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INVESTOR NEW ZEALAND

Issue 197

JULY 2011 $8.95

INVESTMENT RESEARCH GROUP

Telecom Half the company, twice the speed

Health insurance Read our special report

Trusts in jeopardy High court decision limits protection

Kiwisaver The cost of constant tinkering

Property report Auckland prices nudge up $8.95

Bond issues Why you can’t set and forget


Invest in your taste buds Experience the Sophistication oF New York and the Audacity of Chicago

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Editorial

INVESTMENT RESEARCH GROUP

Subscriptions: P O Box 1314, Shortland Street, Auckland 1140. Tel: (09) 304 0145 Publisher: Investment Research Group Ltd (IRG) Editor: Steve Hart - Steve@SteveHart.co.nz Contributors: Simon Hendery, Diana Clement, Dr Robert Howell, Jeremy Muir, Tony Sagami, Kirk Hope, Brent King, Michael Coote, Terry Kim, Nick O’Boyle, Dirk Mostert, David McEwen, Ian Proudfoot, Martin lewington, Eugene Sparrow Advertising: Sales@irg.co.nz Tel: (09) 304 0145 or 0800 474 669 Advisers/Research: Investment Research Group Ltd Sharebroking advice: Sharon Fang (09) 304 0235, Dan Stratful (09) 304 0232, Nick O’Boyle (09) 304 0233, Terry Kim (09) 304 0223 Prospectus requests: Email: info@irg.co.nz Design & layout: DMG Advertising - www.dmgadvertising.com Printing: PMP Maxum (09) 979 3100 ISSN: 1172-451X Registered Publication Information: For ­information and correspondence on any of the products/ investments mentioned in this pub­lication contact: Investment Research Group Level 10, Swanson Tower, 20 Hobson Street, Auckland PO Box 1314, Shortland Street, Auckland 1140, New Zealand Freephone: 0800 437 8489, Tel: (09) 304 0230, Fax: (09) 358 3858 Email: info@irg.co.nz Disclosure of Interest Directors and staff of Investment Research Group Ltd (IRG) may and do from time to time hold investments in shares and investment products reviewed in New Zealand Investor. It is our policy to follow our own advice. New Zealand Investor is the investment magazine of investment analysts and financial advisers IRG. New Zealand Investor is provided free to investor clients who meet qualifying investment criteria. It is also available by subscription and through all good newsagents. Clients of IRG receive additional brochures and information as well as personal advice. To become a client of IRG all that is necessary is that you invest through us. We discount entry fees on almost all investment products to bring our clients a highly comprehensive service. IRG may receive brokerage, commissions or other payments from issuers of investments and advertisers. Disclosure under the Investment Advisers (Disclosure) Act 1996 is available upon request. Investment Risks and Suitability Published material and advertisements are not intended as personal investment advice or recommendations of suitability to any particular person. Articles and advertisements may include reference to investments which have varying levels of risk and return from speculative and risky to very low risk. It is the responsibility of the reader to assess suitability of any investment advertised or referred to having regard to their own objectives, particular circumstances and investment portfolio. If in any doubt, clients and prospective clients of IRG should consult with us in order to better assess suitability for their objectives or investment portfolio. Investors should also read the investment statement and/or prospectus or Product Disclosure Statement (PDS) for any investment which by law requires publication of such documents and satisfy themselves that investments referred to are appropriate for their circumstances and portfolio. Disclaimer IRG, as publishers of this magazine, believe that the information contained in the New Zealand Investor is correct at the time of publication and that any estimates, opinions, conclusions or general recommendations contained in herein are reasonably held or made as at the time of compilation. However, no warranty is made as to the accuracy or reliability of any estimates, opinions, conclusions (which may change without notice) or other information contained in this publication and, to the maximum extent permitted by law, IRG disclaims all liability and responsibility for any direct or indirect loss or damage which may be suffered by any recipient relying on anything contained in or omitted from this publication. Any action taken by an investor is strictly that investor’s independent decision and sole responsibility. The company declines and disclaims any liability whatsoever in contract and in tort (for negligence) for any direct or indirect consequences from or arising from the information supplied. Copyright No part of the New Zealand Investor may be copied, photocopied, stored in an electronic retrieval system or reproduced in any form without prior permission from the copyright holders. © Investment Research Group 2011.

Disclosure Statement: A disclosure statement can be obtained free of charge by calling IRG on 0800 437 8489, or by visiting our website www.irg.co.nz

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any of the big changes to the financial investor industry are now in place. The plan is that the advice offered by qualified and registered advisors will be more reliable. That, in many – but not all – circumstances, biased advice will be a thing of the past. From July 1, all financial advisors have to abide by the Financial Advisors Act. It is a big change for people working in the industry. Many have found work elsewhere, others have trained up and are either registered or in the throes of doing so. For the time being, the onus is on investors like you to ask your advisor what qualifications they have and if they are registered – and if so – which type of registration they have. To find out what all this means to you, read Jeremy Muir’s feature on page 10. It is also worth noting that even if you are now served by a registered advisor, you still need to do your own research before taking their advice. Given the increasingly aging population in New Zealand, and elsewhere, it is little surprise that Ryman Healthcare, with its residential centres, is doing well. Profits are up and there are now plans to expand the company’s business into Australia. But as Simon Hendery reports on page 12, the firm is taking it slowly. One careful step at a time. When it comes to buying land, building homes and looking after people who are active in their retirement, it doesn’t make sense to rush. Ryman appears to have the balance just right. Telecom is to be split in two – if its shareholders agree. The change is all down to it winning the lion’s share of the government’s ultra fast broadband plan – I for one can’t wait to enjoy internet speeds that I first experience 12 years ago in Britain (but I digress). If you are a Telecom shareholder you need to read our feature starting on page 22. Insurance is a big part of our lives. In part two of Diana Clement’s feature on insurance she looks at life, health, travel and business. She discovers that New Zealanders are among the least insured people in the world. Whether you are insured, under insured or have no insurance at all – read our special report starting on page 32. Dr Robert Howell says everyone, including lenders and investors, need to play their part when it comes to reducing global warming. Read his report starting on page 40.

All up this is another packed edition of NZ Investor. Thanks for reading.

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INVESTOR NEW ZEALAND

New Zealand INVESTOR • July 2011

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Features 1

Editorial

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New and noted

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Bank watch

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10 Advisor rules – Jeremy Muir 12 Ryman Healthcare – company profile – Simon Hendery 18 Take a look at Apple – Tony Sagami 20 Telecom to split – Simon Hendery 26 Analyse the analysts - David McEwen

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27 Genetically modified economy – Ian Proudfoot 28 Property report – Steve Hart 30 Kiwisaver tinkering – Martin Lewington 32 Insurance special – Diana Clement 38 Bond management – Dirk Mostert 40 Ethical investing – Dr Robert Howell 44 Commodity report – Nick O’Boyle 45 Non-bank lenders – Kirk Hope 52 Trusts – Michael Coote

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54 Car shortage 55 Clean green investments - Eugene Sparrow 56 Parting shot – Brent King

Regulars 17 Market report – Terry Kim 46 Fund source tables

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48 Fixed term tables 53 Classifieds

issue 198 of NZ Investor Insurance for rental properties – what landlords need to know. Will food be the next gold?

INVESTOR NEW ZEALAND

INVESTMENT RESEARCH GROUP

See inlay card to subscribe and save

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

www.irg.co.nz


News

News round-up... IRG buys Sharechat.co.nz IRG, publisher of NZ Investor magazine, has bought the sharechat. co.nz business from Tawarea Publishing for an undisclosed sum. Brent King, managing director of IRG, says the purchase of sharechat. co.nz (and all associated components) will enable the firm to further develop the websites operated by IRG’s media division which includes online research as well as newsletters. “Sharechat is a very popular website which will increase the traffic volumes to the IRG group,” says King. “IRG has been recapitalised by the investment from GA Sego, completed on 11 April 2011. These funds have allowed IRG to plan positively for the future and this is the first acquisition within its strategic plan.” IRG is 55 per cent owned by GA Sego and Auckland-based GA Group, whose owner is Timothy Keene. IRG’s websites include moneyonline.co.nz, irg.co.nz, irgbop.co.nz, shareinfo.co.nz, equity. co.nz, shareclub.co.nz and nzinvestor. co.nz.

them money to join KiwiSaver and signing them up to scheme membership without providing them with a investment statement – the disclosure document that provides investors with the information they need in order to decide whether to join the scheme. His actions breached the Securities Act. FMA chief executive Sean Hughes says investors should be wary of any unusual approaches to buy a financial product or join a scheme such as KiwiSaver, and asked people to alert FMA about any such approaches. Hughes says the action FMA has taken in respect of Diack’s activities should serve as a warning to other KiwiSaver and financial product providers of their legal responsibility for those acting on their behalf and their moral obligation to protect their customers. Investors can check whether a person or firm offering a financial service is registered on the Financial Service Providers Register at www.fspr.govt.nz.

Love those avos

Online foreign exchange CurrencyFair is an internet-based marketplace, where users from around the world can exchange currencies with each other. CurrencyFair.co.nz works by matching two people with complimentary currency exchange needs, putting the two together, anonymously, over cyberspace, and makes sure the transaction is safe and secure. The average CurrencyFair customer, regardless of transaction size, pays approximately 0.3 to 0.55 per cent of the amount exchanged plus NZD $5 per transfer.

Wool merger

Buyer beware The Financial Markets Authority has taken steps to stop unregistered KiwiSaver sales representative Patrick Diack from engaging in illegal sales activities. Diack has been a sales representative for several KiwiSaver schemes, most recently operating in the lower North Island. Diack’s sales approaches have included soliciting members of the public outside WINZ offices, offering

technology last year, establishing its plant in Pukekohe and creating 40 jobs. Fressure Foods’ CEO, Vern Dark, says with its ability to extend the shelf-life of avocados and deliver them in a convenient ready to use pack the industry is capable of boosting the country’s annual exports by $20 million.

The Kiwi avocado industry has secured a multi-million dollar export deal with Japan thanks to its food preserving technology, that uses ultra high pressure (UHP) processing technology (known as cold pasteurization), to kill bacteria in food products. Kiwi owned Fressure Foods, a grower-owned company, imported the

The Commerce Commission authorised Cavalier Wool Holding’s acquisition of all of the wool scouring assets of New Zealand Wool Services International. If the acquisition occurs, Cavalier Wool will be the only wool scourer in New Zealand. Cavalier Wool’s application was made under section 67(1) of the Commerce Act. The acquisition will clearly reduce competition in scouring and may lead to some price rises but the Act allows these losses to be outweighed by likely cost savings in the sector.

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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News

Crown revenue down Core Crown revenue in the 10 month period to 19 May 2011 stood at $46.4 billion (0.2 per cent below forecast), with Core Crown tax revenue at $42.3 billion (also 0.2 per cent lower than anticipated). Core Crown expenses of $56.3 billion were 0.9 per cent ($525 million) below forecast with most departments continuing to report some under expenditure against their forecasts. The operating balance deficit before gains and losses, at $10.9 billion, was 3.6 per cent smaller than expected largely as a result of the lower than forecast expenses. The deficit is forecast to grow by $5.8 billion in the next two months to $16.7 billion by 30 June. The growth in the deficit is largely a result of sharp increases in forecast expenses, most notably earthquake related costs, the weathertight homes assistance package and costs associated with the ETS. Gross debt was $2.9 billion or 4.2 per cent higher than

forecast due to a number of factors, the most significant of which were the “considerable valuation movements” as a result of higher than forecast exchange rates. The New Zealand exchange rate has been at or near record highs recently which caused derivative liabilities to be $824 million greater than expected and also contributed to derivative asset values being significantly above forecast, which required increased collateral of $759 million to hedge this risk. In addition, Treasury bills’ issuance also remained ahead of forecast (by $751 million) due to stronger than anticipated demand. At $71.6 billion or 36.8 per cent of GDP, gross debt was $19.6 billion higher than the same time last year. As a result of the higher debt position, finance costs for the 10 months ended 30 April 2011 were $559 million higher than in the same period last year. The movements in gross debt were net debt neutral meaning that at 30 April 2011, net debt was close to forecast at $41.5 billion or 21.3 per cent of GDP.

Western Pacific Insurance Payment of reinsurance premiums by the liquidators of Western Pacific Insurance has given hope for Christchurch policyholders affected by the September 2010 and February 2011 earthquakes. David Ruscoe and Simon Thorn, of Grant Thornton New Zealand, who were appointed liquidators of the Queenstownbased insurance company on 1 April 2011, said in a report to policyholders that by paying the reinsurance premiums they were hopeful that approximately $35 million would be available for Canterbury earthquake claims. The liquidators said that one of their key tacks was to assess the claims that had already been made. One thing the liquidaon the light side...

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

tors have identified is that there will be a shortfall in funds. Liquidators say that of the $41.2 million in claims to date, approximately $35.2 million is a result of the earthquakes. Grant Thornton is reviewing the performance of Western Pacific Insurance’s directors to see if there are any actions available to them to recover funds for creditors. These actions can include claims for reckless trading, entering into transactions when insolvent and certain voidable preference payments.” For those with claims for losses incurred before the cancellation of their policies, the claims department is operational and can be contacted on (09) 365-1642.


News

Westpac result Westpac New Zealand has reported net profit after tax of $210 million for the half year to 31 March 2011, a lift of 68 per cent on the corresponding 2010 period. Driving the strong performance was a 13 per cent rise in core earnings (underlying profit) to $433 million due to net operating income growth of 9 per cent. Westpac New Zealand CEO, George Frazis, says the result is a strong performance given the subdued market and the impact of the September and February earthquakes in Christchurch. “Home lending has grown ahead of market, margins have improved and deposits have also increased to support our growth,” he says. Lending rose 2 per cent over the same period in 2010 mainly due to a 3 per cent rise in mortgage Lending, while deposits increased by 5 per cent, or $1.6 billion, more than fully supporting loan growth. Frazis says with the rebuilding process in Christchurch still not clear, the overall financial impact of the earthquakes will continue to be refined. To date, pre-tax impairment charges in the form of an overlay and specific provisions relating to the two quakes are $66m ($10m from September 2010 in addition to the $56m in the current half). Frazis says the bank is seeing signs of economic recovery in New Zealand although the “subdued activity is expected until late 2011”. “Consumer spending is rising and nationwide house sales are on the up despite the earthquake disruption,” he says. “New Zealand needs to move from caution to confidence to get the economy moving again.

A serious rate for serious investors This excellent offer is ideal for the experienced investor who wants to take advantage of the current market conditions. Ask us about our financial position, track record, lending and operational differences. • No unsecured lending • No related party lending • All loans principal and interest repayments • Interest paid quarterly • Minimum investment $1,000 • Subscriptions limited to 2 million dollars

Innovation for growth Innovation – in the form of developing new products and services – has become as important to growth for CEOs as raising their share of existing markets. A survey by PwC of 1200 CEOs from around the world has found innovation, along with increasing their existing business, now outstrips all other means of potential expansion, including moving into new markets, mergers and acquisitions, and joint ventures and other alliances. In all, 78 per cent of CEOs surveyed believe innovation will generate ‘significant’ new revenue and cost reduction opportunities over the next three years. But it is highest for those where technology is changing customer expectations. In the pharmaceutical, entertainment and media sectors, for example, more than 40 per cent of CEOs believe their greatest opportunities for growth come from spawning new products and services. Additionally, the survey found CEOs are re-thinking their approach to innovation and increasingly seeking to collaborate with outside partners and in markets other than where they are based. For example, a majority of entertainment and media CEOs say they expect to co-develop new products and services. PwC’s CEO, Bruce Hassall says the next decade will be the ‘most innovative time’. “In mature markets companies must innovate to differentiate themselves; in emerging markets, they need innovation to lessen their dependence on lower costs,” says Hassall.

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Rates are expressed at the time ad is published but may change over time. Finance Direct is exempt under the exemption notice 2009 from the requirement of section 157 I of the Reserve Bank of New Zealand Act 1989 to obtain a credit rating.

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Confidence on the up - maybe A BNZ survey has found a further rise in sentiment about where the economy will be in a year’s time. The survey shows that a net 57 per cent of those surveyed felt ‘positive’, up from 42 per cent in May. While sentiment in the agriculture industry was ‘overwhelmingly positive’, and accountancy and non-residential real estate were feeling more positive, the overall tone of anecdotes submitted remains ‘very cautious’.

Singapore Virgin Singapore Airlines and Virgin Australia have signed a codeshare agreement. Under the agreement, the two airlines propose to share each other’s international and domestic flights, offer reciprocal frequent flyer programme benefits and lounge access, and coordinate schedules between Singapore and Australia and beyond. The alliance will connect Singapore Airlines’ international network with Virgin Australia’s Australian and Pacific destinations. The proposal is subject to regulatory approval.

Geneva Finance The Financial Markets Authority has made an interim order to stop allotment of securities by GFNZ Group Limited (formerly known as Geneva Finance). This is a new power, and the first time FMA has exercised it. FMA says that in the March 2011 quarter GFNZ breached its minimum new lending covenant with its primary funder, Bank of Scotland. As a result, Bank of Scotland’s facility is repayable on demand. GFNZ is a finance company operating under moratorium, and its shares are listed on the NZX. Many

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former debt holders are now shareholders because of a debt-for-equity swap in March 2011. GFNZ is a continuous issuer and was raising money from the public through its registered prospectus, dated 12 May 2011. “We believe our action is in the public interest because the prospectus relates to a continuous offer of debt securities,” says FMA CEO Sean Hughes. “It is vital that existing and prospective investors have sufficient information about the company to make an informed assessment of their investments. “The interim order will prohibit any further allotment and so protect investors from being misled. “Our first use of this new stop order power is one means by which we can improve investor confidence in the accuracy of information presented to the market.” FMA is seeking further information from GFNZ while it considers whether it uses its power to order the offer documents to be corrected to FMA’s satisfaction or cancelled because they are likely to deceive, mislead or confuse investors.

