Articles
Financial Principles
When making any investment decisions in today’s uncertain climate, the following financial principles should be followed:- You should have appropriate risk investments
- You want the highest returns possible commensurate with your level of safety
- You want maximum flexibility
- You want to minimise your tax.
- Geographically with money invested both in New Zealand and offshore
- By using different fund managers
- By investing in different investment areas such as fixed interest securities, property, shares, and cash.
- By investing in different industry sectors.
Please note that diversification will not completely eliminate capital losses from investments.
Risk Profile
Correctly identifying your risk profile is critical for determining your investment asset allocation and selection of products. There are numerous techniques and tools available to us to assist you wit htis process.
Our definitions of the various risk profiles are:
- Defensive: Investors requiring capital values to be protected and a regular source of income, and who are willing to accept below average returns in order to minimise volatility.
- Conservative: Investors requiring minimal volatility in capital values and a regular source of income, and who are willing to accept average returns for average volatility.
- Balanced: Investors requiring a relatively low level of income and above average long-term growth from a portfolio that maintains a balance between ‘income’ and ‘growth’ assets, and who are willing to accept moderate volatility.
- Growth: Investors requiring minimal income, and who are willing to accept higher levels of volatility in return for potentially higher returns over the long-term.
- Aggressive: Investors requiring little or no income and who are willing to accept very high levels of volatility in return for the potential to achieve very high returns over the long-term.
Asset Allocation
In the long run the bulk of investment performance is based on asset allocation as opposed to purely investment selection. Investments require regular review in case changes need to be made. Therefore, asset allocation is vitally important to the future continued good performance of your investment portfolio.We use the five risk profiles (mentioned above) and asset allocations developed by Tim Farrelly. Tim Farrelly brings a unique combination of analytics, understanding of financial markets, knowledge of capital market history and insight into the practical requirements of asset allocations for financial planners' clients.
Perpetual fixed interest investments have been a nuisance for some investors, as of late they have been re-setting their interest rate lower, and falling in value at the same time. The ANZ 9.66% Perpetual Bond - ANBHA could be next.
In April 2013 the ANZ will, either repay the bond at its $1 face value or re-set it for a further 5 years. If re-set today the new interest rate would be 5.42%pa.
Because it's uncertain whether ANZ will repay the bond (and possibly unlikely if the track record of other perpetuals are taken into account) it may be prudent for investors to SELL the bond, preserve capital, and move into other upcoming bond offers. Otherwise investors could be left holding onto a capital loss and a low interest rate.
This ANZ bond could follow other perpetuals which have fallen in value after a lower interest rate re-set. As an example Quayside Holdings Perpetual re-set its interest rate from 10%pa to 5.42%pa. The result was its price fell from $1 to 86c today.
Perpetual instruments such as these have caught many investors unaware.
If you have a short term investment horizon and hold this bond in your portfolio you may wish SELL the ANZ 9.66% Perpetual Bond - ANBHA and moving into upcoming new bond offers.
Last Sale at time of writing - $0.99
IRG's View on The APN News & Media Bond – The Opportunity:
IRG has identified an opportunity which we believe may appeal to some income investors. The investment is with a major Australasian Media Company and is a fixed rate, unsecured, unsubordinated bond with a maturity date of March 2016. So essentially a 4½ year term. The bond is repayable in cash at maturity – no perpetuals, no interest rate re-set, no conversion into shares in the company.
Bond key features:
- Quarterly interest payments
- Maturity date of March 2016 (early redemption possible at the Company's option)
- Fixed rate, unsecured, unsubordinated bonds which rank equally with all other unsecured, unsubordinated indebtedness of the company (including unsecured, unsubordinated bank debt)
- The Bonds, and all payments to be made in respect of them, will be guaranteed by the members of the Guarantor Group on an unsecured, unsubordinated basis
- The bonds principal and its interest payments are denominated in New Zealand dollars
Company features:
- A leading Australasian Company
- The largest Company of its kind in New Zealand
- One of the largest Companies of its kind in Australia
- Owns household brand names across New Zealand and Australia
If you are interested please phone Jonathan or Andrew on 0800 867 323 to place your order.
