ANZ Investments has signed deals to work with global asset managers BlackRock and Mercer.
ANZ is the country’s largest KiwiSaver manager with $19.7 billion in funds under management and a 20 per cent share of the market. On top of that it manages money outside of KiwiSaver on behalf of New Zealand investors.
Rumours had been swirling among market players that ANZ had sold or outsourced the management of its portfolios to BlackRock whose Australasian management have been in New Zealand this week to announce a deal with the Government for a $2 billion clean energy fund.
But in a statement, ANZ said it had signed separate, non-binding memorandums of understanding with both BlackRock and Mercer.
The arrangement with BlackRock includes the provision of risk management services to support ANZ’s portfolio resilience while the agreement with Mercer would see it leverage ANZ Investments’ local expertise with Mercer’s global capability and scale for the benefit of customers.
Fiona Mackenzie, managing director of ANZ Funds Management said the MOU with Mercer was designed to ensure it stayed competitive and continued to meet the changing needs of its customers. “Our business model needs to continue to adapt and evolve.”
Exactly how the agreement would do that was not spelled out. While being a global asset manager with US$393 billion in assets under management Mercer also separately runs its own KiwiSaver scheme in New Zealand.
BlackRock globally manages US$8.59 trillion as of the end of last year and already partners with a number of other KiwiSaver schemes to provide low-cost passive investment management services.
Passive funds typically use computer algorithms to track indices and are typically much cheaper than active fund managers which pay people to research and select companies.
But Mackenzie said ANZ would remain an active investor and continue to select assets that it believed would perform over the long term.
ANZ has around 20 people in its NZ investment team which is currently run by chief investment officer Paul Huxford. Huxford is set to depart and will finish up with the bank in December. ANZ’s statement said Huxford had decided to take the next step in his career after leading ANZ Investments for the last five years.
It is now looking for a replacement for him.
Fonterra’s move to slash its milk price forecast for this season came as a shock to many, but could it have an impact beyond the farm?
The co-op reduced its 2023/24 season forecast farmgate milk price range to $6.25 - $7.75 per kilogram of milk solids, with a midpoint of $7.00/kg. That is down from a previous midpoint of $8.00/kg.
Fonterra had clearly surveyed the lie of the land in China, saying the cut reflected ongoing reduced import demand for whole milk powder there.
It is unambiguously bad news for the dairy industry but, paradoxically, it will help Fonterra itself.
As a dairy manufacturer, Fonterra’s biggest input cost is milk, so weaker milk prices will aid its earnings.
While many farmers will struggle with a weak milk price, they will at least be partially compensated by Fonterra’s earnings.
In May, Fonterra lifted its 2023 full-year forecast normalised earnings from 55-75 cents per share to 65-80 cents per share and said it remained on track for a strong full-year dividend.
Fonterra’s NZX-traded units — which give investors exposure to the co-op’s dividends — have gained 23 per cent over the past 12 months.
As for the milk price, Salt Funds director Matt Goodson said rising on-farm costs driven by higher interest and labour costs means the break-even point for the median farm is projected as somewhere in the mid to high $8/kg region.
“This will have varying implications for listed companies,” he said. “It is a positive for the Fonterra Shareholders Fund, with milk being the key input cost for their various product stream outputs.
“It is a modest positive for a2 Milk, although their already high margins mean the percentage impact isn’t that large and may be dwarfed by continued volume concerns due to low Chinese birth rates,” he said.
Farming landlord NZ Rural Land weakened after the news.
“Their leases do have uncapped CPI increases, but the potential concern is their farmers’ ability to pay when their income is going backwards. It may also weigh on the performance of PGG Wrightson, which only recently made a small guidance upgrade,” Goodson said.
“It is a real concern for the wider New Zealand economy, which is already running a current account deficit that is 8.5 per cent of GDP at a time when the economy is in recession, which would normally see a lower deficit due to lower imports,” he said.
For the cash-strapped Synlait Milk, a lower milk price could prove a mild positive, but much depends on the terms of the dairy company’s supply contracts, he said.
Synlait — about 20 per cent owned by a2 Milk and 39 per cent by China’s Bright Dairy — wants to sell assets to pay down debt and has engaged investment bank Jarden to advise it.
An update on the sale process is expected when the company reports its results for the July 31 year on September 25.
Synlait has previously telegraphed that it expects its earnings to be between a loss of $5 million and a profit of $5m.
Broker Forsyth Barr expects the power companies to report bumper profits this month.
“We are expecting the largest-ever single-year increase in the collective Ebitdaf (earnings before interest, tax, depreciation, amortisation and financial instruments) of the big four generator/retailers, up 18 per cent in 2023 to $2.7 billion.
“In many ways it was the perfect year, with acquisitions, new generation, record-high hydro generation, strong retail margin growth and one-off gains lifting earnings,” the broker said.
For the first time, Mercury will report the strongest earnings in the sector.
“Looking ahead to 2024, we expect further sector earnings growth, but nothing like 2023.
“We also expect muted dividend growth relative to earnings growth, given development pipelines requiring CapEx, and NZ Aluminium Smelter uncertainty weighing on dividend decisions.”
July was another strong month for equities, with the MSCI All Country World Index (ACWI) returning 2.0 per cent in New Zealand dollar terms, and 3.2 per cent in New Zealand dollar-hedged terms, said Habour Asset Management.
Closer to home, the S&P/NZX 50 Gross index (with imputation credits) advanced 1.2 per cent, while the S&P/ASX 200 index added 2.9 per cent in Australian dollar terms (and 2.4 per cent in NZD terms), Harbour said in a report.
Globally, returns were strong across all sectors, with energy leading the way at 6.5 per cent, closely followed by communication services at 6.2 per cent.
“As has been the trend in recent months, defensive sectors lagged, with healthcare, utilities and consumer staples the bottom three performers.
“Equity markets rallied as investors embraced the ‘soft landing’ economic scenario on easing inflation concerns and lower terminal central bank rate expectations.
“The reduction in peak rate concerns, reasonable economic activity and better-than-expected earnings updates contributed to an increased appetite across sharemarkets, pulling in investors who had been sitting on the sidelines,” Harbour said.
Forsyth Barr has downgraded Restaurant Brands to “underperform” from “neutral”, mostly as a reflection of its limited ability to pass through price increases from now on without risking competitiveness.
The fast food company now expects a net profit in the 2023 financial year in the range of $12m to $16m, from the previous year’s profit of $32.1m. The prior year’s result was itself hit by ongoing inflation.
The company said at its May annual meeting it continued to face global inflationary pressures, particularly from rising ingredient and wage costs.
Forsyth Barr said Restaurant Brands’ commentary suggested cost pressure in the New Zealand division had been acute.
“We believe this may be caused in part by major weather events in the first half, and higher global grain prices, which are a key input cost for chicken producers.
“This update was a negative surprise as New Zealand has typically been the most stable of the four geographies, and resilient margins were expected to support group earnings through the trough of this cycle.
“As Restaurant Brand’s New Zealand contracts are typically negotiated on six to 12-month terms, we are conscious that cost pressures are likely to continue to weigh on RBD in the near term if commodity prices do not stabilise.”
Westpac economists say conditions in retail, generally, are tough.
“Looking ahead, we expect that ongoing price rises and increases in interest rates will continue to weigh on household spending volumes,” the bank said.
-additional reporting Tamsyn Parker
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
Zespri must sell 190 million trays of kiwifruit from record crop.