PGG Wrightson Finance Standard & Poor’s says it will raise PGG Wrightson Finance credit rating BB to BBB- should it be sold to Heartland. Jeff Greenslade, CEO of Heartland, which is planning to buy PGG Wrightson Finance, says the news is a “further endorsement of the quality of the asset”. Standard & Poor’s has indicated that should the purchase proceed that PGG Wrightson Finance could expect to have its credit rating lifted to one aligned with Heartland’s investment grade rating. A rating of BB is defined by Standard & Poor’s as: Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic

New Zealand INVESTOR • July 2011 • www.irg.co.nz

conditions. BB is a speculative grade investment. Where as a BBB- rating is considered lowest investment grade by market participants and is at the lower end of the investment grade. A condition of the proposed purchase is that PGG Wrightson Finance debenture holders approve the transaction and their debt is transferred to become Heartland obligations. “The PGG Wrightson Finance acquisition is clearly consistent with our strategy and expands our presence in the economically important rural sector,” says Greenslade. “The acquisition will accelerate the achievement of our financial and strategic objectives and forges strong links with New Zealand’s leading rural services provider.”

NZ Post survey New Zealand’s most comprehensive survey asking Kiwis their preferences on everything from takeaways to travel destinations is underway. The second NZ Post Lifestyle Survey, which is not a compulsory questionnaire, poses 56 questions to householders such as what sport they play, what kind of car they drive and their favourite fast foods. Data from the voluntary survey is used by New Zealand Post for its own marketing databases and for selling to commercial clients. NZ Post general manager integrated communications, Dr Sohail Choudhry says New Zealand Post ensures people maintain control of their volunteered information, giving them the option to withdraw their data. NZ Post has also learned lessons from the first Lifestyle Survey in 2009 which some people thought was compulsory and others mistook for the census. “We repeatedly state – eleven times in the survey form in fact – that the Lifestyle Survey is completely voluntary,” says Choudhry. “The survey doesn’t coincide with the census year this time so there won’t be any mix-ups on that score either.”


News

Fewer homes built The Registered Master Builders Federation (RMBF) says the latest building consent figures from Statistics New Zealand show that the number of new houses to be built in 2011 will most likely be the lowest number ever recorded. Government figures show 893 new home consents were issued in April, down 14.7 per cent from the previous month. New home building consents issued so far this year are 777 in January, 973 in February, and 1047 in March. RMBF CEO Warwick Quinn says when these figures are extrapolated for the remainder of the year the industry is looking at barely 11,000 new home consents for 2011.

mARAc non-guARAnteed teRm dePosit

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12 montHs

.00%

p.a. with interest quarterly. minimum investment $1,000.

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mARAc guARAnteed teRm dePosit

12 montHs

.25%

p.a. with interest quarterly. minimum investment $1,000.

Manufacturing sector positive

Operating as a divisiOn Of cOmbined building sOciety

All MARAC Deposits are issued by Combined Building Society. For our investment statement or further information, please contact us on 0800 26 27 22 or visit www.marac.co.nz combined building society HAs A guARAntee undeR A cRoWn RetAil dePosit guARAntee scHeme, being A guARAntee tHAt eXPiRes on 31 decembeR 2011.

mARAc non-guARAnteed dePosits oFFeRed by combined building society ARe not coVeRed by tHe guARAntee giVen undeR tHe cRoWn RetAil dePosit guARAntee scHeme. MARAC Guaranteed Deposits are covered by the Crown guarantee, until the guarantee expires on 31 December 2011, subject to the terms and conditions of the guarantee. Once the Crown guarantee expires, no deposits will have the benefit of the guarantee. Further information about the Crown guarantee is available on Treasury’s website at www.treasury.govt.nz. Rates are subject to change. Combined Building Society has a BBB- (Outlook Stable) credit rating from Standard & Poor’s. See our Investment Statement or our website for more details about our credit rating.

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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May saw the manufacturing sector continue its march towards stronger expansion, according to the latest BNZ - BusinessNZ Performance of Manufacturing Index (PMI). The seasonally adjusted PMI for May was 54.7, up from 52 in April and the highest value since June 2010 (a PMI reading above 50.0 indicates that manufacturing is generally expanding; below 50.0 that it is declining). Four of the five indices were in expansion for May, the same as April. BusinessNZ’s executive director for manufacturing Catherine Beard says that the second consecutive month of improvement in activity is consistent with other indicators seen within the sector. “Although there have been some recent publicly announced layoffs in the sector, overall the manufacturing sector has shown signs

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of resilience, even in the face of a high dollar versus the US dollar,” says Beard. “It is particularly pleasing to see such a positive result from Canterbury manufacturers, which have come back quite quickly into expansion mode after the February earthquake in a relatively short space of time.” BNZ economist Doug Steel says the May PMI was further evidence of the economic recovery gathering momentum. “Within the rather diverse fortunes across the manufacturing sector at present, there are some rather strong pulses coming through. Surging commodity income is starting to filter through the economy, and appears to be one factor behind a lift in manufacturers’ new orders. There are also encouraging signs that domestic consumer demand is improving, which may amplify the inventory cycle and the economic recovery we foresee.” Unadjusted results by region showed three of the four main regions in expansion, with Canterbury/Westland (57.7) leading the way with its highest value since November 2010. This was mainly due to improved production and new order results (both domestically and offshore).

Businesses ready to grow Ninety per cent of privately owned businesses are expecting positive growth in the next year, according to the 2011 ANZ Privately-Owned Business Barometer, released. ANZ managing director, commercial & agri, Graham Turley says the results of the bank’s survey are encouraging, and New Zealand business owners were demonstrating their resilience through the recession and the Christchurch earthquakes. “As the ANZ barometer shows, stiff competition for households’ disposable dollar remains a concern for businesses all along the supply chain. As a result, managing costs, actively engaging 8

customers and actively managing debtors and cash flow will continue to dominate the business environment,” he says. “We expect the Canterbury rebuild and influx of international visitors for Rugby World Cup 2011 will also give businesses a boost. According to the survey, 90 per cent of business owners are expecting positive growth in the next year, while 85 per cent expect growth of 5 per cent or more in the next three years. However, the recovery is not impacting evenly across the sector. While most are driving for growth, around one in 10 are anticipating negative growth in the next 12 months. Skills shortages is the second biggest issue facing business owners after competition with 37 per cent of those who took part in the survey indicating availability of people and skills as being a main concern (34 per cent in 2010). About half of all business owners want to spend less time in their business and 22 per cent of business owners say balancing family and business is an issue (up from 10 per cent in 2010). International expansion is planned with 34 per cent operating internationally and another 12 per cent aspire to expand offshore. About 29 per cent have sales to China and 60 per cent of them expect this to increase in the next three years.

Insurers head to court The Earthquake Commission (EQC) and the Insurance Council are to ask the High Court to make a ruling on complex questions of insurance coverage arising from the two major Canterbury earthquakes and their aftershocks. Under the Act, EQC provides cover for damage to residential properties and contents from earthquakes and certain other natural disasters up to a maximum of $100,000 (plus GST) for

I New Zealand INVESTOR • July 2011 • www.irg.co.nz

A van slips into a sinkhole during the February 22 earthquake.

properties and $20,000 (plus GST) for contents, along with defined coverage for damage to residential land. The claimants’ insurers provide coverage for amounts above the EQC’s limits. The issue that EQC and the insurers want to clarify is in what circumstances the EQC insurance will be reinstated back to its full limits after natural disaster damage has happened. While cover has been reinstated in the majority of cases, in a “small number of situations” it is uncertain whether EQC insurance will provide a further $100,000 of cover for the second event. EQC and the insurers will be asking the High Court to deliver its decision as soon as it can. The EQC and the Insurance Council have been working on this issue for several weeks and believe a joint move is the best way for the EQC and the industry to get certainty. They will lodge papers with the Wellington High Court seeking a declaratory judgment on how to apply the Earthquake Commission Act 1993 in the unusual circumstances generated by two major earthquakes in almost the same location over a matter of months. “EQC and the insurers want to get certainty on this difficult issue as soon as possible to ensure the smooth running of the claims settlement process,” says EQC chief executive Ian Simpson. “We will welcome the clarity that a court decision will bring. The important point is that we all agree on is that it shouldn’t affect payments to people who have suffered losses. It’s really about how much cover EQC is allowed to provide in these unusual circumstances.”


Expert Watch

Banking Brief Inflation nation

Hint of recovery

We’re still not so optimistic on the inflation outlook. June’s inflation projections showed inflation remaining close to the midpoint of the target band. But higher projections for the 90-day interest rate and the NZD TWI, and some asymmetric assumptions on inflation expectations, household spending and construction cost inflation were needed to achieve that. The change in RBNZ terminology on the underlying inflation outlook to being “constrained” from “contained” and increasing discussion on inflation expectations indicate that the Bank is mindful of upside inflation risks. With the increasing policy traction available to them, the RBNZ is prepared to take a punt, but we can see clear upside risks. For some time we have voiced our concerns that a perfect storm of cost and demand-side influences will feed though into price and wage setting behaviour – with the climb in inflation expectations a precursor to this.

Consumers started to crack open their wallets again in the early part of this year, even if it was only to blow some of the cobwebs out. The renewed momentum in retail sales growth is an encouraging sign, but the severely depressed level of sales means there is still little joy for retailers. In per capita terms, sales volumes are still a whopping 8.5 per cent below their early 2007 high, and are only 1.7 per cent above their trough from two years ago. The rise in Q1 sales was in part due to the easy gains to be made after the post-GST hangover. Last year, purchases of some big-ticket items were brought forward into September to beat the 1 October increase in GST. Our view is that, without the conditions for a repeat of last decade’s house price boom, consumer spending growth will be more constrained by the pace of income growth in coming years. That implies that a return to the pre-recession level of sales could be several years away.

Retail sales up

Jobs market

Retail sales volumes increased 0.9 per cent in Q1, and follow some weak results over the second half of 2010. An improvement in sales of major household items such as furniture and electronic goods drove the increase in retail spending. While there was decline in retail sales in Canterbury, sales in the other regions are holding up well. Nonetheless, households remain cautious. The RBNZ highlighted at the June monetary policy statement (MPS) the continued high level of household debt, and it expects this will continue to constrain spending. We expect the recovery in retail spending will continue at a gradual pace over the coming year, and see little urgency for the RBNZ to lift the official cash rate (OCR). Given the RBNZ has indicated it would like to see evidence the NZ recovery is gaining a firmer footing before it reduces monetary policy stimulus, we expect the RBNZ will hold off raising the OCR until January 2012.

The jobs market should certainly be making householders feel better about life. It was interesting to see the registered dole queue was falling through the June quarter, as reported by the Ministry of Social Development. Indeed, adjusted for population, it was not even a third of what it peaked at in the 1997/98 recession. The reason New Zealand’s official unemployment rate is not substantially lower by comparison is because the participation rate has surged since the late 1990s – and that’s fundamentally a good thing, with the vast majority of the new entrants having obviously secured jobs. This is further evidence, to us, that New Zealand’s labour market is in far better shape than generally perceived. On the interest rate front… we continue to expect the RBNZ to raise rates, from the current historic low of 2.5 per cent, by the end of the year, moving gradually in 25bps increments to 4.75 per cent by the end of 2012.

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Advisers

Get in on the act July 1 was a watershed day for financial advisers, but what does it mean for investors? Jeremy Muir, a partner with law firm Minter Ellison Rudd Watts, explains all.

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ll financial advisers, financial planners and investment managers must now comply with the Financial Advisers Act. For some, this means they must be authorised financial advisers (AFAs), approved by the Financial Markets Authority to advise on all financial products; others may only need to be individually registered (RFAs) on the Register of Financial Service Providers or to be associated with a qualifying financial entity (QFE), such as a bank or some adviser groups and fund managers. What this means for you as an investor is that depending on your individual characteristics (whether you are a retail or wholesale client - which I will touch on below) and the nature of the advice or product you are interested in, some advisers may not be able to advise you and, where they can advise, may need to provide you with different information or will be subject to different obligations.

An adviser who deals with retail clients must be a member of an approved dispute resolution scheme and your adviser should tell you which scheme they belong to If you are a retail client, only AFAs and QFE advisers (where a member of the QFE group is the issuer or promoter) can give you personalised advice about complex financial products such as KiwiSaver, unit trusts, shares and bonds. RFAs can only give you personalised advice about simpler products such as bank deposits, cash PIEs and risk insurance. Personalised advice is advice that takes into account your particular financial situation or goals. It is different from class advice, which is generic and not personalised. What’s the difference between AFAs and RFAs? AFAs are bound by the new Code of Professional Conduct – this means that, if you are a retail client getting a personalised service, they will need to ask you more questions to determine whether an investment is suitable for you, unless

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

you instruct them not to. They will also be required to give you a written summary of their advice. RFAs and QFE advisers are not bound by the code, but are still subject to duties to advise with care, diligence and skill. QFE advisers must also be supervised by their QFE, in accordance with conditions agreed with the Financial Markets Authority. If you are a retail client, AFAs and RFAs will also need to give you a disclosure statement, similar to that used by financial advisers previously. There are a number of different categories of wholesale clients, including other advisers, financial services businesses and experienced investors. If your adviser wants to treat you as a wholesale client (including if they ask you to sign a form stating that you are an “eligible investor”), be aware that you will not receive the same disclosure and the adviser will not have the same level of obligation to you that they would have to a retail client. If you have concerns about this, you can always tell your adviser that you should be treated as a retail client. If you want independent personalised advice about KiwiSaver, unit trusts, shares and bonds or other complex products, you should talk to an AFA. If you talk to a QFE, be aware that they will not generally be independent from the products they are advising on. If you don’t need personalised advice, or only in relation to simple products (e.g. risk insurance), you can deal with any registered adviser, but be aware that the advice may not be tailored to your particular circumstances. An adviser who deals with retail clients must be a member of an approved dispute resolution scheme and your adviser should tell you which scheme they belong to. If you need to, you can check this on the website of the Financial Service Providers Register at http://www.business.govt.nz/fsp. Jeremy is a Partner in the Banking and Financial Services Team at Minter Ellison Rudd Watts. He has a broad range of legal expertise, with a focus on managed funds, financial services regulation, securities law and alternative assets (private equity, venture capital, hedge funds and property investment).


We invest in

New Zealand

1

Heartland Building Society was born out of the merger of three trusted New  Zealand brands – CBS Canterbury, MARAC and Southern Cross Building Society. At Heartland, we are firm believers in ‘what goes around comes around’. So when you invest with Heartland, your money is used to support small to medium-sized local businesses, farmers and families, and drive prosperity in your local community. We are the highest Standard & Poor’s rated Building Society in New Zealand, with an ‘investment grade’ BBB- (Outlook Stable) credit rating. Our lending is diversified across the small to medium-sized business, rural and household sectors, and geographically across New Zealand to reduce risk. We pride ourselves on providing you a tailored offering, competitive rates and service with a personal touch. For more information or a copy of Heartland Building Society’s Investment Statement, please contact us on 0800 85 20 20 or visit www.heartland.co.nz

6.00 %

TERM DEPOSITS

12 MONTHS

P.A.

(Interest paid quarterly)

BBB-

RD & PO

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. CRE

O M S TAN

DA

RD & PO

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BBB-

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INVESTMENT GRADE O

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RAT I NG

P.A.

(Interest paid quarterly)

DA

FR

5.50 % 6 MONTHS

Originated in New Zealand – 1875

R ’S

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Heartland Building Society has a guarantee under a Crown retail deposit guarantee scheme, being a guarantee that expires on 31 December 2011. However, the advertised term deposits offered by Heartland Building Society are not covered by the guarantee given under the Crown retail deposit guarantee scheme. All deposits are issued by Heartland Building Society. Minimum investment $1,000. For further details about deposits, see Heartland’s Investment Statement, available at www.heartland.co.nz or by calling 0508 HEARTLAND (0508 432 785). Heartland Building Society has a BBB- (Outlook Stable) credit rating from Standard & Poor’s. Standard & Poor’s credit ratings are statements of opinion, not statements of fact or recommendations to buy, hold or sell any securities. Ratings may be changed, withdrawn or suspended by Standard & Poor’s at any time. For more information about our credit rating see our Investment Statement or visit our website www.heartland.co.nz.


Company Profile

Golden oldies Listed aged care and retirement village operator Ryman Healthcare appears to be taking the tough economic climate in its stride. SIMON HENDERY talks to Ryman’s managing director SIMON CHALLIES about how the business is achieving record results

B

uilding retirement villages may not be the sexist business to be in, but Ryman Healthcare is proving that housing the elderly is anything but a sunset industry. In May, the firm – that has been listed on the NZX since 1999 – reported a record underlying annual profit of $72 million. Ryman’s approach to business seems to reflect the type of environment its cliental would expect at one of its villages: an attitude of quietly and methodically getting on with what needs to be done. Ryman currently owns 22 retirement villages up and down the country that are home to 5400 people, the majority aged in their mid-70s or older. Ryman villages all offer a mix of “retirement living” for their more healthy and independent residents, plus “resthome care” for those with medical needs. Despite the chill winds blowing through the economy recently, Ryman has passed its own latest financial medical check-up with flying colours. Managing director Simon Challies is being slightly provocative when he describes the recently concluded 20102011financial year as “typical” for the Christchurch-based company. “A terrible property market, two major earthquakes, and we still made our target,” he says. “Bring on the Aussies.” The second part of Challies’ statement is a reference to Ryman’s plans to expand into the Australian market. More on that later. First the earthquakes. When Challies spoke to NZ Investor he was enjoying his first few days of having his own private office space since the February 22 quake jolted the business out of its previous headquarters in the Christchurch CBD. Ryman staff have been working out of temporary offices ever since and Challies says it will probably be early next year before the company relocates to a new permanent base. He says an upside for Ryman from last September’s quake was that by the time February 22 rolled around, the company had completed an update of its disaster recovery strategy that meant disruption to the business was minimised. None of its villages were damaged as a result of the disaster. Then there is the stagnant property market. The state of

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

Ryman managing director, Simon Challies

the residential housing market impacts Ryman’s business because retirees typically need to sell their homes to move into a village. Challies says Ryman’s observation has been that the past year was “nearly as bad as the miserable 12 months straight after the credit crunch” from a property market perspective, with low volumes of house sales. “So for us to continue to grow and expand despite that environment was a very good result for us.” Commenting on Ryman’s profit announcement, First NZ Capital analyst Jason Familton says the company was continuing to benefit from its favourable business model, the aging population and its strong management and operations. Familton is predicting Ryman’s earning growth will slow in the current financial year, and says the main driver for this is the flat housing market. But Challies says Ryman is less susceptible to the weak housing market than some people think. “At the time of the credit crunch there were a lot of people questioning how we would survive a weak residential property market,” he says.


