries, stock markets have held up well – again Government and Central Bank support for economies is the key. The USA is a great example. Despite more than 167,000 COVID-19 deaths and large parts of the economy still in some form of lockdown, the S&P500 index is now back to pre-virus levels.
We acknowledge risks are heightened and company valuations are high, but momentum – driven by a lot of Government and Central bank support is still supportive of equities. In times like this, it is really important that your fund manager is doing a smart job. Some companies will obviously struggle in this COVID-19 environment, is your manager avoiding them?
There are actions you can take to maximise your KiwiSaver experience:
- Understand your risk profile. Are you in the right fund?
- Keep up your contributions – especially if markets fall.
- Make sure your manager is doing the job you think they should be doing – ask them to explain why their approach is good in this type of market environment.
CareSaver KiwiSaver, owned and managed by Pathfinder, has been going for a year now and we have had solid returns over the year to the end of July 2020.
After fees but before tax, our Growth has returned +11.1%, our Balanced Fund +5.3% and our Conservative Fund +4.6%. For more see our Fund comparison section here.
We remain positive but careful.