27 June 2016

On 23 June 2016 UK voters were asked: ‘Should the United Kingdom remain a member of the European Union or leave the European Union?’

Voters opted 51.9% in favour of ‘Leave the European Union’.

This came as a shock to financial markets, with most traders expecting a vote to remain. As a result, assets such as shares were heavily sold off. This is due to the uncertainty the result causes. For example no one is quite sure how an exit of the UK from the European might work, how long it might take, or who else might attempt to follow. Nothing changes for the UK straight away – legislation still needs to be passed and it will likely be a minimum of two years of negotiations to work out how an exit would occur.

While there is plenty of commentary available on what the ‘Brexit’ result might mean generally, below we have focused specifically on questions you may have as an investor with MAS.

What did the ‘Brexit’ vote mean for my investment?

The MAS KiwiSaver and Retirement Savings Plan range contains seven different risk-based portfolios. Lowest risk is the Cash Portfolio, and then the Defensive Portfolio which invests around 85% in cash and bonds and the remainder in shares. From there, portfolios steadily increase their exposure to shares – with Global Equities invested 100% in shares.

The immediate response to a ‘leave’ vote was for share markets to fall sharply. However many of the proceeds of these sales were invested in bonds; with US 10 year government bonds finishing 10.7% higher on Friday.

How ‘Brexit’ affects you will depend on what portfolio you are invested in. The more defensive portfolios with a higher exposure to bonds will perform better than the more aggressive, share-based portfolios.

How can I check my investment?

It takes two days for fund prices to be calculated and investment balances to be updated. Prices for Friday will be available on Tuesday afternoon.

Detailed information on your own investment, including current balances and portfolio breakdowns are available for you to access at any time by visiting ebenefits.co.nz.

Unit prices for the last year are available for KiwiSaver here and our Retirement Savings Plan here

For help with lost passwords please follow the instructions or call 0800 627 738.

How were the schemes positioned?

The ‘Brexit’ result caught us, financial markets, pollsters and odds-makers by surprise. As a result, the funds did not avoid the fall in share markets.

However there were contingency plans in place to reduce the portfolios’ exposure to risk in the event of a ‘leave’ vote.

As vote results started to favour an exit on Friday, some currency hedges were removed, effectively increasing exposure to the US dollar. Some other equity exposures were reduced, particularly UK holdings. We are likely to exit the UK completely, with an expectation UK growth will slow sharply. However, the timing of this and other reductions will depend on market pricing. We will be monitoring this over the coming days.

What else is MAS doing?

All portfolios are constructed to achieve competitive, long-term, risk adjusted returns. The key to this is ensuring the portfolios are appropriately diversified:

  • across asset classes (e.g., shares, bonds, cash);
  • within asset classes (e.g. financials shares and utility company shares);
  • geographically, with a number of different holdings across a number of different international markets.

Over the last several months we have also been investing more in alternative assets (such as hedge funds) that tend to be less correlated with traditional assets. Early indications are that this had some positive effect on Friday. Typically, large market moves create different investment opportunities and it is in this environment that we expect these types of assets to out-perform.

This core tenet of risk-adjusted diversification across a number of assets remains. Strategic, long-term asset allocation is the key to maximising investment returns while minimising risk. Portfolios are continually monitored and adjusted relative to benchmark asset allocations for prevailing conditions. This allows portfolios to change positions due to events such as the ‘Brexit’ result, while continuing to remain invested for the longer term.

What can I do?

Falls are an expected part of investing in funds with exposure to growth assets such as shares. For example, the KiwiSaver Balanced Portfolio has had negative returns in 12 of the last 36 months; or a negative return one in every three months. Yet is up 28.5% over this time.

If it has been a while since you assessed your level of risk, it may be a good idea to complete a risk profiler. Key considerations are:

How long do I still have to invest?

  • The longer the timeframe, the greater the likelihood of recovering returns and increasing your overall average return.

Can I tolerate further losses?

  • Remember volatility goes in both directions, and in share markets a turnaround can be quick.

A risk profiler can be found on the back of the switch form.

If your appetite for risk has not fundamentally changed, you should keep to your long-term plan, rather than react impulsively to what could be a short-term market swing. Remember that when asset prices fall, you get a chance to buy assets at lower prices. If you are contributing regularly to your investment, your money will buy more when prices are lower. When prices rise again, your contributions will make a gain.

However if you are uncomfortable with the level of risk you have, complete the switch form above and return it to us and we can change your investment option for you.

Monitoring your investments

Detailed information on your own investment, including current balances and portfolio breakdowns are available for you to access at any time by visiting ebenefits.co.nz.

Additional market commentary is also updated regularly and can be found under Communications/Investment Performance.

All of this information is there to help you monitor your investments, so you can always be fully in touch with your savings.

For help with lost passwords please follow the instructions or call 0800 627 738.

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