Company Profile

• Owns 22 villages nationwide, which each offer a combination of retirement living and resthome care. • Serves over 5400 elderly New Zealanders, and employs over 2600 staff. • Looking to expand into the Australian market, currently scoping potential green-field village sites in Melbourne. 2.8

2.6

2.4

2.2

2.0

Jun 11

May 11

Apr 11

Mar 11

Feb 11

Jan 11

Dec 01

Nov 10

Oct 10

1.8 Sep 10

Last year’s 17 percent increase in underlying profit means Ryman shareholders are receiving an increased dividend, but the company is also retaining some of the additional >>

• Listed on the NZX (ticker code: RYM).

Aug 10

Australia

Ryman Healthcare

Jul 10

“I think we’ve pretty much put that question to bed because we’ve survived two very lean years in the residential property market. In fact we haven’t just survived it, we’ve grown markedly in those years.” Ryman chairman David Kerr says the recent record profit reinforced the “defensive nature of the company’s trading activities” and Challies says its ability to survive the property crash is testament to that approach. Challies says Ryman’s target market of older retirees tend to move into one of the company’s villages out of necessity – their circumstances mean they are “committed to moving into the village and they’re committed to selling their home to enable it to happen”. This is a different scenario, he says, from the typical home owner’s reaction to a weak property market. A younger property owner is more likely to decide to pay down debt, rather than trade up to a more expensive property. “The market has been pretty lean because there have been a lot of people sitting on their hands, but our residents haven’t been those people.”

Edmund Hillary Retirement Village, Remuera New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Company Profile

earnings to invest in new villages in New Zealand and to start its foray into the Australian market. Ryman has been adding about 450 units or beds each year to its portfolio since it upped its growth rate in 2007. In April this year it increased its target again, saying it would now build an additional 550 units or beds each year. The actual increase for the 2010-11 year was 571 additions. The company is currently building across nine sites, and has increased its land bank to over 2100 units or beds. Its plans for Australia are to limit its exposure by “proving ourselves” through the development of its first village, says Challies. “We’re taking a similar approach to what we do in New Zealand. We’re looking for a green-fields site where we would build a new facility. We would stage it so that we limit our risk,” he says. “The board – and our shareholders – are very clear that they don’t want us to do anything too quickly. They want to see us prove ourselves and to find our feet with our first village so that we can move onto doing more in Australia,” he says. “We’re in no mad rush. The company takes a very long term view on all its investments so there’s no rush for us to expand into Australia at a rate of knots over the next few years, it’s just one at a time at the moment.” He says while Australia presents a different landscape in terms of aged care regulations, the retirement village space Ernest Rutherford Retirement Village, Nelson.

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is not dramatically different from the environment the company is used to in New Zealand. “In terms of land acquisition and competition for development sites there is a lot more competition for land development sites in Australia than there is in New Zealand. There’s almost no competition for residential development sites in New Zealand so you have to put a different hat on when we turn up in Melbourne, which is where we’re looking.” Melbourne is attractive, he says, in part because it is an easy destination for Ryman executives to travel to. “We didn’t want to make it more difficult than necessary. Victoria appealed because it has a good regulatory environment and, as one of Australia’s fastest-growing cities at the moment, Melbourne is a good opportunity.” Challies says the way Ryman’s business is structured, some of its earning streams from new developments take a while to flow through. “The management fees, care fees and resale gains – which are the long-term income streams from the villages – can take one, two, or in the case of resale gains, five to six years before we see anything coming from them. We call it the tail of earning.” He says this means that even though the company has doubled its portfolio over the past five years, it hasn’t seen the resale gain from that growth yet. “[This improves] our ability to withstand shocks in >>


Westpac market overview Market in Review

Bonds in Review

Since mid-May, NZ economic data has accelerated higher, and was crystallised by the RBNZ on 9 June when they upgraded most of its important economic forecasts, including its interest rate projections. Positive economic data momentum (both directly and via higher market interest rates) has explained most of the outperformance of the NZD/USD exchange rate during the past three months, and was the main factor behind its ascent to a post-float high of 0.8301 on 9 June. Other important drivers of the NZD/USD - global risk sentiment and commodity prices - have been subdued since early May, adding credence to the view that it is the domestic economic strength which has fuelled the currency.

It has been a quiet month so far on the primary market with no new primary issues launched. Z Energy (formerly Greenstone Energy Finance) announced that it is considering the launch of another retail bond on similar terms to their successful issue last year that raised $147 million. The exact timing and details for this new issue have yet to be released. With lack of supply in the primary market still a concern, any new issues with strong credit profiles and competitive pricing should see continued demand from retail investors. The Genesis Power Ltd new issue is now trading well on the secondary market and has traded as high as 102.6 on good volume. The unlisted Rabobank retail issue launched in May is also trading at a healthy premium from Par. These secondary market levels reinforce the fact that there is plenty of demand for good quality issuers that price appropriately in the primary market.

There was chatter regarding the impact of offshore investors in NZ Government bonds (NZGB) on the currency, but we would downplay that. Demand for NZGB has certainly been strong since January, and surged at an early April bond auction, but volumes are small relative to the turnover in the currency market. Moreover, there is no evidence of a significant increase in NZGB investment by offshore sovereign wealth funds. That said, minor diversification by global central banks and funds away from the USD and into AUD, CAD and NZD has been occurring since the global financial crisis in 2008 and should continue to play out for many years to come.

On the short term money market, the Reserve Bank of New Zealand kept the OCR on hold at 2.50% at the last meeting in early June but did signal a potential rate rise late this year. This surprised the market a little and had an immediate impact on both the currency and Swap curve. The most recent earthquakes in Christchurch came after this announcement so the impact of these new quakes and the damage they have caused is yet to be seen.

Imre Speizer, Senior Market Strategist, NZ, Ph: (09) 336 9929

Matt Plowman, Retail Investment Sales, NZ, Ph: (09) 367 3838

New Zealand Economic Forecasts Economic Growth Forecasts % change

March years

Calendar years

2010

2011e

2012f

2013f

2010

2011f

2012f

2013f

GDP (Production) ann avg

–0.7

1.1

1.7

4.5

1.5

1.0

4.1

3.9

Employment

–0.1

1.8

0.5

3.9

1.3

1.2

3.7

2.3

6.1

6.6

5.8

4.8

6.7

6.1

5.1

4.4

Unemployment Rate % s.a. CPI Current Account Balance % of GDP

2.0

4.5

2.6

3.0

4.0

3.0

2.9

2.7

–2.4

2.5

–4.5

–5.7

–2.2

0.6

–5.6

–5.5

New Zealand Financial Forecasts

Jun-11

OCR

90 Day bill

2 Year Swap

5 Year Swap

10 Year Bond

NZD/USD

NZD/AUD

TWI

2.8

2.7

3.5

4.5

5.3

0.81

0.77

70.27

Sep-11

2.5

4.2

3.9

4.9

5.4

0.8

0.77

69.92

Dec-11

2.75

4.7

4.3

5.2

5.6

0.77

0.76

68.82

Mar-12

3.25

3.5

4.6

5.4

5.8

0.76

0.77

68.34

Jun-12

3.5

3.9

4.8

5.6

6

0.75

0.77

68.13

Sep-12

4

4.7

5.1

5.8

6.1

0.77

0.78

68.93

NZ interest rates as at 15 June 2011 Cash 30 Days 60 Days 90 Days 2 Year Swap 5 Year Swap

Current 2.50% 2.51% 2.51% 2.52% 3.33% 4.33%

NZ exchange rates as at 15 June 2011

Two weeks ago 2.50% 2.60% 2.66% 2.68% 3.38% 4.07%

One month ago 2.50% 2.60% 2.65% 2.65% 3.32% 4.45%

NZD/USD NZD/EUR NZD/GBP NZD/JPY NZD/AUD TWI

Current 0.8172 0.5659 0.4994 65.760 0.7351 70.360

Two weeks ago 0.8163 0.5716 0.4955 66.074 0.7636 70.590

One month ago 0.7797 0.5508 0.4815 62.988 0.7386 68.740

Our highly experienced Financial Markets team delivers outstanding financial markets outcomes for our clients through superior service, and a willingness to innovate and understand our clients’ needs. In addition to the traditional suite of Financial Markets products – Foreign Exchange, Interest Rate Derivatives, Government and Credit products – we have now have capability in Commodities Carbon and Energy. Our wide reaching business model gives clients access to a high level of global knowledge and the ability to transact in an extensive range of currencies and products across the world.

Dealing Contacts: Geoff Wilson or Matt Plowman 0800 489-222 Westpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141 (“Westpac”). The information contained in this document does not constitute an offer, or a solicitation of an offer, to subscribe for or purchase any securities or other financial instrument; is not an invitation to invest; is not an offer for finance; does not constitute an offer, inducement or solicitation to enter a legally binding contract; and is not to be construed as an indication or prediction of future results. All opinions, statements and analysis expressed are based on information current at the time of writing from sources which Westpac believes to be authentic and reliable. The information is general and preliminary information only and while Westpac has made every effort to ensure that information is free from error, Westpac does not warrant the accuracy, adequacy or completeness of the information – Information current as at 16 May 2011. The information may contain material provided directly by third parties and while such material is published with necessary permission, Westpac accepts no responsibility for the accuracy or completeness of any such material. This information has been prepared without taking account of any particular investor’s objectives, financial situation or needs. Because of this, potential investors should, before acting on this information, consider its appropriateness having regard to its own objectives, financial situation and needs. Westpac strongly recommends that investors seek independent advice before acting on the information. Certain types of transactions give rise to substantial risk and are not suitable for all investors, including those involving futures, options and high yield securities. Except where contrary to New Zealand law, Westpac intends by this notice to exclude liability for the information, statements, opinions and analysis. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac is incorporated in Australia with limited liability. You can get a copy of Westpac’s current disclosure statement for the New Zealand branch of Westpac Banking Corporation and a copy of the investment statement or product disclosure statement (as applicable) for any securities for which an investment statement or product disclosure statement is required, free of charge, by calling 0800 489-222.

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Company Profile

the economy. We have what we call a resale bank which is the difference between the last resale price and what we would sell a unit for today. That’s grown to about $170 million, so there’s quite a margin there which means that we don’t need to rely on house price appreciation over the next three or four years to actually generate any gains from re-sales, it’s already embedded in the values now.” He says the company has also been building its balance sheet strength. “We’ve come from the point where in 1999 we had an equity base of $40 million. We’re now well over $500 million and have very little debt.” Challies’ background as a qualified chartered accountant comes to the fore when he discusses Ryman’s strategies. He joined the company as chief financial officer and company secretary when it listed and was promoted to general manager/CFO in 2003. He took on the role of chief executive in 2006, a position that changed to managing director when he joined the company’s board in May 2010. Challies says one of Ryman’s strengths is the long tenure of its senior managers, who have on average spent 10 years with the company. “We’re essentially following the same strategy we adopted in 1999. The way I see it, we’re just building our competence, experience and skills so that we can grow bigger. That’s

Evelyn Page Retirement Village, Orewa

where the strength of the management team comes from – that a lot of people have grown with the company. A lot of appointments have been from within,” he says. “From a personnel and confidence point of view, it’s grown as this company has scaled up. We’re always getting ourselves ready for the next challenge, to test ourselves further, and the Australian strategy is part of that. We’re pretty excited about the opportunity that presents.” Simon Hendery is a freelance business writer. Email: simon@thinkpoints.com

Business is booming The baby boomers – the unusually large demographic of people born after World War 2 – have hit retirement age, and that means a business boom for aged care providers such as Ryman Healthcare. Statistics New Zealand estimates the number of kiwis aged 75 or older will more than double from 250,000 at present to 516,000 over the next 20 years. While the 75-plus population is currently increasing by about 5000 a year, that will spike to 12,000 a year growth over the next two decades. At the same time, this group are showing more enthusiasm for spending their retirement years in the type of facilities Ryman provides. “We’re certainly not having difficulty finding residents to take up occupation in our villages. That’s not a challenge,” says managing director Simon Challies. “Our market is going to grow dramatically over the next 20 years. So there are big opportunities.” Challies says retirement villages are still a relatively recent phenomenon, having only been around in New Zealand for about 30 years, but over that time they have become an increasingly popular lifestyle choice for retirees. “I can recall when I started [at Ryman] 12 years ago that there certainly wasn’t the acceptance back then. People saw the option of moving into a retirement village as

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

giving up, or akin to moving into a resthome,” he says. “I think that perception has gone now. The vast majority of elderly people see it as a great option. That’s been helped along by their friends, or people they know, having a great experience in a retirement village, and encouraging them.” But while attitudes towards retirement villages may be becoming more favourable, residents are waiting longer before moving in. Challies says the average age of a new arrival at a Ryman village has increased by about a year over the past year, a factor he puts down to people living longer, healthier lives. The company is still targeting 75 as the typical age for new residents, he says, because that seems to be the time in life when people appreciate the additional support a village is able to offer, even if their health is good. “People take a lot of solace from the fact that there’s a nurse on call 24 hours a day who can shoot across within five minutes and for couples who are concerned about a spouse it’s really important to them that they have that support,” Challies says. “It’s not in their face all the time but it’s really important to them that there’s a resthome on site. It gives them a lot of comfort and security.” – Simon Hendery


ShareReport

June 2011 share market report by Terry Kim SkyCity is proposing to build a $350 million international convention centre in Auckland in exchange for the government considering changing gambling laws. Contact Energy has raised $331.9 million to partly fund the $623 million Te Mihi geothermal plant through a one for nine rights issue at $5.05 apiece. Post rights issue, the company’s biggest shareholder Origin Energy has lifted its shareholding from 51.4% to 52.6%. Children’s clothing retailer Pumpkin Patch is closing its remaining 20 stores in the United States. NZ Oil & Gas has won a prospecting permit in Tunisia and plans to spend about $3.7 million over the two-year term gathering seismic data and analysing existing figures. GPG’s shareholders have approved a $160 million return of capital. Tower is taking the government’s Earthquake Commission to the High Court over how much it will pay out on claims resulting from the Christchurch earthquakes. Building Society Holdings has been renamed Heartland New Zealand (HNZ). PGG Wrightson has sold its finance subsidiary PGG Wrightson Finance to HNZ subsidiary Heartland Building Society for around $100 million. South Island’s biggest port Lyttelton Port said its facilities sustained further damage during June���s aftershocks. Restaurant Brands is evaluating the Taco Bell brand to add to its other operations in NZ and is looking at other brands and possible expansion in Australia. Vital Healthcare Property Trust has unconditionally sold its hospital laundry and sterilisation facility in Point Chevalier, Auckland, for $12.55 million. Argosy Property Trust has rejected rival DNZ Property Fund’s merger proposal and plans to internalise its management contract at a cost of $32.5 million. NZX50West NZX50 Coast coking coal project developer Bathurst Resources has been added to the ASX200 index. Sky Television has signed a three-year with deal with Telecom to resell all of Sky’s television services.

Global engineering group Cavotec MSL has revealed a partnership plan to install ground support systems into Dubai International Airport’s Emirates Airlines A380 terminal. TeamTalk, the country’s largest mobile radio company said its subsidiary CityLink has signed a deal with the Wellington City Council to rollout free wireless internet connectivity across the CBD. Kathmandu Holdings is building a new 5000sqm national distribution centre in the Portlink Industrial Park in Christchurch. Newcrest Mining has struck a deal to sell two of its mines in eastern Australia in exchange for a one-third stake in a new gold company that will be created from the merger of junior miners Catalpa and Conquest. QR National has won a contract worth $900 million over 10 years to transport 10 million metric tonnes a year of iron ore from the Karara mine in Western Australia. Stockland has secured the right to progressively acquire 339 ha of land in southwest Sydney. The East Leppington site is expected to deliver approx. 3,000 new homes. Bank of Queensland has had its ratings affirmed at BBB+ and its outlook revised from stable to negative by Standard & Poor’s (S&P). Kingsgate Consolidated has received final approvals to access all mining areas at the Chatree Gold Mine in Thailand, operated by its wholly-owned subsidiary Akara Mining. More than 400 workers at BHP Billiton coking coalmines began strikes over pay dispute on June 14 for the first time in a decade, disrupting production. Macquarie Group and China Everbright raised US$479m from the first close of their Greater China infrastructure fund. Hastie said it plans to launch an underwritten $160m equity raising to repay bank debt, which would strengthen its balance sheet. ASX ALL ASX ORDS ALLAustar ORDS United Communications has Pay TV operator received an indicative, non-binding and conditional proposal from FOXTEL to acquire the company at $1.52 cash per share.

