As noted here, the Hamilton Hindin Greene meets quarterly (or as markets dictate). We believe The Committee to be a very important part of our process, helping advisers design bespoke portfolios for our clients. We also believe that it would be beneficial for our clients to get a glimpse behind the curtain (so to speak), so our Chairperson Grant Davies has provided an update from the Committee below.
The Hamilton Hindin Greene Investment Committee last met on the 1st of September. Whilst there were many things on the agenda, what I wanted to focus on in this article are the broader trends that were discussed.
Our quarterly meetings are timed to coincide with the end of ‘reporting season’. The bulk of NZ’s listed companies released their results in August. The Committee discussed these results, noting that for the most part, the company results were solid, if unspectacular. The forward outlook was the key aspect that interested both the Committee and the market, this is where there was some concern. I would define the broad sentiment as cautiously optimistic, although a few companies were not optimistic enough for the market’s liking. This includes a2 Milk Company, which posted a strong result but was punished amid fears about China’s slowing birth rate and shrinking infant formula market.
Fletcher Building and Port of Tauranga have both had soft outlooks which is why their respective share prices dropped.
The political and economic uncertainty, coupled with higher interest rates were the focus of a discussion the Committee had with the Betashares Chief Economist David Bassanese. The Committee welcomes David as a guest presenter at the meetings. He offers us another independent voice and always has excellent insights into broader market trends.
He noted recently that the global economy has been remarkably resilient in the face of higher interest rates, noting that the US market, in particular, has outperformed expectations. Part of this out-performance has been down to a small number of companies rallying in the technology space, but also because inflation has been falling in spite of the broadly solid economic performance.
David noted that as inflation begins to subside, interest rates should begin to follow suit.
The key take-out for the Committee, in terms of the impact of the above on our clients, is that we believe that the time is right for clients to extend their fixed interest duration. In simple terms, this means that the five, six and seven year bonds that are currently coming to the market with rates in the six to seven percent region look relatively attractive when compared to other asset classes, and shorter rated bonds. We are concerned that many investors will be looking at the one-year Term Investment rates on offer at the moment and not considering that interest rates are forecast to drop over the next couple of years. We consider the time is right to lock in some longer-term rates.