Market commentary: Feb 2022

Portfolio performance

Looking at the year to 28 February, the healthy returns in the first 6 months were virtually wiped out in January when market sentiment turned negative. The root cause is concerns over multi decade high rates of inflation (7.5% in the US and 5.9% in NZ) and central banks responding by increasing interest rates. The RBNZ has increased the base interest rate from 0.25% to 1.00% in 3 stages since October 2021. Higher interest rates have a negative impact on both share and bond prices. The US share market has fallen 8.8% since the start of 2022 and NZ is down 6.6%.

Stay invested

You may be wondering if this is the start of a significant fall in share prices – especially with the recent Russian invasion of Ukraine. So far 2022 has seen the number of sellers far outweighing buyers in the share market causing prices to fall. For sure it doesn’t make pleasant reading but bear in mind low prices are only a problem if you need to sell.

The best response is to stay invested and look for opportunities to buy great companies at discounted prices. Experience tells us that even if there is a big fall, history will record it as a mere blip along the way to long term gains.

Managed funds

Managed funds pool investor money together which is then used to buy shares and bonds. Investors get wide exposure to international share markets and companies like Google, Microsoft, Star Bucks, Visa, and local companies like Mainfreight, Contact Energy, Spark, and Fisher & Paykel Healthcare. Fund managers make investment decisions based on in-depth research. This falls into two areas; quantitative research (e.g. balance sheet, profitability, future cashflows) and qualitative research (e.g. quality of management, company strategy, competitive advantage, the market, economic outlook). We select managed funds for our client portfolios based on the people involved, investment philosophy, risk and return, and investment process. An example of a good managed fund is Magellan Global Fund which is part of our international strategy.

Richard Grimes, Director and Financial Adviser