NZX50

ASX ALL ORDS 3600

3600

1 May 20111 -May 17 June 2011 2011 - 17 June 2011 3500

3400

May

source: www.findata.co.nz source: www.findata.co.nz May

Contact us Sharon Fang DAN STRATFUL

DDI EMAIL DDI EMAIL

5000

5000

4900

4900

4800

4800

4700

4700

4600

4600

1 May 20111 -May 17 June 2011 2011 - 17 June 2011

June

June

3300

09 304 0235 sharon.fang@irg.co.nz 09 304 0232 dan.stratful@irg.co.nz

A free disclosure statement is available upon request

3500

3400

3300

May

May

Terry Kim NICK O’BOYLE

June

DDI EMAIL DDI EMAIL

June

09 304 0223 terry.kim@irg.co.nz 09 304 0233 nick.oboyle@irg.co.nz

FREEPHONE 0800 474 669 New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Technology

The i’s have it Apple appears to be on the up and up with its range of portable devices, and its free cloud storage service is sure to win even more customers, writes Tony Sagami

A

pple announced it has sold more than 25 million iPads since they hit the market in April 2010. It’s no wonder the firm bought $17.5 billion worth of chips in 2010, according to computer watchdog iSupply. That’s close to double the US$9.7 billion worth it bought the previous year. Business is booming at Apple. Portable laptop computers changed the dynamics of the computer industry, but tablet computers may turn the industry on its head. Hewlett Packard, for example, is the largest computer company in the world, but it complained that sales dropped by 23 per cent in the first quarter and it slashed its full-year 2011 sales forecast by a whopping US$1 billion! Research firm IDC lowered its 2011 estimate for growth in PC sales shipments from its February estimate to 4.2 per cent from 7.1 per cent because of competition from tablets and smartphones. Clearly, tablet computers are where the action is.

Thanks to iPad sales, Apple was able to grow its profits by 83 per cent over the first half of fiscal 2011 compared to the same period a year ago Hewlett Packard sees the light, and is jumping on the tablet bandwagon with plans to release its new TouchPad tablet computer in July. Motorola and Research in Motion is already in the market with their Xoom and PlayBook tablets. Dell too is eager to grab a piece of this multi-billion dollar market and is eager to launch its Streak 10 Pro tablet any time now. However, Dell is going to launch its innovative 10-inch tablet in China sometime soon, but not in the United States until early 2012. Yup, Dell is going to launch in China months ahead of entering the US market! That should tell you volumes about the potential of the Chinese market. “China is the largest in the emerging market category and the second fastest-growing in the emerging market category,” 18

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

says Amit Midha, chairman of Dell’s China division. “And China is also our second largest market right after the US.” Dell isn’t new to China either. It already has about 10,000 stores that sell Dell and 2,000 service centres where customers can bring Dell products in China. What is amazing is how a sector of the computer market that didn’t exist a year ago is suddenly selling tens of millions of units and likely exceed 100 million units within the next few years. How can you invest in the tablet market? You could, of course, invest in Dell’s tablet competitors such as Motorola Mobility Holdings (NYSE:MMI), Research in Motion (Nasdaq:RIMM), or Hewlett Packard (NYSE:HPQ). Or invest in Apple (Nasdaq:AAPL), the innovator and kingpin of the tablet world.

What is there to like about Apple? • iPad: Thanks to zooming iPad sales, Apple was able to grow its revenues by 76 per cent and profits by 83 per cent over the first half of fiscal 2011 compared to the same period a year ago. Apple’s momentum is picking up; not slowing down. • iPhone: In Q1 (most recent reported quarter), iPhone sales increased by 113 per cent globally and by 155 per cent in the United States. Apple can thank the new Verizon deal for the boost, which will boost sales for a long time because a lot of Verizon customers will jump to iPhones as their contracts expire. • Mac: Due to the popularity of the iPad and iPhone, most people overlook the renewed success of the Macintosh computer division. While the rest of the PC world is struggling with weak sales and falling prices, Apple increased its Mac sales by 25 per cent in the first six months of fiscal 2011. • iCloud: Those who pay attention to techie news are aware of Apple’s new iCloud service. The beauty of tablet computers is their portability, but that easy-to-tote size comes at the cost of storage. Cloud computing is a web-based platform that will allow users to store data/ content/files on a remote server instead of on their own hard drive.


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You’re going to hear a lot more about cloud computing in general and iCloud computing in particular. How much is Apple going to charge for its iCloud service? Nothing. Apple is making its iCloud service free, and I’ve always said that free is a very good price. Is Apple a buy today? Its all-time high was US$364 in March but is now trading in the US$320 range. Many people think Apple is too expensive simply because it is a US$300 stock, but it really isn’t that expensive by most traditional metrics.Apple sells for 15 times trailing earnings and only 11 1/2 times forward earnings. That’s pretty reasonable for a company that grew its sales by 82 per cent and its profits by 92 per cent in the most recent quarter. That gives Apple a PEG (price/earnings to growth) ratio of 0.63. Any PEG number less than one means that you are getting a lot of growth bang for your investment buck. Plus, Apple has an amazing US$29.2 billion in cash sitting in the bank, which works out to about $31 per share of cold hard cash. I’m not suggesting you rush out and buy Apple stock tomorrow morning. As you know, timing is everything when it comes to investing, so you should always wait for stocks to go on sale before jumping in.

As always, you need to do your homework and decide whether any of the securities I talked about in this column are appropriate for your personal situation and financial goals. Tony Sagami is the editor of Asia Stock Alert, a monthly newsletter with a mission to help you profit from booming Asian economies. One of the most experienced research analysts in the industry, Tony follows a “boots-on-the-ground” approach for getting his market insights by travelling throughout Asia. 100 million iPads are likely to be sold within the next few years

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Feature

Broadband

break-up

Telecom has picked up more than $1 billion in contracts to build the government’s urban and rural broadband infrastructure. But, as SIMON HENDERY reports, winning the work means one of the country’s largest companies will now be split in two. What will this mean for Telecom and its shareholders?

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e’d just secured a vital contract to build the majority of a nationwide Ultrafast Broadband (UFB) project, but Telecom chief executive Paul Reynolds looked anything but jubilant. Sitting next to communications minister Steven Joyce at a May 24 press conference, Dr Reynolds declared he was “really delighted” to have secured the UFB deal, although his body language suggested otherwise. Perhaps it was the enormity of the task ahead that coloured Reynolds’ demeanour that morning. Now that Telecom has been picked to build the bulk of the UFB network it is obligated to undergo a massive corporate upheaval. New Zealand’s second largest listed company must “de-merge” into two businesses. So why is this happening and what does it mean for the company and its shareholders?

Telecom’s Chief Executive, Paul Reynolds

The deal The government has committed $1.35 billion of public money to building a national fibre-optic broadband network and has awarded Telecom a $929 million contract to build about 70 percent of the project. The other 30 percent of the UFB project is being completed by regional lines companies (Northpower in Whangarei, WEL Networks in the central North Island and Enable Networks Networks in Canterbury). The aim of the UFB initiative is to connect 75 percent of the population to 100Mbit/s broadband by 2019. That’s a data speed about 20 times faster than most consumers get today via a reasonable connection over the copper line phone network. Separately, Telecom and Vodafone recently won a bid to improve rural broadband coverage through the government’s Rural Broadband Initiative. Under the UFB deal struck with Telecom, the government agency in charge of the UFB programme, Crown Fibre 20

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Holdings (CFH), will invest in Telecom’s network business, Chorus, which will be “de-merged” from the rest of the business – the retail arm that sells telecommunications products and services. CFH will invest in Chorus through a half-and-half mix of equity and debt securities to be repaid over the next 15 to 25 years. Chorus will not pay interest on the government debt and the deal has been criticised by Labour’s telecommunications spokeswoman Clare Curran for tying up the Crown’s investment in a ‘shockingly-long deferral”. However, Joyce says the result of the deal is that it buys >>


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Feature

Telecommunic the government a fibre network for $600 million – the net cost to the Crown once the debt is paid back – which he says is an enviable price by international standards.

Communications minister, Steven Joyce

The split To ensure effective competition for the provision of services provided over the UFB network, the government-excluded companies providing retail telecommunications services from bidding to build the network. This would have prevented Telecom from raising its hand up for the work, but the company put forward a radical proposal to get over this hurdle: a split or demerger of its business so that Chorus became a separate company, with its own board of directors, management team and NZX listing. The government accepted this scenario and legislation is currently before Parliament to facilitate the change. Telecom shareholders will also have to vote in favour of the demerger at a special general meeting before it can go ahead. Under the demerger plan, Telecom shareholders are likely to be issued one new Chorus share for every Telecom share they hold. If the demerger has not happened by July next year, CFH can cancel the UFB deal with Telecom. Full details as to how the business will be split still need to be worked through, but Reynolds says shareholders will be asked to vote on the de-merger proposal “before the end of the year”. There remains a massive amount of work to do ahead of the split, and the attractiveness of the two new businesses for investors after the proposed split will depend on how the current Telecom’s assets, and – probably just as importantly – its debts, are eventually carved up. If either business is encumbered by too much legacy Telecom debt, it could affect their performance. On the asset side, the mobile network will remain with the retail side of the telecom business and while most of the business can be logically divided into either the retail or network camps, analysts warn there are some areas where appropriate ownership will not be clear-cut.

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The impact Analysts say they need more details on the UFB deal before they can fully assess its impact on Telecom. As well as questions around how the two businesses will be divvied up, some of the other missing pieces include whether Telecom will also be given the job of coordinating the regional Crown fibre companies set up under the UFB structure. That work could also go to the Regional Fibre Group, the consortium of regional lines companies that bid against Telecom for the UFB work. Another unknown is whether Chorus will be able to gain more of the UFB work than the 70 percent of the project Telecom has been awarded by CFH. There has been talk that Chorus could partner with other successful bidders – specifically enable Networks which won


Feature

cations Quick facts • Telecom has struck a $929 million deal with the government to roll out fibre broadband connections to about 70 percent of the coverage area for the Ultrafast Broadband initiative. • To enhance competition, a condition of the deal is Telecom will carve off its network business, Chorus, into a separate listed company. • Telecom shareholders need to approve the split and will be asked to vote on it later this year. • By then the details of the split – such as how corporate debt will be divided between the two entities – will have been hammered out. • Next year, Telecom shareholders are likely to receive one new Chorus share for each existing share they hold. 2.6

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the lucrative Canterbury region – to help them complete their slices of the network build. Telecom investors certainly reacted positively to the news that the company had won the UFB work, pushing the company’s share price up to a 15-month high in the days immediately after the announcement. Ratings agencies have been less enthusiastic about the prospect of a Telecom split. Moody’s put the company on negative outlook following the announcement, saying the split-off of Chorus would have the effect of diluting earnings and narrowing Telecom’s business mix. “At the same time, the negative outlook reflects the uncertainty associated with [Telecom’s] capital structure and financial policy post-separation,” said Moody’s senior credit officer Ian Lewis. Standard & Poor’s also has Telecom on credit watch with negative implications. “If shareholders approve the de-merger of Chorus into a new standalone company, it will likely result, all things being equal, in a lowering of long-term rating on Telecom by one or two notches,” the agency says. “In our view, this de-merger, which is considered increasingly likely but remains subject to shareholder and legislative approval, will weaken Telecom’s strong business risk profile,” S&P credit analyst Paul Draffin said. Fitch Ratings has also moved Telecom to “Rating Watch Negative” status, citing the company’s looming “loss of the distinctive advantage of owning both fixed-line and mobile platforms”. However, Tristan Joll, an analyst with Goldman Sachs, is upbeat about the deal Telecom managed to secure with the Crown. “We believe the intrinsic value [of Telecom’s UFB contract] is higher than what many expected,” he says, pointing to the “surprisingly long pay-back horizon” for the interest-free debt Chorus will secure from the government through the UFB deal. On the other hand, some analysts have pointed out that Chorus will be committed to providing relatively cheap

services to its customers, which will mean the pay-back time on the cost of connecting households to its network will be long. So while the final impact from a costly and complicated break-up of one of the country’s largest companies is still unclear, given the initial favourable market reaction to the UFB contract news, it seems likely the deal will be approved by shareholders when they get the opportunity to vote on it. >>

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Feature

The management There is strong speculation that Reynolds, the Scotsman who has headed Telecom since 2007, will quit the company following the demerger. Running one of the two new, smaller organizations to emerge from the split wouldn’t have any appeal to Reynolds, the argument goes, and he will be tempted to head back overseas to find his next corporate challenge. The man himself isn’t giving too much away, although he has indicated he will be staying on to guide the retail Telecom business through the split process.

“This is a big and complex deal as any in the world. Yes, I’m staying on,” he said. “I haven’t spent a moment reviewing my career plans.” On the other side of the demerger fence, it seems likely that current Chorus boss Mark Ratcliffe will keep his role as the head of the network business as it morphs into a significant listed company. Current Telecom director Sue Sheldon has been named as the chair of the yet-to-be-established board of the standalone Chorus business.

The victor? Not Vector Telecom’s success at picking up about 70 percent of the government’s Ultrafast Broadband (UFB) contract came at the expense of the country’s lines companies, including listed utility business Vector, which had fought hard to win the Auckland portion of the work.

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Like Telecom, Vector already has fibre infrastructure in the ground, and wanted to win the UFB contract to boost its share of the burgeoning broadband market. Vector was at the forefront of a consortium of local electricity lines companies – the Regional Fibre Group – that work together to present the government with a viable alternative to Telecom, arguing they would bring a fresh approach to the project. Lines companies see moving into the fibre broadband space as a natural extension of their business – managing networks and billing for services – and have been excited by the growth prospects the technology offers. When it came to the government’s UFB initiative, however, it seems the Regional Fibre Group, including Vector, simply couldn’t match Telecom on price. Telecom had the strong advantage of an existing fibre network spanning large parts of the country. While this network doesn’t yet connect significant numbers of individual homes and businesses to the internet via direct fibre links, it does provide a fibre network from street-side “cabinets”. Most homes currently rely on copper wire connections to reach those cabinets but Telecom’s trump card in the UFB negotiations was that its network business, Chorus, could feed off that network cabinets as a starting point for connecting homes to the fibre network. Meanwhile Vector remained upbeat after missing out on the UFB work. “Vector has been and will continue to operate a successful competitive fibre business. It performs well and this change creates further opportunities for us,” chief executive

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Simon Mackenzie said after the government announced its decision in favour of Telecom. However, Vector has so far kept quiet on whether it will expand its own fibre network in a bid to compete with the UFB infrastructure. “I wouldn’t expect them to roll out significant amounts of fibre from what they already have,” Forsyth Barr analyst Andrew Harvey-Green told the New Zealand Herald. “Their ambitions will be somewhat curtailed.” Harvey-Green may yet be proved wrong, however. Vector could decide that in the densely-populated Auckland market there is a business case to go head-to-head with the UFB. Other lines companies say they will persist with plans to expand their fibre networks in competition to the UFB initiative, arguing that there will continue to be demand for services run across competing networks. Another potential silver lining is that Telecom has also not ruled out going into partnership with Vector, and other lines companies that competed against it in the UFB process, as it progresses its UFB roll-out commitments. The need to meet the relatively tight government deadlines set in the contract could encourage Telecom to enlist the help of one-time adversaries such as Vector.


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Shares

Advice

Analyse the analysts

David McEwen says investors should consider riding out the storm when the company they have shares in hits a rough patch

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any people rely on their share brokers for advice on investing in the stock market, not least because some have teams of highly qualified analysts producing in-depth research on what to buy and sell. However, opinions vary about whether this research consistently helps people make money. This question has been addressed in a paper in the US. Four researchers from a number of universities there asked the question; “analysing the analysts: when do recommendations add value?” They note that in the US, more than 3,000 analysts work for more than 350 sell-side investment firms (such as brokers). The paper assesses whether analysts make full use of available signals in making recommendations. The report notes: “We find that analysts do not fully take into account the ability of various stock characteristics to predict returns. Moreover, our evidence shows that the direction of the bias in analyst recommendations is in line with economic incentives faced by sell-side brokerage firms.” In other words, brokers tend to ignore fundamentals, such as a high price relative to a company’s assets or earnings, and sometimes make recommendations that benefit their company (by helping it to sell more shares), more than customers. The report compares analyst preferences with 12 measures that have demonstrated abilities to forecast returns in prior studies. These include such fundamental items as sales growth, net asset backing, price:earnings ratio, capital spending and market capitalisation. The results show that analysts generally prefer ‘glamour’ stocks over ‘value’ shares. Shares that receive higher recommendations (as well as more favourable upgrades) tend to have high trading volumes. In other words, analysts tend to recommend shares

Deepwater Horizon oil rig disaster.

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that have already gone up in price and are popular. Such companies tend to have delivered strong past sales growth, and are enthusiastically forecast to grow their earnings even faster. Initially, the researchers found that shares favourably recommended by analysts, on average, outperformed stocks that were unfavourably recommended. However, they found a small number high momentum shares showing strong gains caused this. Overall, the success rate was not high, partly because analysts generally failed to quickly downgrade stocks once they didn’t stack up on investment fundamentals. “For stocks where the other signals predict low future returns, we find that favourably recommended stocks actually significantly underperform unfavourably recommended stocks,” the paper said. Also, it found that upgraded shares outperformed downgraded ones and that firms with strong fundamentals that were recommended by analysts tended to outperform firms that were less favoured. However, for those with less attractive underlying figures, the shares that analysts recommended most favourably actually underperformed those that they recommended less favourably. The bottom line is that change in broker recommendations (eg from HOLD to BUY) is more reliable than the level of recommendation (eg BUY). One possible reason analysts tend to be more accurate with upgraded shares than a fixed recommendation is that even good companies go through rough patches. When they do, investors sell the shares down to a reasonable price and often below. When the rough patch is over and companies start delivering improved profits, the analysts (who probably downgraded them from a BUY to a HOLD or SELL to begin with) put them back up to something more attractive. The paper backs up a value-based approach to investments. You have a better chance of making money when you buy shares in companies when other investors don’t like them – as long as they are financially sound. A case in point is BP. When the Deepwater Horizon oil rig disaster struck in the Gulf of Mexico last year the company’s share price sunk from US$7.55 per share (20 April) to US$3.68 (20 June). People who bought shares when everyone else was selling them have seen their investment rise to US$5.06 (13 June 2011) – although on 19 January 2011 they touched US$6.15.


