Every year there are worries that assail investors. 2019 had more than its fair share.
We started the year fresh from a dramatic slump in markets in the last quarter of 2018. Investors were nervous. Trade wars, slowing economic growth and falling interest rates all hit the headlines. Investors were still nervous. These worries turned out to be unfounded
Markets in 2019 have been very strong. For the year to December 9 the US sharemarket has risen by 25.1 per cent in US dollar terms, the Australian sharemarket by 24 per cent and New Zealand 27.4 per cent.
Not only have shares been strong but investments in property and in fixed income markets have also reaped healthy rewards for investors. 2019 will be a year to remember.
There is a lesson here. Often the things that worry us most don't turn out to be as bad as we expect – in fact we often lose out in markets waiting for this expected bad event to happen. The things we should worry about, perversely, are the things we don't expect.
In general, time and economic growth are great investment partners. A little patience and we can make them work for us. Don't worry and you will be happy.
4. Turning Japanese – The Vapors
The theme of the world turning Japanese has been an economic phenomenon talked about for years. In 2019, it happened.
Turning Japanese, in an economic sense, means getting stuck, like the Japanese economy has been over the past twenty years, in a low-growth, low-interest-rate, deflationary rut.
Europe is the most obvious place where Japanese tendencies have been seen, but even here, who would have thought that the RBNZ would cut the official cash rate to 1 per cent and that the yield on 10-year New Zealand Government bonds would plunge below 1 per cent during the year?
The world turning Japanese has a profound impact for investors. It means, in our view, interest rates will be lower, for longer, than any of us have become accustomed to. It is a big challenge. This challenge makes it harder to save for our retirement and harder to make our retirement nest egg work for us.
Turning Japanese means we likely all need to invest more in growth assets and makes active management, building a hand-picked portfolio of assets designed to beat the market, even more important than it has been.
Managing your money actively, making it work hard for you, has not, in many ways, been conventional wisdom in 2019. I suspect this will change and it will be on the investment hit list for a few years to come.
3. Beds Are Burning – Midnight Oil
Peter Garret, Midnight Oil front man and past Member of Parliament in Australia, was a visionary. He sang about the plight of the Australian indigenous Aboriginal population, he sang about workers' rights. Even the covers of the albums "Diesel and Dust" and "Blue Sky Mining", with scenes from the parched Australian landscape, were prescient.
The investment world is beginning to get its Garrett on. 2019 was the year that responsible investing came of age. I think it will be even more important next year.
Increasingly we shouldn't just consider the ethics of an investment and excluding the worst offenders - we need to think about the far deeper concept of sustainability. At its heart, it is about how a business operates within the social rules that govern our communities. It's about its culture and the decisions that a management team makes to balance the inevitable tensions between different stakeholders - staff, customers and shareholders.
Successful businesses, in my view, manage these tensions well and display leadership in non-financial as well as financial metrics.
2. Nothing's Going To Happen – Tall Dwarfs
Long before Chris Knox of "Not Given Lightly" fame became a Grey Lynn resident and famous Vogel's toast fan, he was a member of Dunedin Li Fo indie rock duo the Tall Dwarfs.
While the NZ sharemarket isn't exactly small, it is dwarfed by global markets making up less than 0.2 per cent of the value of all listed companies in the world. Yet it has been tall.
Over the past five years the New Zealand sharemarket has generated a return of 16.4 per cent per annum. It is one of the leading markets around the world over this time.
Why has New Zealand done so well? Our economy has been stable when the rest of the world has looked shaky, our market is heavy in utilities and property, companies have benefited from falling interest rates and there have been some great success stories like A2 Milk.
After years of outperformance our market is now highly valued. This means New Zealand's market-leading performance is less likely to continue but the Tall Dwarf will still punch above its weight!
1. Simply The Best – Tina Turner
It was 1993. Tina Turner belted out her anthem at the NRL grand final. The Brisbane Broncos were victorious – thirteen of the best rugby league players in history led by a coach who redefined the game. Names like Langer, Renouf and the muscle up front, Glenn Lazarus, will be immortal in the game.
Quality players win.
Investing is the same. Quality businesses, with clear growth prospects led by inspirational management win the investment game, beating the market and creating more wealth. 2019 has been a year for quality businesses to shine.
Fisher & Paykel Healthcare is a great example of a quality New Zealand business that has been a hit in 2019. Selling essential equipment to the hospitals around the world, F&P Healthcare takes a genuinely long-term view to building its business. This means investing in research and development so its products are world leading. It is also means investing in its leadership with one of the strongest teams in New Zealand in our view. Do this well and the market takes notice - F&P Healthcare's shares are up 62 per cent this year.
That's a hit you can take to the bank.
Frank Jasper is chief investment officer at Fisher Funds. All opinions reflect judgment on the date of communication and are subject to change without notice. Professional investment advice should be taken before making an investment decision. Past performance does not guarantee similar future performance. Product Disclosure Statements for the Managed Investment Schemes issued by Fisher Funds are available at fisherfunds.co.nz.