Your Guide to Investment Risk and Objectives
This guide is intended to explain to you what we mean at Investment Research Group (BOP) Ltd, by investment risk. It will assist you to decide the level of risk that you are prepared to accept and identify your investment objectives.
What is Investment Risk?
Investment risk can be defined as the degree of variability in performance of an investment over time. The greater the variability or fluctuation in the performance of a particular investment, the greater its investment risk is said to be. As this performance is directly reflected in the value of an investment, poor performance will usually result in reductions in the value of investments just as good performance will usually result in increases in the value of investment capital.
As many investors are primarily concerned with the possibility of losses to their investment capital, their tolerance to this uncertainty will usually dictate their investment risk category.
Risk vs Reward
Effectively, there is a trade-off between risk and reward so that the greater the possibility that you could lose capital, the greater the return you can expect from it over the longer term*. Similarly, investments that could bring limited losses to investment capital will also only provide limited gains to the investment.
As we expected Quayside Holdings Perpetual Preference shares (QHLHA) have been reset to 5.42% for the next three years until 12 March 2014.
Back in July 2010 we suggested that you might want to sell your Quayside Holdings Perpetual Preference shares (click here for original article). At that time QHLHA were trading at 97.25 cents. The last sale before the reset on 11 March 2011 was 85 cents. We expect the price to fall further.
So what does this mean for investors?
Many investors wont realise that their income from QHLHA securities will nearly halve until they receive their first dividend payment at the new rate on 12 June 2011. We expect further weakness in the price.
OnePath Wins Morningstar KiwiSaver Fund Manager of the Year
We are delighted to inform you that on 2 February 2011 OnePath's funds management team won two significant accolades in the Morningstar awards. OnePath won in two categories-most importantly the Morningstar KiwiSaver Fund Manager of the Year and also the International Equities Award backing up their win in 2009. They now hold both the Morningstar and FundSource, KiwiSaver Manager of the Year awards for 2010.
OnePath should be especially proud of the KiwiSaver award as this recognises a number of different factors including the performance of the funds, the level of customer service and delivering educational and easy to understand communications to all their members. They are deeply committed to meeting the needs of more than 1 in 5 New Zealanders enrolled in their KiwiSaver schemes. This award further reinforces OnePath's position as one of New Zealand's leading KiwiSaver managers.
We are particularly pleased as it validates our decision back when KiwiSaver started to select OnePath (then ING) as our primary KiwiSaver provider.
The International Equities award is testament to the capability in OnePath's investment team. They have a long track record of achieving awards and this year's success at Morningstar confirms the continuing stability and expertise of their team.
These awards demonstrate the expertise behind the OnePath brand.
If you haven't already signed up for KiwiSaver or want to change your provider please contact us on 07 578 3863, 0800 867 323 or email This email address is being protected from spambots. You need JavaScript enabled to view it.
The price of Quayside Holdings Limited Preference Shares (QHLHA) has fallen to around 96 cents.
The interest rate will be re-set March 2011, at 1.7% over the 3 year swap rate which is currently 3.95%. If they were re-set today the rate would be 5.65% and that would then be locked in for the next 3 years.
To estimate what the effect of the reset may have on the market value of Quyside we can look at the price of other local authority paper. Manukau City currently has a bond in the market which is set to yield between 6.35% to 6.75% per annum. We can use this as a proxy for local authority paper to indicate what Quayside may trade at. If Quayside was to return 6.35% to investors the capital price will fall to 83 cents and if it is to return 6.75% then the capital price will fall to 88 cents. Perhaps you should talk to us about the impact this could have on your portfolio - phone us on 07 578 3863.