Agri Agriculture

Genetically modified economy Agri-businesses need to adopt use a new generation of modified crops or be left behind on the world export stage, warns KPMG’s Ian Proudfoot

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ew Zealand agriculture must stop dwelling on factors it is unable to influence and instead focus on actions companies can take to grow their global market-share and reputation. That’s the view of KPMG’s Ian Proudfoot, head of the company’s agribusiness unit, who says the days of are gone when it was sufficient for a country to export good products and services. “To be commercially viable in an internationally competitive marketplace, businesses and countries need to be great at what they do,” he says. “This need is especially important for small island nations like New Zealand. “To achieve this there are important conversations we must have now – about the intensification of agriculture, the adoption of genetic technologies, the role of foreign capital in the development of New Zealand agriculture and global sourcing of product.” He says the only way issues such as these can be resolved is by having an understanding of the urban New Zealand population. “Consequently, the onus falls on the industry to educate and inform the rest of the population on how agriculture operates and its contribution to the NZ economy,” he says. A new report, Realising Global Potential, from KPMG provides a detailed analysis of the agri sector, and is focused on ideas to enable New Zealand agribusiness to capture the potential that exists for the sector in global markets. The report draws on interviews with more than 80 agribusiness industry leaders. According to the report, many industry leaders who took part in the survey say there is a need to have a comprehensive conversation on the adoption of genetically modified technology. “The adoption of genetic technologies remains an emotive issue in New Zealand,” says Proudfoot. “Internationally the use of these technologies is moving into the mainstream. Thus, there is a concern that if we are not open to discussing the issue the industry could be left behind. “No one views this as an area New Zealand should lead in but it is a technology we cannot afford to ignore.” KPMG’s agri-business report also states that the ability of the industry to realise its potential relies heavily on the pipeline of talent that enters the industry from schools and universities, or those who can be attracted into rural areas from our cities. “Students currently receive significant subsidies from the Government through the student loan scheme, and are

able to use this to pursue whatever course of study they choose,” says Proudfoot. “Worryingly, student numbers entering programmes that directly benefit the agricultural sector have been in long-term decline, despite the economic value that these programmes generate for New Zealand. “An idea raised in the report is to restructure the student loan scheme so that only students entering programmes that directly benefit the economy receive the full advantages associated with interest free loans. “This will enable the Government to give clear guidance to students as to where it perceives there to be a shortage of graduates, and flag areas in New Zealand with better employment prospects. “As a small country with a restricted amount of equity available, we will always need foreign capital in order to take advantage of good ideas. “New Zealand has always had foreign ownership since the British arrived in the 19th century. Many industry leaders were concerned about our processing assets falling into foreign ownership as has happened in Australia in the last two years, but considered that co-investment with foreign investors has the potential to create significant value for New Zealand through access to capital for investment, markets, innovation and management expertise.” Targeted government support is also vital for the industry to succeed. Proudfoot says: “For instance, we welcome the government’s seed funding for irrigation. Without this a great natural asset would not become a valuable economic asset.” The potential for the Primary Growth Partnership to drive collaborations that could transform the industry was also highlighted in many of our conversations. According to the report, the facts the industry needs to acknowledge are that New Zealand’s customers have significant market power; we are a small producer on a global scale; the world does not owe us a living; markets continually change and our earnings rise and fall with that volatility; and a free, floating currency moves constantly. Proudfoot says: “Accepting these and focusing on our customers, our innovation pipeline, our production methods and the infrastructure that supports the industry will enable an already good agricultural industry to become great.” New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Property Trends

Property sales hit a flat spot While the property picture remains depressed-to-mixed across the country, Auckland continues to be the strongest player with sale prices edging upwards

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he QV residential property indices show that nationwide values remained flat in May. “Nationwide property values have now remained steady for the past six months, after having declined in the six months prior to that. Values are now 1.6 percent lower than the same time last year, and 5.7 percent below the market peak of late 2007,” says Glenda Whitehead of QV Valuations. “While values remain static at a nationwide level, there continue to be differences between regions, with Auckland and Wellington showing contrasting trends. “Values in the Auckland area have moved within a narrow range since the beginning of 2009. In the past few months they have begun to edge upwards and are currently 1.2 percent above January, 0.3 percent above the same time in 2010, and only 1.8 percent below the market peak of late 2007.” According to QV Valuations, values in Hamilton remain 3.5 percent below the same time last year, while in Tauranga values have levelled in recent months and are now 1.8 percent below last year. In the Wellington area values continue to decline slightly after rallying in late 2010 and early 2011, and as a result are 3.6 percent below the same time last year. In Dunedin values have been more or less stable since the beginning of the year and are now 2.5 percent below last year. Whitehead says: “Sales activity dropped away in late April coinciding with Easter and the school holidays, but has recovered. Sales activity typically remains subdued through the winter months, but has fluctuated in recent years, and can follow confidence levels. “As has been the case for many months, there is a general lack of good quality well presented properties on the market. When these come up they tend to sell quickly and for good prices, whereas properties with perceived flaws are slow to sell or need to discount in order to attract a buyer. “There is also evidence from across the country that first home buyers may be active in the market again, perhaps encouraged by lower interest rates and easing lending criteria.”

Christchurch Whitehead says the Christchurch market remains fragmented with strong demand for properties in the north-western suburbs as well as the outlying towns in the Selwyn and Waimakariri Districts. “In contrast there has been very little sales activity from within the more damaged suburbs of Christchurch. It appears as if overall sales activity has slowed down as we come into winter. The lack of sales means that we have not calculated a 28

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Rural property median prices • For the three months ended May 2011 the median sales price per hectare for dairy farms was $30,828 (60 properties) compared to $30,879 for the three months ended April 2011 (52 properties), and $33,509 (42 properties) for the three months ended May 2010. The median dairy farm size for the three months ended May 2011 was 112 hectares. • For the three months ended May 2011 the median sales price per hectare for finishing farms was $10,860 (55 properties) compared to $10,470 for the three months ended April 2011 (38 properties), and $11,979 (43 properties) for the three months ended May 2010. The median finishing farm size for the three months ended May 2011 was 163 hectares. • For the three months ended May 2011 the median sales price per hectare for grazing farms was $13,490 (186 properties) compared to $13,772 for the three months ended April 2011 (140 properties), and $14,004 (151 properties) for the three months ended May 2010. The median grazing farm size for the three months ended May 2011 was 93 hectares. • For the three months ended May 2011 the median sales price per hectare for horticulture farms was $129,572 (28 properties) compared to $130,806 for the three months ended April 2011 (28 properties), and $131,250 (45 properties) for the three months ended May 2010. The median horticulture farm size for the three months ended May 2011 was 6 hectares.

May index for Christchurch,” she says. While unrelated to the QV index, and a less reliable measure of value change, the average New Zealand sales price over March, April and May is $404,057. Rural Data compiled by the Real Estate Institute of NZ (REINZ) shows there was a further strong lift in the number rural sales across New Zealand in three months to May 2011. Overall, there were 364 farm sales in the three months to end of May 2011 compared with 290 sales in the three months to April 2011 and 319 sales in the three months to May 2010. The median price per hectare for all farms sold in the three months to May 2011 was $17,199 compared to $17,938 in the three months to April 2011 and $18,230 for the three months to May 2010. The Waikato region recorded the strongest increase in sales between April and May, followed by Canterbury and


Property Trends

Lifestyle The lifestyle property market also saw a strong lift in volume in the three months to May 2011 and a modest lift in the median price. All regions apart from Northland, Gisborne and Hawkes Bay saw an increase in sales, with Auckland recording the strongest increase. Canterbury, Waikato, Bay of Plenty and Southland also recording notable increases in sales volumes.

Annual Property Value Change/ Average Sales Price in New Zealand June 2010 to June 2011 Auckland Region -0.3%/$528,334

New Zealand Average -1.6%/$404,057

Whangarei -5.5%/$324,751

Hamilton -3.5%/$340,043

Tauranga -1.8%/$411,235

New Plymouth -3.4%/$311,962

Rotorua -1.1%/$284,672

Palmerston North -4.2%/$275,616

Napier -3.3%/$340,298

Christchurch N/A

Hastings -1.4%/$303,755 Wellington Region -3.6%/$467,254 Nelson -0.9%/$359,037

Queenstown -0.8%/$560,982

Invercargill -3.4%/$211,091

Source: QV.co.nz

Southland. Three regions recorded a fall in sales between April and May, although these falls were only minor. The number of farm sales for the year ended May 2011 was 930, equal to the number of farm sales for the year ended May 2010, and up from 918 sales recorded for the year ended April 2011. “The upturn in farm sales that came through in the April data has continued into May, with a further lift in grazing and dairy support property sales in the South Island,” says REINZ rural market spokesman Brian Peacocke. “For the month of May alone there were 130 sales, which is the strongest May result in three years. Confidence in the rural sector has been rising for some time now and along with continued high commodity prices, this is now translating into greater confidence in buying farms. “The level of enquiry has certainly increased over the past few months. However, farm prices are not moving up as yet. Buyers remain cautious and are clearly doing their due diligence. There is also further anecdotal evidence of finance becoming easier to source for good quality farms.” Included in sales for the month of May were 21 dairy farms at an average sale value of $28,028 per hectare and $36 per kg of milk solids (MS). The average farm size was 184 hectares with a range of 61 hectares in Bay of Plenty to 1,400 hectares in Southland. The average production per hectare across all dairy farms sold in May 2011 was 770 kgs. Grazing properties accounted for the largest number of sales with 51.1 per cent share of all sales over the three months. Dairy properties accounted for 16.5 per cent, Finishing properties 15.1 per cent and Horticulture properties 7.7 per cent. These four property types accounted for 90.4 per cent of all sales during the three months ended May 2011.

Dunedin -2.5%/$264,701

The national median price rose by $10,000 to $460,000 for the three months to May 2011 compared to the three months to April, and rose $15,000 compared to the three month to May 2010. Total sales completed for the three months to May 2011 were 1,311, up 176 (15.5 per cent) compared to the three months ended April 2011, and up 133 (11.3 per cent) compared to the three months ended May 2010. Commenting on the lifestyle property market statistics Peacocke says: “The lifestyle property market is also demonstrating rising sales volumes, in line with the farming sector, although the levels of activity are still patchy across the country. “The increase in the median price, although modest, will be welcome news for some, although the increase was generally confined to the Auckland region, Hawkes Bay and Canterbury.”

There were 130 farm sales in May, the strongest May result in three years. New Zealand INVESTOR • July 2011 • www.irg.co.nz

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KiwiSaver

Trust and tinkering still issues for KiwiSaver Martin Lewington says the government’s constant tinkering with Kiwisaver is undermining confidence in the scheme

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t’s fair to say the relationship between financial institutions and New Zealanders has a chequered past. Generally speaking, we’re a nation that has opted for the tangible security of an investment in bricks and mortar (usually our home and if we’re lucky a bach or rental property). This is a natural outcome after many of us being burnt by the 1987 sharemarket crash, 1990’s tax driven special partnerships investing in everything from goats to film and most recently finance companies. Historically, we’ve not exactly embraced a national savings scheme either. Nearly 20 years ago – before the Aussies kicked their super scheme up a gear - our political leaders ditched the idea of compulsory superannuation. But now, with the introduction of KiwiSaver this culture of saving and investment in New Zealand has developed. As of April 2011, 1.7 million people were members of a KiwiSaver fund, and this number is growing. However, the real test of its popularity will be if this growth continues after the signalled changes. There is an increasing sense of consciousness, amid our rapidly ageing population, of the need for people to actively save for their retirement. Widespread uptake of KiwiSaver will also be important if we are to reduce reliance on the government funded pension, with Mercer’s KiwiSaver Sentiment Index conducted in March 2010 finding that people with a KiwiSaver scheme expecting it to contribute to 29 per cent of their retirement income, as opposed to 16 per cent for those not in a KiwiSaver scheme. But that doesn’t mean Kiwis have embraced financial in-

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stitutions with open arms. In fact, the contrary has occurred, with finance companies being tagged as the least trusted industry in New Zealand in a Horizon Poll conducted at the start of this year. The financial services industry ranks right up there with telemarketers, used-car salesmen and politicians. Also, the global financial crisis has shaken investor confidence – the misdemeanours of the past have not been easily forgotten or forgiven.

But the constant tinkering with KiwiSaver threatens to undermine this progress, and ultimately the trust that New Zealander’s place in KiwiSaver. Martin Lewington, Mercer

This feeling of distrust is one the industry needs to reverse, particularly if we want KiwiSaver to continue to flourish and encourage more people to make preparations for their retirement – an outcome that is in our national interest, not simply a sales opportunity for the fund providers. Trust is built up over time; it’s based on meaningful and open communication, doing what you say you will do. In the KiwiSaver setting this can be translated to simplicity – creating products that people understand; transparency – particularly around fees and predictability – products that do


KiwiSaver

KiwiSaver what they’re meant to do. We recognise that alongside this commitment, regulatory changes have helped to simplify the financial system overall for consumers, and the industry body (ISI) has taken steps toward recognising the customer is the central focus of the industry. But the constant tinkering with KiwiSaver threatens to undermine this progress, and ultimately the trust that New Zealander’s place in KiwiSaver. In the Budget, KiwiSaver was subject to yet another host of changes, and while some were positive, regular change does little to instil a sense of certainty around KiwiSaver. Ultimately we must aim to create a system that today’s 18 year olds entering the workforce will embrace with a high degree of confidence; providing them with greater predictability as to what they’ll be putting in, providing products they can easily understand and that will deliver the expected returns at the other end of their working life. We know from our KiwiSaver Sentiment Index research that less than a third of 18-29 year olds have given some thought to retirement. More confidence and better understanding of the system could change this for the benefit of our country’s bottom line. There is also major reform needed to ensure KiwiSaver meets the needs of its members throughout their retirement. Specifically, the industry and government need to pay careful attention to the decumulation phase. There needs to be a simple product structure that enables retirees to draw down an income throughout their retirement as opposed

to the current practice of taking savings as a lump sum at retirement. This will go a long way in helping Kiwis have an income that is well managed, and lasts throughout retirement, while their remaining capital continues to generate returns. There also needs to be a clearer vision of the role KiwiSaver will play alongside NZ Super in creating an adequate and sustainable retirement income system, which eases the financial burden of our ageing population, given that Treasury has forecast that the cost of NZ Super will increase from 4.3 per cent of GDP in 2009 to 8 per cent in 2050. These notions represent a cultural shift that can only be achieved with a genuine, bi-partisan review of our retirement income system in its entirety and reaching agreement on what our ideal pension framework looks like. Mercer has called for a review of this kind, involving policy makers and industry, repeatedly. With such a review underway we have a better chance of letting the government create the best environment for KiwiSaver and allowing financial institutions to then deliver products that are true-to-label and focus on the job of creating simple and transparent solutions – and ultimately rebuilding trust and providing the platform on which to make New Zealand even greater. So let us learn from past mistakes and focus on the great things New Zealand has and let us build the future we all dream about and want for our children and their children. Martin Lewington is the head of Mercer New Zealand.

The Kiwisaver scheme is providing an alternative to property investment, but constant tinkering is causing people to lose confidence in the retirement scheme. New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Insurance

Why insurance matters

Policies

Last month NZ Investor looked at fire and general insurance such as household and motor insurances. This month Diana Clement explains the types of policies that cover your life, health, travel and business.

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hen you’re 20 or even 30, working at a good job, you may not be able to imagine being permanently disabled, getting cancer or even reaching retirement age. All of these things can and do happen. Around two in five New Zealanders come down with a serious illness before they reach retirement age. Many find themselves suddenly without an income. Another worrying statistic, according to an AIG Life customer survey, is that a quarter of Kiwis have no life, medical, income protection or critical illness insurance. We’re one of the most underinsured populations in the developed world according to AIG. Another insurer, AA Insurance found that almost a quarter of people would consider downgrading this type of cover to balance their budget. Yet the average New Zealander is three weeks from financial disaster if they lose their income. Even the most financially-prepared of us would be hard pushed to survive a prolonged period of time off work due to illness or unemployment as can completely drain some people’s financial resources. Everyone should know exactly what their outgoings are – especially if they have negatively geared property investments or business commitments such as paying staff. It’s no use thinking: ‘it won’t happen to me’, like a bulletproof 30-year-old. Yet every year more than 270,000 New Zealanders suffer a health setback that stops them from working for several months or longer according to insurance firm Sovereign. When it comes to insurance then, what are your options?

Critical illness Also called ‘trauma insurance’ critical illness insurance pays out a lump sum should you fall ill with a condition named in the policy. Standard policies cover cancer, coronary artery by-pass surgery, heart attack, kidney failure, major organ transplant, multiple sclerosis and stroke. 32

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Most policies cover a variety of other conditions such as motor neurone disease, third degree burns, and paralysis etcetera. Make sure you find out what you’re covered for, and what’s been omitted, before you sign on the dotted line. These policies usually pay a lump sum on diagnosis of the condition.

Disability Disability insurance, or total permanent disablement insurance, pays a lump sum if you become disabled and can’t do your own job, or another job that your skills are suited to. You’ll also be covered if you lose limbs, your sight, or if you can’t perform activities such as dressing, eating, toileting or bathing. The policies vary hugely and it’s worth comparing a few before deciding on which one to go with. Good reasons to have this type of insurance include being able to pay off your mortgage if you become disabled and can’t work, to pay ongoing medical expenses, have your home modified, and/or employ carers.

