2022 has been a year of increased volatility in global financial markets. We asked BNZ’s General Manager of Wealth, Peter Forster, to answer some questions about the big investment themes of the past 12 months, and the outlook for the year ahead.
How would you describe 2022 from an investors point of view?
This year has been a challenging time for investors. And while no one can predict the future, we’re expecting the market volatility to continue for a while longer. Many New Zealanders are grappling with interest rate hikes and inflation rising to levels we haven’t seen in decades. This means that across the country, household budgets are being squeezed by higher prices for things like food, fuel, rent, and mortgage payments.
This is an issue for investors because inflation erodes the purchasing power of money over time. This means that your dollar doesn’t buy as much as it used to. Investors need a way to protect their savings, even when prices are rising. For many people, staying the course with their investment is the best option. That’s because stock markets tend to ‘outrun’ inflation in the long term. Markets can be volatile, but taking a holistic long-term view offers a way to both protect your savings and grow your money over time.
And on a positive note, we’re pleased to report that we have had more than 57,000 members join the BNZ KiwiSaver Scheme in the year to 30 November 2022. Total funds under management across the BNZ KiwiSaver Scheme and YouWealth managed funds exceeded $5 billion as at 30 November 2022.
What should I do when markets fall?
It’s important to remember that market volatility and downturns are part of your investing journey. And for most investors, time is on your side. While short-term market weakness is to be expected, markets do tend to go up over the long term. One way to stay resilient during uncertain times, is to take a step back and look at the bigger picture.
FTSE All-World Total Return Index USD
Source: BNZ, Bloomberg®
While the past 12 months have been tough for investors, it’s encouraging to see the way that markets recovered from the unprecedented 2020 stock market drop. This recovery is quite striking, especially when you consider the 2020 shock was the fastest market decline in history – more severe than the 2008 global financial crisis, and even the Great Depression.
What investment approach should I be considering right now?
Investors around the world are asking this very question, and it’s not an easy one to answer. After all, everyone’s different – there’s no ‘one-size-fits-all’ approach to investing. But as we look ahead to the new year, this is a good time to check you’re in the right type of fund for your circumstances. You might be just starting out, heading overseas, saving for your first home, or approaching retirement. Whatever life stage you’re at, and whichever investment you choose, know that our funds are designed with ups and downs in mind. One of the ways we do this is through diversification. Diversification means mixing different types of assets across many sectors, both locally and in different parts of the world. A well-diversified portfolio helps to reduce risk and should lead to higher investment returns over the long term.
What will the big investment themes be for 2023?
Responsible investing will continue to gain traction
As we look to the year ahead, we know that we have a part to play in building a resilient, regenerative, and inclusive Aotearoa. And we’re committed to investing responsibly. This means we don’t invest in certain sectors, including companies that generate significant revenue from activities that cause harm to people and the planet, like fossil fuels, adult entertainment, gambling, whaling, or tobacco. As you’d expect, we also don’t invest in illegal weapons. We exclude companies actively involved in producing or developing cluster munitions, land mines, assault weapons for civilian use, or nuclear weapons systems. You can learn more about our approach to responsible investing here. Fossil fuels (such as oil) have performed very well this year, driven by global factors including the war in Ukraine. We intentionally exclude this sector from our funds. And while this has negatively impacted short-term performance, we believe that these exclusions will contribute to better returns in the long term.
Market volatility is likely to stay with us into next year
We need to navigate through this phase with the knowledge that this is part of any long-term investment cycle. It’s important to look beyond the short-term volatility and focus on long-term returns and diversification. And if you’re regularly contributing to your investments, the stock market decline may provide you with exposure to assets that offer better value when taking a long-term view.
Transparency around costs
During periods of volatility, transparency becomes more important than ever. Costs to your investment – such as fees and taxes – can have a big impact on fund performance, as the money you are saving gets invested instead. And it can then generate returns over the lifetime of your investment. Our BNZ KiwiSaver Scheme and YouWealth managed funds have some of the lowest fees in the market. And all BNZ KiwiSaver Scheme and YouWealth investment assets are held in New Zealand-domiciled funds, as this avoids the tax leakage that affects many other providers. We know that providing transparency is the right thing to do, this makes the costs clearer and easier for you to understand.
Overall, it’s been a difficult year for investors with rising costs and turbulent markets. Be assured that our funds are designed with volatility in mind, and we’re well positioned for economic uncertainty. Staying the course with your investments is the best way to grow your savings over time.
Bloomberg® is the service mark of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and has been licensed for use for certain purposes by BNZ Investment Services Limited (BNZISL). Bloomberg is not affiliated with BNZISL, and Bloomberg does not approve, endorse, review, or recommend, nor guarantee the timeliness, accurateness, or completeness of any data or information relating to, this article.
Any views expressed in this article are the personal views the author and do not necessarily represent the views of BNZ, or its related entities. This article is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser.
Neither Bank of New Zealand nor any person involved in this article accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any, information, representation or omission, whether negligent or otherwise, contained in this article.
BNZ Investment Services Limited, a wholly owned subsidiary of Bank of New Zealand, is the issuer and manager of YouWealth and the BNZ KiwiSaver Scheme. Product Disclosure Statements for both products are available at bnz.co.nz Investments in the BNZ KiwiSaver Scheme and YouWealth are not bank deposits or other liabilities of Bank of New Zealand (BNZ) or any other member of the National Australia Bank Limited group. They are subject to investment risk, possible delays in repayment, possible loss of income and possible loss of principal invested. No person (including the New Zealand Government) guarantees (either fully or in part) the performance or returns of the BNZ KiwiSaver Scheme and YouWealth or the repayment of capital. National Australia Bank Limited, the ultimate owner of BNZ, is not a registered bank in New Zealand but a licensed bank in Australia and is not authorised to offer the products referred to in this email to customers in New Zealand.