Income protection While ACC cover would kick in if you were stopped from working by an accident, there is no equivalent cover for illness. As a result, many people take out income protection insurance, which will usually be a proportion of their wages or salary for a set period of time or until they retire if they can’t work as a result of illness or accident. Overseas it’s possible to take out a similar insurance against unemployment. In a way, the dole is New Zealand’s unemployment insurance, provided by the government. It’s woefully inadequate for middle New Zealand.

Mortgage As the name suggests, mortgage repayment insurance replaces your regular mortgage payments if you are unable to work through illness or accident. It is one of several ways to cover your mortgage if you’re off work for any period of time. >>


Insurance

Travel Travel insurance is a little different from the health/disabilityrelated insurances because it covers you for a wide range of risks involve in travelling – ranging from theft of baggage to loss of life. It’s particularly important for medical cover as unlike New Zealand many other countries don’t offer free, or high quality, public hospital care. People are sometimes left with huge medical bills after falling ill or having an accident in a country such as the United States. Many gold and platinum credit cards include free travel cover. Generally this cover is of a high quality. It is essential to read the policy. You may be limited, for example, to 30 days of cover, meaning if you go overseas for 45 days you may not be covered for the entire trip.

Life Life insurance pays out a lump sum when you die or are diagnosed with a terminal illness. There are two main types of life insurance. The most popular is term life insurance, which is often linked to a mortgage and lasts for a specific time. The ‘term’ commonly 25 years to coincide with the end of a mortgage. Term life insurance is usually cheaper than whole of life cover, which is an insurance designed to last until you die. Some whole of life policies require you to pay premiums until you die. With others, you stop paying premiums at a certain age such as 65, but the policy continues in force. If you choose to take out life insurance you should ensure the sum insured is sufficient to cover the remaining partner’s living costs, funeral bills, childcare and other living expenses. Medical care can be expensive. If you are on a tight budget, consider a policy that covers you for things such as major surgery.

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Types of insurance • Medical insurance to cover medical bills and operations • Critical illness (also called trauma) insurance pays a lump sum if you’re diagnosed with a life threatening illnesses named in the policy. • Disability insurance pays out a lump sum for permanent disablement through sickness or accident • Income protection insurance pays a percentage of your income on an on-going basis if you suffer from named illnesses • Mortgage repayment insurance will pay your mortgage instalments if you become ill or disabled and • Life insurance pays out on your death.* • Travel insurance for the risks associated with travel. * Some of the more unusual covers include waiver of premium insurance, which means if you become ill with something covered under the policy your future premiums will be covered if you can’t afford to pay them

Medical This insurance pays your medical bills if you need to see a doctor, go to hospital or have other treatment. Typically it covers you for acute illnesses, not long-term illnesses or “chronic” conditions that cannot be cured, such as arthritis and multiple sclerosis. Private medical insurance allows you to short-cut public hospital queues, be referred to a consultant quicker, and go to a private hospital for operations and procedures. >>


BOP Limited

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Level 1, 143 Durham Street, Tauranga • PO Box 843, Tauranga 3110 Phone: +64 7 578 3863 • Fax: +64 7 577 6198 email: irgbop@irg.co.nz • Website: www.irgbop.co.nz A Disclosure Statement for Investment Research Group (BOP) Ltd is available upon request, free of charge.

BOP Limited

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Insurance

Brokers and sales people It’s often said that insurance is sold, not bought. Although people should, few actively go looking to buy critical illness insurance, disability insurance or life insurance. Invariably they’re introduced to a broker who explains the types of insurances available. A classic example of this is Auckland-based Julie and Ivan Rixon, who approached Money Smart Investment Services representative Gary Hodgson looking for advice. Hodgson recommended, among other things, that they get critical illness and other cover with Sovereign. Little did the Rixons know that within three years of taking out the policy that each of them would be diagnosed with cancer. People often bemoan paying for critical illness cover. In the Rixons’ case, each was entitled to $75,000 critical illness insurance pay out from their insurer, which enabled them to take time off work during the treatment phase. Hodgson, whose business is now called Good Life Financial Planning did by coincidence come down with cancer himself and was able to claim off the same type of trauma insurance that he had recommended to the Rixons. Both the Rixons and Hodgson had life insurance with Sovereign, with attached trauma and total permanent disablement cover. The policy is worded so that they can claim a part-payment from the trauma or disablement cover of the total amount of life cover should they fall ill or have an accident covered under the policy. The remainder of the life cover would be paid out on death. By buying this insurance as an add-on, customers typically

Relax while on holiday knowing you are covered for property loss and injury.

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

The uninsured In a survey carried out by IAG Life… • Of the 23 per cent of people who were uninsured, 57 per cent said they couldn’t afford it and 45 per cent believe insurance is not worth the cost • 50 per cent said they could survive for six months or less without their usual income, and 20 per cent said under three months • 71 per cent would use their savings if the need arose, and the rest would rely on support from their family or equity in their property source /AIG

save money over buying individual policies. It is possible to buy life and health insurances direct from insurance companies. Companies such as Pinnacle Life boast that their prices are lower than other companies that pay commission to advisers. The advantage of using a broker or independent sales person is that they can suggest combinations of policies that include different types of cover at a more economical rate. A good broker will also help come claim time by helping you fill in forms and following the progress of a claim. This can be especially useful if you are ill at the time. However, beware of a practice called churning, used commonly in the insurance industry. It’s when there is a change of insurer solely for the purpose of obtaining a commission – with no associated benefit for the client. Insurances brokers and sales people are often paid on


Insurance

commission for new policies. Therefore it’s in their interest to sign up as many new policies as possible. The problem for customers is that their health might have changed in the meantime. A classic case of this received quite a lot of publicity in 2009. Wayne Croft, 49, had life insurance with AMP for 18 years when he ran into an insurance salesman he knew who convinced him to switch to a better policy with Sovereign. The trouble was that Croft’s health had worsened in the meantime and he also didn’t disclose on the new policy a number of health issues such as depression. When he contracted prostrate cancer (which was not related to the non-disclosed health issues), his insurer cancelled his policy from inception because of the non-disclosures. Had the policy paid out, Croft would have been able to afford $7,000 a pop for six sessions of chemotherapy that his oncologist believed would extend his life. The lack of payout also left Croft’s wife with no lump sum when he died in December 2009. Had Croft stayed with AMP it is most likely the claim would have succeeded.

Fish-hooks The big problem with health-related insurances, including life insurance and travel insurance is what’s known as ‘pre-existing conditions’. It’s usual for these pre-existing conditions to be excluded from cover. If you’ve had heart problems prior to taking out the insurance, then it’s unlikely you’ll be covered for coronary problem if it occurs. This isn’t always the case. If you can prove – and the onus is on you – that the two conditions weren’t related, then you might be able to get your claim paid out. Sometimes these conditions will be spelt out in the policy documentation. The insurer, may for example, specifically exclude anxiety if you’ve been medicated for this – or even suggested that you suffered from it – by your doctor. Even if the insured claimant didn’t know they had an illness before taking a policy out, the claim can still be declined. The presence of endometrial cells may have been found in a woman’s routine cervical smear before the policy was taken out. If later she is diagnosed with endometritis or endometrial cancer the insurer is likely to argue that this was a pre-existing condition. The woman could argue that the cells had been found when she was under the age of 40 within the first 12 days of menstruation and were therefore normal. A related fish-hook is that the insurance industry in New Zealand commonly underwrites at claim time. What this means is that the company accepts your proposal and takes your premium without too many questions. Then, come claim time, your proposal form and medical history are scrutinised with a fine toothcomb as Croft’s was. Time and time again the Insurance & Savings Ombudsman’s files show that people are declined for something that could

have been apparent to the insurer when the policy was taken out. Because there was no investigation at the beginning, the problem wasn’t identified. If it had been, an exclusion could have been placed on the policy. Either way there would be no cover. However, the person in question would be aware of this. They may have chosen to insure with a different company that, for example, only limits ‘pre-existing conditions’ for five years, not for life. The insurance industry’s argument about underwriting at claim time is that it would be very expensive to investigate all policyholders at the time of taking out the policy when only a few will ever claim. The industry argues that the public would not stomach the increased cost of taking out insurance if it had to underwrite each policy at the inception.

Making a claim Like every insurance policy, customers really need to read their insurance policies before they take them out and again before they claim. It’s very easy to make a small mistake and be caught by the fine print. Even the experts can fall foul of this. Pinnacle Life’s Steven de Jong had his travel insurance claim turned down after a luggage handler prised open his bag, went through his belongings and stole his camera. “Ok. No problem. Isn’t this the reason that I took out travel insurance with Travelsure?” says de Jong. “But alas… my claim was rejected because I did not report the theft to the police in London within 24 hours as stated in the policy – I was referred to the small print on page 13 and also somewhere on page 17. “How stupid I was not to open my bag and check what was missing right there on the floor next to the luggage carousel. And never mind that I didn’t notice the camera was stolen… because the thieves left the camera bag… which I opened only 72 hours later.” When even the professionals miss out on a legitimate claim, the rest of us have to be triply astute and careful when it comes to buying insurance and making a claim. Dot those I’s and cross those T’s.

If your claim is declined If your claim is declined, don’t give up. Talk to your broker if you have one, or make a formal complaint to the insurance company outlining why you believe the claim should be paid. If this fails, you can take your complaint to the Ombudsman www.iombudsman.org.nz. Most insurance companies in New Zealand are members of the scheme and will abide by the ombudsman’s independent decision. Diana Clement is a freelance business writer. Email: Diana@Wordfusion.com

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Bonds

Actively manage your bonds Ploughing cash into long-term bonds and forgetting them may not deliver the same returns as keeping an eye on interest rate forecasts and moving your money around, writes Dirk Mostert

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t would seem that NZ bond investors are solely focused on the quarterly or half yearly interest payments (coupons) of a bond – with little care given to the trading and speculative nature of the products they invest in. To better understand the potential of investing in bonds, it is worthwhile to take a look at how the wholesale market treat bonds and bond trading. Some participants speculate on the movement of interest rates and use bonds as the tool to express their views, i.e. to make money. These speculators are normally short term focused and only look at the dollar-value-per-point movement. Each point (0.01) change in the yield could represent hundreds or thousands of dollars profit or loss, as a single trade can often be in the millions. These traders bank on making capital returns and not interest income. Very often they would buy bonds with only a small deposit (margin) and cannot hold their positions until

maturity. For them, liquidity is king. Add a bit of volatility and you have the makings for a very nice trading environment. Then you have your fund managers. They buy bonds as part of a strategic holding in their portfolios. A fund manager will adjust the bond portfolio’s average duration (duration of the portfolio is the sum of the durations of each security multiplied by the percentage of the portfolio in that security) from, say, long to short, depending on the future interest rate expectations. The fund manager will remain invested in bonds, as per the mandate, but will sell the longer dated bonds and buy shorter dated bonds if the expectation is that rates will rise. Once rates have levelled off, fund managers will start to increase the average duration of their portfolio through acquiring longer dated bonds and selling the shorter dated bonds. What does this mean for the retail investor? If you are the owner of a bond with a maturity date far into the future

You may have invested money in a long-term bond, but keep and eye on rates, as a better one may come along.

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Bonds

Bonds (long dated bond) and you believe that interest rates are going to rise in the foreseeable future, it may pay you to sell the bond at current market rates (being a low interest rate environment) and invest in a bond with a shorter duration. By way of explanation, the price of a bond is often quoted as a yield to maturity (YTM). This YTM is the return that a bond delivers, if you were to re-invest all coupons (interest payments) at the purchase rate and kept the bond to maturity. Example: On 1 June 2010 John and Peter each bought a new issue five-year bond with a single coupon of 10 per cent a year (being the prevailing market rate for this type of bond at the time) and both invested $100,000. One year later the bond is trading at a yield of 5 per cent and on 2 June 2011 Peter decides to sell his bond as he believes that interest rates are going to rise, while John decides to remain invested for the remaining four years and reinvests his coupon payment of $10,000 at the going rate of 5 per cent. Peter received the $10,000 coupon interest plus his original $100,000 investment plus an additional $7,718 in capital appreciation. He now has $117,718 to invest and decides on a 12 month fixed term deposit at say 3 per cent. Twelve months later Peter’s investment has grown to $121,250. Peter is relieved that his prediction of rising interest rates was correct, and saw that the YTM on that same bond has risen to 10 per cent. Peter now reinvests his whole $121,250 into the bond. If reinvestment rates on all future coupons remain static at 10 per cent the results are as follows: For John: End Y1 Coupon of $10,000 reinvested for 4 years at 05% End Y2 Coupon of $10,000 reinvested for 3 years at 10% End Y3 Coupon of $10,000 reinvested for 2 years at 10% End Y4 Coupon of $10,000 reinvested for 1 years at 10% End Y5 Coupon of $10,000 reinvested for 0 years at 10% Total coupons received including interest growth Principle amount invested Total cash on hand as at 1 June 2015

$12,155 $13,310 $12,100 $11,000 $10,000

For Peter: End Y3 Coupon of $12,125 reinvested for 2 years at 10% End Y4 Coupon of $12,125 reinvested for 1 years at 10% End Y5 Coupon of $12,125 reinvested for 0 years at 10%

$14,671 $13,337 $12,125

Total coupons received including interest growth $40,133 Principle amount invested for 3 years $121,249 Total cash on hand as at 1 June 2015 $161,382 As you can see, Peter ends up with $2,726 more than John, even though Peter was invested at a low rate of 3 per cent for 12 months. One of the key factors in bond trading is liquidity. With higher liquidity comes narrower spreads (the difference between bids and offers, or buy and sell prices). This then allows for investors to buy a bond today with an expectation that interest rates will fall, and sell the same bond when interest rate expectations rise. Because of the many factors that influence interest rates, predictions on market direction can change rapidly, leading to increased volatility in price or yields. In a liquid market, investors are able to enter and exit bond positions quickly. Generally the retail investor is less likely to trade intra-day and more likely to hold on to their investments for the long term, but this does not mean that they should ignore a bond’s liquidity. When things go pear shaped (or the issuer’s business is showing signs of increased risk), you may want to have the ability to sell your bonds into the market and salvage what you can. You can always repurchase the security once the market has settled down. Remember, when you invest in bonds, it is important to stay on top of the issuer’s creditworthiness, interest rate expectations and inflation figures. Dirk Mostert is an investment broker at IRG.

$58,565 $100,000 $158,656

Phone 09 304 0239. Email: dirk.mostert@irg.co.nz

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Ethical Investing

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Carbon disclosure and Dr Robert Howell says everyone, including lenders and investors, need to play their part when it comes to reducing global warming

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he message from scientists who are at the cutting edge of research into climate change is that the world is facing an unavoidable 3 to 4oC warming of the Earth, with dire consequences for future g¬enerations. A major contributor to this is the increase in CO2 into the atmosphere. If we are to lessen this impact, we need to change our investment habits and choices to companies that have low carbon footprints. Banks have an important role to play through their lending. How are Australasian banks doing? This article discusses a number of initiatives and reports that describe the carbon impact of companies, including banks.

Low carbon The need to move to a low carbon economy was recognised by a group of 35 institutional investors made up of insurance companies, SRI Funds, banks, pension and religious investors (representing assets in excess of US$4.5 trillion) when they formed the Carbon Disclosure Project (CDP) in 2000 in the UK. With financial support that included the UK government, the CDP wrote to the chairperson of the FT500 Global Index companies, asking the companies to identify the business implications of their exposure to climate-related risks, and explain what they were doing to address these risks. Of the 500 companies contacted, 221 (44 per cent) completed the questionnaire, 39 (8 per cent) referred CDP to other corporate literature or responded with a short letter, 76 (15 per cent) declined to respond and 145 (29 per cent) did

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not reply. In the 10 years since the launch of the CDP, the quality and quantity of reporting on climate change has improved to a level where CDP can now identify which companies are actively taking steps toward a low-carbon economy. In 2010, CDP (backed by 534 institutional investors representing more than US$64 trillion of assets under management) asked the world’s largest companies in the FTSE Global Equity Index Series (Global 500) and Standard & Poor’s 500 Index (S&P 500) more pointedly than ever to demonstrate the actions they are taking to reduce global emissions.

The first step towards managing carbon emissions is to measure them because in business what gets measured gets managed. Lord Adair Turner, chairman, UK Financial Services Authority

The vast majority of the Global 500, (82 per cent) report their greenhouse emissions and climate change strategies to the CDP in order to set reduction targets and improve their environmental impact. The CDP is now receiving carbon data from almost 3,000 companies in more than 60 countries, giving it the largest database of primary corporate climate change information in the world. It now receives funding support from a wide


Ethical Investing

our banks range of organisations. They include foundations such as the Nathan Cummings and Esmée Fairbairn Foundations as well as from governments in various countries including the UK, US, Sweden, France, Holland and Australia. Lord Adair Turner, chairman, UK Financial Services Authority said: “The first step towards managing carbon emissions is to measure them because in business what gets measured gets managed. The Carbon Disclosure Project has played a crucial role in encouraging companies to take the first steps in that measurement and management path.” Greenhouse gas emissions transparency is fast becoming a requirement for some companies, as global organisations such as IBM and HP are requiring their supply chain to publicly disclose their greenhouse gas emissions as a condition of continuing to do business with them. The CDP has expanded its programs to collect data for investors and about supply chains and water. Most recently, in October 2010, the CDP set its sights on municipalities, launching CDP cities providing standardised reporting of emissions data, analysis of climate risks and opportunities and adaptation plans for cities around the world. When CDP began, companies were given an assessment (A, B, C or D) that related to disclosure. A high carbon disclosure score would indicate a comprehensive response. The response would tend to show clear consideration of business-specific risks and potential opportunities related to climate change and good internal data management practices for understanding GHG emissions. However, the disclosure score does not reflect a company’s actions on climate change mitigation. More recently a carbon performance score was introduced to complement the disclosure score and recognise companies that are taking positive measures on climate change mitigation. While detailed responses are available from the Australasian banks, via the CDP, overall comparative rankings of the carbon impact of companies are not available.

Carbon ranking The Environmental Investment Organisation provides a carbon ranking for 300 European companies. The top three financials by carbon intensity (tCO2 e/$million turnover) are Aviva (0.85); Aegon NV (1.35) and Banco Popular Espanol SA (1.57). The methodology is more useful than the CDP ranking but does not include companies outside of Europe.

Close the gap report Quality of Policy ANZ Westpac Commonwealth National Australia HSBC

0 5 6 10 9 2

1 10 10 8 7 13

2 3 2 2 1

3 1

4 1

______________________ A score of 0 is given where there is no policy. 1 is where there is a voluntary standard or initiative or where the policy is vague. 2 is where half the elements are present. 3 is where essential elements are present. 4 is where essential and additional elements are present.

Banktrack The Banktrack Report, Close the Gap, assessed the policies of 49 international banks. The results for Australasian banks (plus HSBC which was the only bank to get a category 4 rank) are in Table 1 (see graphic). Policies include the sectors of agriculture, fisheries, forestry, military industry and arms trade, mining, oil and gas, and power generation. Policy issues include biodiversity, climate change, human rights, indigenous peoples, labour, operation in conflict zones, taxation, toxics, transparency and accountability. There are 18 policies, each of which has been ranked from 0 to 4. ANZ has 5 policies that scored 0; 10 policies that were graded 1; and 3 policies that scored 2 in terms of quality. By way of example the ANZ has a forest policy that states: “We will only support legal logging activities and will avoid supporting the logging of high-conservation-value areas or areas protected by specified legislation or international environmental treaties and conventions.” The bank encourages certification such as the Forest Stewardship Council accredited schemes, but it is not required. it received a grade of 2 for its forestry policy. By comparison HSBC forest land and forest product guidelines requires clients to obtain independently verified certification for timber operations and supply of timber products to HSBC’s standard. This standard is based on the principles and criteria of the FSC certification scheme. As HSBC includes the other essential elements as well and the policy applies both >> New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Ethical Investing

to lending and investment banking services and to asset management it is accredited a score of 4. In comparison with the major banks, Kiwibank has no policies in regard to sector lending. Its corporate sustainability manager says: “…although we don’t have formal policies as Kiwibank, we do have policies as a subsidiary of New Zealand Post Group and we undertake numerous activities and initiatives in this area. “We have an active sustainability group (with an executive team sponsor) which develops strategy and annual plans for Kiwibank. We feed our activities into New Zealand Post Group which uses the St James Ethics Corporate Responsibility Index and GRI for benchmarking the whole Group’s (including Kiwibank’s) activities…”

Conclusion A few years ago, Westpac was a leader in sustainability in the financial sector for Australia and New Zealand. This is no longer the case; it is now most probably the Australia and New Zealand Banking Group, or National Australia (which includes BNZ in New Zealand). The Commonwealth Bank is likely behind these two. The Commonwealth bank recognizes the science behind climate change and that it is a real risk to future earnings, but its subsidiary, ASB bank in New Zealand, does not. Westpac needs to also recognise the science of climate change and incorporate it into its risk policies. Kiwibank has some catching up to do and develop policies that address these issues. HSBC is one of the leading international banks, but even its policies need development. The Australian banks recognise the importance of water policies, but have much work to do with their mining and energy policies if we are to significantly face the challenge of moving to a low carbon economy. During the last decade through such initiatives as the Carbon Disclosure Project and other NGOs such as Banktrack, much more information is now available for informed investor decision. The UK government has set a target of halving its CO2 emissions by 2025. It has also recognised that there are

market deficiencies regarding investment, by establishing a Green bank. It is likely that Australia and New Zealand will need to follow suit if the real risks of climate change are to be significantly mitigated, but there is also an important role for private investors to require our financial institutions to adopt proper definitions of risk and change their policies accordingly. If your investment portfolio has any Australasian banks then let your advisor or fund manager know that you want the better performing banks to be supported. If you use any of these banks for your banking needs, also let them know that their carbon policies are important and encourage them to improve. Dr Robert Howell is the chairman of the Council for Socially Responsible Investment. On the web: www.csri.org.nz

References ANZ Bank. (2011). www.anz.com/about-us/corporateresponsibility/customers/responsible-business-lending/ policies-guidelines/#tab_tab03 Banktrack. (2010) www.banktrack.org/download/ close_the_gap/close_the_gap.pdf Carbon Disclosure Project. (2011). www.cdproject.net/ en-US/Pages/HomePage.aspx Environmental Investment Organisation. (2011). www.eio.org.uk/etindex.php?page=europe_300 Howell, R. (2011). The Challenge of Sustainability for the Financial Sector. The International Journal of Environmental, Cultural, Economic and Social Sustainability. Vol 7 Issue 1. http://ijs.cgpublisher.com/ UK Government Emission targets. (2011). www. guardian.co.uk/environment/2011/may/17/uk-halvecarbon-emissions?intcmp=122 UK Government Green bank. (2011). www.bbc.co.uk/ news/science-environment-13502121

Should the sun be setting on timber? 42

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New Zealand INVESTOR • July 2011 • www.irg.co.nz


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Commodities

Picks

Commodities’ correction Commodities still have some growth left, gold is likely to continue to rise and China’s housing bubble has plenty of room for expansion, writes Nick O’Boyle.

T

he last two months have seen a volatile ride for commodities with the whole commodity complex being sold off heavily. This has had negative consequences for equity markets, because although commodity and equity markets are not heavily correlated – given the fact that we are still in recovery mode – the two markets have become tightly correlated. I believe that what we are seeing is traders’ unwinding speculative positions and a healthy correction has just taken place which gives investors with a medium term view an excellent opportunity to accumulate high quality mining companies in their portfolio. Resources and commodities in general have seen strong gains over recent years, which have been driven by a large increase in demand by emerging markets, particularly China and India. This trend does not appear to be fading, but is in fact accelerating, which has been shown by mergers and acquisitions in the mining sector and acceleration in investment by mining companies. When it comes to resources it is a supply/demand scenario, if supply outstrips demand then prices will fall and the reverse is also true. Many believe that a slow down is imminent in China due to a potential property bubble, but in a research note that I read recently, house prices are rising by about 13 per cent per annum in China while wage growth is about 15 per cent. Ten years ago, China consumed about 10 per cent of the world’s base metals; it now consumes 40 per cent. However, from a per capita consumption basis, China still heavily lags the developed world – with India even further behind. This means that even if growth slows due to rising interest rates, and a potential property bubble, the environment for commodities will still be positive. Simply put, 30 million people a year in China move from the country to the city, so industrialization and urbanization will continue for some time. Many believe we are currently in a peak commodity cycle and expect pricing to decline in commodities such as iron ore and copper. However, the extra supply for some of these commodities is still years away and, in the near and mid term, a supply squeeze will occur as new supply is some time away from coming on line. This has given equity investors an excellent opportunity to acquire high quality companies that are not only a play on commodity prices but are strong businesses with high barriers to entry. This has given investors compelling valuations as 44

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

Nick O’Boyle’s top commodity picks Rio Tinto (diversified) Fortescue Metals (iron ore) Atlas Iron (iron ore) Bathurst Resources (coal) Iluka Resources (mineral sands)

commodities are going through a de rating at present. For example BHP Billiton and Rio Tinto are trading at 8x forecast 2012 earnings and these are businesses with huge scale, little debt, impossible barriers to entry while they have the ability to print money. If one is to look at the copper mining industry, the amount of copper being recovered for every rock being mined has been falling for the last few decades. Although the copper industry does have high margins and an incentive to increase production, it is becoming increasingly difficult for existing producers to even maintain current supply. There are projects beginning construction, but few that will come on stream in the next few years. This means that miners near production or opening projects in the near future are in an excellent position to capitalize in the near term. The fundamentals for iron ore and coal also look attractive. However, these two are more abundant in places such as Queensland. West Africa is simply not there, port capacity will need to be beefed up and power supplies increased, before new supplies can be produced and sold abroad. Likewise, it may look like gold has peaked in the near term but there are some factors playing in its favour, notably sovereign debt issues, political instability in the Middle East, high oil prices and rising inflation. This commodity is a little difficult to predict but gold mining stocks have re rated and now look cheap – even though they trade at a premium to energy and base metals companies. In addition, gold miners tend to lag the gold price by about six months. When gold peaked in the 90s, gold mining stocks continued to rise for a couple of years after the gold price peaked. With the price of gold still relatively buoyant 2011 should be another good year for gold producers. Due to space constraints I will write about energy and oil related stocks in another issue, but prices will probably remain elevated in that space throughout 2011. At the moment I favour mid/large caps in this space with companies that have the ability to grow production and replace reserves. Nick O’Boyle can offer sharebroking advice. Call him on 09 304 0233. Email: nick.oboyle@irg.co.nz


Celebrities

Celebs

Good headline, bad policy The government wants to punish ‘celebrities’ who promote poor investment products, but as Kirk Hope writes, the proposed law is curious

T

The government’s decision to make celebrities liable for fines of up to $1 million for making false or misleading statements regarding the sale of investment products is curious. On its face, the decision would seem to make sense – at least at a sentimental level. However, a closer look at the proposal demonstrates that making policy on the basis of emotion – rather than analysis – may not achieve any objective at all, let alone the one you want it to. More importantly, it illustrates the inherent weakness of backwards looking policy making, a process that instead should be focussed on future problem areas. The first thing that is striking about this proposal is that it would be hard to envisage any celebrity willing to face the potential of a large fine in relation to an endorsement – especially one in such an opaque area as securities. To be blunt, nobody would touch it with a barge pole. If it’s not happening – then it’s pretty unlikely anyone will be prosecuted. Secondly, if a celebrity did for some strange reason (money) decide to endorse a financial product or firm, how would they make sure that the information they were scripted with was not false or misleading? The cost of determining this would have to outweigh the endorsement benefit – because it would need to be ongoing. For example – an advertisement is filmed in 2005 at which time the statements scripted for celebrity x are accurate. By 2009 the same advertisements are still screening, but the statements being made by celebrity x are no longer accurate because the circumstances of the firm, or product,

have changed. In order to avoid liability, the celebrity would need ongoing access to the financial accounts or terms of the product to ensure their statements were accurate – how realistic is this? How much would it cost for celebrity x to confirm the facts – and how much would those ongoing costs be? There are further issues with the policy that make it even more unrealistic that celebrities would even bother with this type of endorsement should the proposal become law.

What on earth would possess someone to do something because a well-known face on television says it is a good idea, without first doing their own due diligence? The terms of the policy don’t include “knowingly” making false or misleading statements. Rather it is framed in a much narrower way as a strict liability offence. That is, if celebrity x makes a false or misleading statement – even unknowingly –they are liable. For the reasons outlined above, the costs of ensuring that statements are not false or misleading on an ongoing basis would be prohibitive, without contemplating the size of any potential fine if your advisers got it wrong. Another issue that arises with this policy is how to define “celebrity”. What does this mean in an age when traditional media is being overrun by a proliferation of social media channels – when does one “become” a celebrity, or not as the

case may be? Could an unknown person become a celebrity by virtue of appearing in a TV advert? What becomes pretty clear, pretty quickly, is that the policy is designed to kill off even the prospect of the use of well-known faces for the marketing of investment products regulated under the Securities Act or its successor. The question then becomes ‘are people really investing on the basis of a former All Black or a former newsreader promoting a product?’ What credentials do these ‘celebrities’ have for assessing that an investment is a good one? Does being able to run with a ball or reading an autocue count? What on earth would possess someone to do something because a well-known face on television says it is a good idea, without first doing their own due diligence? If people are investing on that basis, what does this say not only about our levels of financial literacy, but of our cultural traits – sell junk bonds to kiwis because they are trusting of familiar faces. It is rather more likely that advertisements promoting particular investment products were used as a ‘call to action’ – a trigger for TV viewers to contact the provider, and that little reliance was placed on the celebrity endorsing the products. It means that while the government’s policy to make celebrities liable for false or misleading statements made in relation to the sale of an investment product makes a nice headline, it won’t really do much else. Kirk Hope is the executive director of the Financial Services Federation – an industry association for financiers that was established in 1965. On the web: www.fsf.org.nz

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Fund

Exit $

1Yr

3 Yr 5 Yr Size $M Label

Diversified Balanced PIEs AMP Dyn Markets Balanced Fund 1.2807 9.64 1.45 2.48 3.36 AMP Dyn Markets Balanced Trust 1.2706 9.54 1.27 1.98 3.60 AMP Lifesteps Moderate Balanced Fund 1.2671 8.89 1.89 2.74 8.95 AMP Lifesteps Moderate Fund 1.3269 7.76 3.44 4.68 5.27 AMP Select Balanced Fund 1.2364 9.60 1.39 2.05 55.49 AMP Select Balanced Trust 1.1972 9.63 1.39 1.65 33.32 ANZ Balanced Growth Fund* 1.9937 11.89 2.86 3.20 14.16 ANZ Investment Funds Balanced Fund 1.0679 10.99 7.43 ANZ Retirement Plan Balanced 2.2964 11.01 3.51 3.54 25.85 ASB EasyFund Balanced 1.0072 10.72 2.13 74.50 ASB EasyFund Moderate 1.0876 8.79 3.53 84.82 Asteron Managed Fund* 10.1632 7.62 1.21 1.75 22.89 Asteron RSP Mgd Neutral* 2.0094 7.58 0.85 1.41 15.28 Asteron SP2000 Balanced Fund* 1.6190 7.52 0.04 0.58 7.63 Asteron Superplan Balanced Fund* 2.1282 6.84 -0.57 -0.01 66.35 Craigs Balanced Fund 1.1398 9.27 4.22 15.73 Craigs Balanced SRI Fund 1.1492 6.00 3.47 2.36 Diversified Wealth Management Balanced Fund 1.1320 4.94 3.98 3.69 22.09 Milford Balanced Fund 1.0566 8.63 9.30 OnePath Balanced Fund 1.7896 12.84 3.84 3.92 25.94 Public Trust Balanced Fund* 1.4572 9.77 3.79 5.22 Public Trust Balanced Growth Fund 1.2541 10.37 2.06 13.09 Public Trust Conservative Fund 1.2951 8.69 3.79 17.56 Public Trust Moderate Growth Fund 1.2719 9.33 3.10 8.96 SIL 60s Plus Super Balanced Plus Fund 2.5152 13.30 3.75 3.62 22.15 SIL Personal Retirement Balanced Plus Fund 2.5152 13.30 3.75 3.62 75.18 Thoroughbred Balanced Flexible 1.7829 12.39 3.60 4.04 21.11 Thoroughbred Balanced Locked-In 1.7621 12.80 3.97 4.41 31.98 Thoroughbred Balanced Trust 2.0353 12.48 3.63 3.97 18.88 Thoroughbred Education Fund 2.0353 12.48 3.63 3.97 18.53 TOWER FreedomPlan Balanced* 2.6178 7.27 1.14 2.96 158.79 TOWER FuturePlan Balanced* 2.6380 7.46 1.40 3.12 158.79 TOWER IP Balanced Fund* 2.6380 7.46 1.40 158.79 TOWER Multi Sector Fund 2.0481 8.81 1.68 4.23 11.87 Westpac Diversified Trust 1.3771 9.95 1.60 60.32 Westpac Retire Plan Balanced Fund 2.3805 9.37 1.53 105.95 Diversified Defensive PIEs AMP Dyn Mkt Conservative Fund 1.3775 6.54 5.11 4.47 0.78 AMP Dynamic Mkt Conservative Trust 1.3429 6.47 5.00 4.40 1.37 AMP Lifesteps Conservative Fund 1.3120 6.53 5.10 4.45 2.12 AMP Select Conservative Fund 1.3674 6.55 5.18 4.58 11.14 AMP Select Conservative Trust 1.3498 6.54 5.17 4.48 14.76 AMP Select Income Fund 1.4036 5.30 7.42 6.14 3.24 AMP Select Income Trust 1.3107 5.30 7.30 5.25 4.88 ANZ Investment Funds Cons Bal Fund 1.0675 9.20 6.66 ANZ Investment Funds Conservative Fund 1.0649 7.34 2.46 ASB EasyFund Conservative 1.1220 7.56 3.89 192.07 ASB EasyFund Defensive 1.1651 6.22 4.68 95.74 Asteron RSP Mgd Constve* 2.0663 7.23 4.29 4.30 2.14 Asteron SP2000 Conservative Fund* 1.7075 7.10 3.50 3.40 2.10 Asteron Superplan Conservative Fund* 1.9483 6.21 2.88 2.72 5.04 Craigs Conservative Fund 1.1830 6.88 5.11 7.73 Lifestages Capital Stable Portfolio* 2.1660 3.37 2.29 3.84 9.80 Milford Income Fund 1.0636 11.22 45.30 Public Trust Defensive Fund 1.3319 6.85 5.52 17.60 Thoroughbred Cons Flexible 1.6699 6.39 4.46 4.93 7.54 Thoroughbred Cons Locked-In 1.7884 6.66 4.86 5.38 10.01 Thoroughbred Conservative Trust 1.8900 6.45 4.47 5.14 2.20 Westpac Income Plus Trust 1.3603 6.82 3.09 21.35 Diversified Growth PIEs AMP Dynamic Markets Growth Trust 1.2075 12.37 -2.74 -0.53 3.03 AMP Dynamic Mkts Growth Fund 1.1822 12.33 -2.91 -0.02 3.81 AMP Lifesteps Aggressive Fund 1.1615 12.87 -3.14 -0.31 0.07 AMP Lifesteps Balanced Fund 1.2887 9.56 1.49 3.08 3.85 AMP Lifesteps Growth Fund 1.2024 11.21 -1.30 0.71 1.65 AMP Select Growth Fund 1.1110 12.43 -2.76 -0.50 32.49 AMP Select Growth Trust 1.0685 12.38 -2.85 -1.10 12.88 ANZ Investment Funds Balanced Growth Fund 1.0732 13.06 1.73 ANZ Investment Funds Growth Fund 1.0747 14.65 0.15

46

I

New Zealand INVESTOR • July 2011 • www.irg.co.nz

                     ���         

      

          

      

Fund

Exit $

1Yr

3 Yr 5 Yr Size $M Label

ANZ Retirement Plan Growth ASB EasyFund Growth Asteron RSP Managed Growth* Asteron SP2000 Aggressive Fund* Asteron SP2000 Dynamic Fund* Asteron Superplan Aggressive Fund* Asteron Superplan Dynamic Fund* Craigs Growth Fund Diversified Wealth Management Dynamic Funds Milford Aggressive Fund Public Trust Capital Growth Fund* Public Trust Growth Priority Fund Thoroughbred Growth Flexible Thoroughbred Growth Locked-In Thoroughbred Growth Trust TOWER FreedomPlan Growth Fund* TOWER FuturePlan Growth Fund* TOWER IP Growth Fund* Westpac Growth Trust Westpac Retire Plan Dynamic Fund NZ Equity (Active) PIEs AMP OnePath NZ Shares Fund AMP OnePath NZ Shares Trust AMPCI NZ Shares Fund AMPCI NZ Shares Trust Asteron RSP NZ Equity* Asteron Socially Responsible Investment Trust Asteron SP2000 NZ Share Fund* Asteron SP2000 NZ Small Co Fund* Asteron Superplan NZ Shares Fund* Asteron Superplan NZ Small Co Fund* Craigs NZ Equity Fisher Funds Fledgling Fund Fisher Funds NZ Growth Fund Fisher Funds Premium NZ Fund OnePath New Zealand Share Fund SIL 60s Plus Super NZ Share SIL Personal Retirement NZ Share TOWER FuturePlan NZ Cos Fund* TOWER IP NZ Companies Fund* TOWER NZ Equity Trust Tyndall Core NZ Equity Fund NZ Equity (Passive) PIEs AMPCI NZ Shares Index Fund AMPCI NZ Shares Index Trust SmartFONZ SmartMIDZ SmartTENZ NZ Equity (Australasian) PIEs Asteron SP2000 Trans Tasman Fund* Asteron Superplan Trans Tasman Fund* Milford Peak Fund Mint Australia NZ Active Equity Trust OnePath Equity Selection Fund Perpetual Australasian Shares Fund Pie Australasian Growth Fund Tyndall Aggressive Australasian Equity Fund Tyndall Small Companies Fund NZ Property PIEs ASB NZ Property Trust MFL Property Fund Mint Australia NZ Real Estate Investment Trust OnePath Property Securities Fund TOWER FreedomPlan Property Fund* TOWER FuturePlan Property Fund* TOWER IP Property Fund* NZ Mortgage PIEs ANZ FlexiMortgage Income Trust* Capital Mortgage Income Trust Perpetual Mortgage Fund

2.0819 0.9248 1.9319 1.3609 1.5443 1.3174 1.8008 1.1399 1.0414 1.4526 1.4502 1.2537 1.7040 1.6879 1.7863 1.8379 1.8593 1.8593 1.2513 2.4918

13.18 12.12 7.64 7.62 7.72 7.22 6.97 9.79 6.01 10.40 11.56 12.49 14.75 15.17 14.94 8.87 9.00 9.00 11.29 11.27

2.58 0.14 -0.40 -4.41 -1.17 -5.05 -1.82 4.37

1.2113 1.2277 1.2398 1.2779 2.0872 1.1921 1.7659 3.0227 1.6265 2.7806 1.0902 1.2157 3.3861 0.7884 2.2180 2.8571 2.8571 2.3468 2.3468 2.5862 1.0207

12.96 1.32 0.87 12.98 1.05 0.71 15.90 2.19 0.93 15.71 2.11 0.96 12.08 -0.01 -0.09 10.00 -0.58 -0.14 12.51 0.32 0.25 15.56 4.00 4.26 11.76 -0.42 -0.50 14.90 3.27 3.50 17.55 0.83 18.38 0.19 18.77 1.43 16.29 1.10 16.15 1.77 16.15 1.77 10.27 5.13 10.27 5.13 10.64 -0.35 12.27

-0.09 -0.29

1.0869 0.9742 1.3583 2.2484 0.9356

13.97 13.89 9.22 5.80 14.43

-1.24 -2.90 -1.81 -1.53 -1.55

2.2051 2.8673 1.2123 1.0729 1.3247 1.0485 1.8772 1.0839 1.2533

12.46 0.29 0.22 2.37  11.79 -0.39 -0.49 15.24  14.37 7.80 36.80  17.51 3.67 8.30  13.29 2.78 0.31 19.11  6.76 49.72 30.03 20.74  7.77 5.52 9.97  15.89 5.26

0.9272 2.0368 0.9223 1.5854 3.2202 3.2394 3.2394

 4.77 -16.49 3.64 18.01 0.23 -0.02 384.83  17.24 -0.58 3.10  21.78 0.05 2.20 45.83  3.56 2.85 12.44 9.17  3.69 3.05 12.58 9.17 3.69 3.05 9.17

1.0000 1.0000 1.0000

4.34 5.45 7.27

10.72 1.65 0.56 2.43 2.78 2.42 -1.95 -1.58 -1.58 0.58 0.68

-1.69 -2.49 -3.25 -2.39 -1.49

4.52 6.68 7.50

2.93 0.44 -0.62 -0.42 -1.28 -1.10

3.35 3.66 3.18 -0.05 0.18

-1.19 -0.17 -0.17 -0.36 -0.32

5.41 7.75

10.20 21.34 24.02 0.49 1.93 5.13 17.15 11.73 4.48 168.00 3.84 8.69 9.45 14.88 8.90 84.46 84.46 84.46 36.98 101.58

               

5.91 3.41 5.92 1.97 1.24 2.42 0.51 1.58 0.91 4.06 20.19 3.15 79.86 30.06 29.74 4.22 15.98 4.85 4.85 10.16 2.18

         

10.92 2.11 85.16 36.98 63.38

    

29.13 25.40 73.24

       


Fund

Exit $

1Yr

3 Yr 5 Yr Size $M Label

Fund

Westpac Home Loan Trust Westpac Mortgage Investment NZ Fixed Interest PIEs AMP OnePath NZ Fixed Interest Fund AMP OnePath NZ Fixed Interest Trust AMPCI NZ FI Fund AMPCI NZ FI Index Fund AMPCI NZ FI Index Trust AMPCI NZ FI Trust Asteron Corporate Bond Trust Asteron NZ Fixed Interest Trust Asteron RSP NZ Fixed Int* Asteron SP2000 Capital Fund* Asteron SP2000 NZ Bond Fund* Asteron Superplan Capital Fund* Asteron Superplan NZ Bond Fund* Craigs Fixed Interest Fund OnePath Secure Income Fund Perpetual NZ Bond Fund Public Trust NZ Bond Fund SIL 60s Plus Super Fixed Interest Fund SIL Pers Retirement Fixed Interest Fund Tyndall Corporate Bond Fund Tyndall Fixed Interest Fund Tyndall Income Fund NZ Cash PIEs AMP OnePath NZ Cash Fund AMP OnePath NZ Cash Trust AMP Select Cash Enhanced Fund AMP Select Cash Enhanced Trust ANZ Retirement Plan Capital Stable ANZ Retirement Plan Deposit Portfolio ASB Cash Fund Asteron Deposit Fund* Asteron RSP Deposit* AXA UT34 - Selected NZ Cash Fund Public Trust Cash Management SIL 60s Plus Super Cash Plus Fund SIL Personal Retirement Cash Plus Fund Thoroughbred Cash Fund TOWER Cash Fund Westpac Cash Plus Trust Westpac Retire Plan Accumulation Int’l Equity (Australian) PIEs Craigs Australian Equity Fund Fisher Funds Aust Growth Fund Fisher Funds Premium Aust Fund OnePath Australian Share Fund SmartMOZY SmartOZZY Int’l Equity (Regional) PIEs Asteron Asian Share Trust Asteron SP2000 Emg Mkts* Asteron SP2000 Euro Fund* Asteron SP2000 Far East Fund* Asteron SP2000 Nth American Fund* Asteron Superplan Emg Mkts Fund* Asteron Superplan European Fund* Asteron Superplan Far East Fund* Asteron Superplan Nth American Fund* SIL 60s Plus Super Pacific Basin* SIL Pers Retirement Pacific Basin* TOWER FreedomPlan Asia/Emerging* TOWER FuturePlan Asia/Emerging* TOWER IP Asia/Emerging Mkts Fund* Int’l Equity (Global) PIEs AMP FD Int’l Share Fund 1 - Value Fund AMP FD Int’l Share Fund 1 - Value Trust AMP FD Int’l Share Fund 3 - Growth Fund AMP FD Int’l Share Fund 3 - Growth Trust

1.0000 1.0000

2.65 2.68

3.55 3.49

195.49 5.12 376.55

1.4137 1.3248 1.5112 1.4446 1.3361 1.5014 1.0296 1.0905 2.3557 1.9069 2.0597 2.3134 2.6273 1.1081 1.2873 1.0149 1.4713 2.2669 2.2669 1.0734 1.0030 1.1557

8.20 8.02 7.18 7.02 6.79 7.20 7.45 7.79 8.31 3.65 7.62 3.12 7.68 6.42 7.68

7.22 7.07 10.25 8.17 7.95 10.13 5.34 7.12 7.93 4.48 6.99 4.06 7.01

5.47 4.23 7.47 6.29 5.63 7.15 4.76 5.44 6.21 5.62 5.54 5.28 5.53

6.04

5.17

6.96 7.79 7.79 8.48

9.42 6.14 6.14

5.22 5.22

13.96

9.75

1.3290 1.1811 1.2714 1.1478 1.9511 1.1718 1.0000 9.1156 9.0937 1140.9630 1.1568 1.9725 1.9725 1.0000 1.1202 1.1456 2.7723

3.39 3.21 3.06 3.02 4.36 2.66 3.54 3.33 3.33 3.15 2.66 2.91 2.91 2.50 2.96 3.37 3.14

3.26 3.16 2.93 2.86 3.78 3.62

4.18 2.96 3.67 2.63 4.48 5.10

4.22 4.22 4.04 3.56 3.76 3.76 3.60 3.83 4.10 3.72

5.60 5.61

AMP SSt Global Shares Index Hdg Trust 1.1300 AMP SSt Global Shares Index Trust 0.9931 AMPCI Global Shares Index Fund 1.1120 AMPCI Global Shares Index Hdg Fund 1.2080 ASB EasyFund World Shares Trust 0.8607 Asteron RSP Int´l Equity* 1.6115 Asteron SP2000 Global Fund* 1.3281 Asteron Superplan Global Fund* 1.6123 Craigs Equity Fund 1.1179 Elevation Capital Global Value Fund of Funds 0.9601 Elevation Capital Value Fund 1.1870 Fisher Funds International Growth Fund 1.1984 Fisher Funds Premium International Fund 1.2187 OnePath International Share Fund 1.1681 Pathfinder Global Water Fund 1.0574 Perpetual Emerging Markets Shares Fund 0.9246 Perpetual World Shares Fund 1.0100 SIL 60s Plus Super Intl Share 1.7897 SIL Personal Retirement Int Share 1.7897 Thoroughbred Intl Equity Trust* 1.2880 TOWER FreedomPlan Intl Companies* 1.9855 TOWER FuturePlan Int´l Companies* 2.0219 TOWER Global Fund 3.1724 TOWER Global Gateway Fund 262.4314 TOWER International Equity Fund 1.2048 TOWER IP Intl Companies Fund* 2.0219 Int’l Fixed Interest PIEs AMP Blackrock Global FI Fund 1.4355 AMP Blackrock Global FI Trust 1.3455 AMP PIMCO Global FI Fund 1.5485 AMP PIMCO Global FI Trust 1.5504 AMP State St Global FI Index Fund 1.4172 AMP State St Global FI Index Trust 1.3165 ASB EasyFund World Fixed Interest 100.3838 Asteron RSP Intl Fixed* 2.4768 Asteron SP2000 Global Bond Fund* 2.2416 Asteron Superplan Global Bond Fund* 2.1201 Perpetual Global Bond Fund 1.0277 TOWER BondPlus Fund 1.4742 Other PIEs ASB EasyFund Global Property Fund 0.8332 Asteron RSP NZ Property* 2.6661 Asteron SP2000 Property Fund* 1.4180 Asteron Superplan Property Fund* 1.2753 Elevation Capital Multi Strategy Fund 0.8830 Fisher Morrison Infrastructure Fund 1.2886 Fisher Morrison Premium Infrastructure Fund 1.3026 Pathfinder Commodity Plus Fund 1.1886 Perpetual World Property and Infrastructure 1.0215 TOWER Global Commodity Fund 1.1722 TOWER Global Hedge Fund 284.8921 KiwiSaver Diversified Balanced PIEs AMP KiwiSaver Balanced Fund 1.0402 AMP KiwiSaver Moderate Balanced 1.0691 AMP KiwiSaver Moderate Fund 1.1269 AMP KiwiSaver OnePath Balanced Fund 1.1039 AMP KiwiSaver TOWER Balanced Fund 1.0891 AMP KiwiSaver Tyndall Balanced Fund 1.0274 ANZ KiwiSaver Balanced Fund 1.1068 ANZ KiwiSaver Conservative Balanced Fund 1.1544 ASB KiwiSaver Scheme´s Balanced Fund 1.0423 ASB KiwiSaver Scheme´s Moderate Fund 1.1216 AXA KiwiSaver Balanced Portfolio 1.0338 Craigs kiwiSTART Balanced Fund 1.1398 Craigs kiwiSTART Balanced SRI Fund 1.1492 Fidelity Life Balanced Kiwi Fund 5.8989 Fidelity Life Ethical Kiwi Fund 2.1873 FirstChoice KS Scheme´s Active Bal Fund 1.0288 FirstChoice KS Scheme´s Tracker Bal Fund 1.0395 FirstChoice KS Scheme´s Tracker Mod Fund 1.1123

5.42 5.42 5.12

2.75 3.29 3.63 10.32 4.82 11.94 20.40 13.25 1.13 4.74 1.64 42.52 6.75 36.06 7.50 1.22 3.21 6.12 7.07 44.17 2.96 8.56

            

5.73 7.40 2.87 5.69 4.56 30.75 449.56 13.27 4.43 34.55 32.25 1.46 2.35 67.03 14.93 101.31 26.62

     

   



       

1.0580 2.2347 0.9656 3.1939 5.5553 3.7425

9.04 5.04 5.60 9.19 5.25 13.92 3.07 8.11 14.71 -5.03 -0.01 12.34 1.61 5.53

17.90 85.50 79.45  38.37   54.01 104.48 

1.2138 1.4959 1.5007 1.1871 1.3657 1.2717 1.8153 1.7723 1.9881 1.6536 1.6536 2.6797 2.7130 2.7130

7.92 6.23 12.84 9.56 5.31 5.47 12.08 8.74 4.55 9.34 9.34 19.06 19.24 19.24

-7.65 -7.81 -6.38 -9.11 -1.24 -8.48 -7.04 -9.80 -1.95 -1.52 -1.52 -2.37 -1.97 -1.97

-0.80 2.49 -4.43 -2.95 -2.87 1.65 -5.11 -3.68 -3.59 6.88 6.88 8.42 8.69

2.50 0.70 1.52 1.55 1.31 4.29 13.20 15.42 11.46 0.39 3.99 36.62 36.62 36.62

            

0.7879 0.8293 0.7804 0.8067

3.83 3.66 1.72 1.43

-10.62 -10.43 -11.00 -10.92

-8.21 -8.09 -8.00 -8.00

6.45 3.58 5.99 2.40

   

Exit $

1Yr

3 Yr 5 Yr Size $M Label

15.78 4.53 2.37 19.33 12.20 4.67 5.52 4.66 11.34

-3.07 -3.92 -3.66 -5.68 -2.61 -5.00 -5.72 -6.40

7.93 0.34 0.34 10.83

5.14 5.58 1.60

8.70 8.70 9.11 13.72 13.95 4.64 -1.58 1.73 13.95

-0.81 -0.81 -0.14 -3.65 -2.92 0.77 -0.86 -4.13 -2.92

-0.48 3.83 -3.37 3.18 -2.86 10.92 -0.45 6.39 83.48 -3.00 3.47 -4.01 1.67 -4.68 16.92 54.74 6.01 6.26 16.32 27.04 1.95 18.34 1.80 3.56 7.74 -0.19 1.01 -0.19 11.75 -0.32 2.57 -0.72 31.76 -0.35 31.76 0.95 68.42 -0.87 40.11 -4.05 19.35 31.76

0.00 4.26 7.44 7.38 3.51 3.42

0.00 6.75 8.73 8.66 6.99 6.89

0.00 4.43 8.80 7.87 6.58 5.86

4.58 5.17 5.11 2.50 7.96

6.43 6.82 6.81

6.44 6.82 6.76

7.32

6.81

       

  

       

2.54 1.99  2.73   2.10 7.96  4.38  26.63 1.11  1.11  1.65  68.00 107.06 

20.21 112.34 37.22 35.35 9.85 9.84 11.53 25.46

-2.55 30.46  11.70 6.55 0.77   -10.00 -6.41 0.91  -11.07 -7.34 1.60 -4.33 15.12  8.35 17.63 27.90 4.40  35.06 -6.13 3.94 35.62 -1.74 -0.33 -0.02 13.15  11.78 10.88 9.50 13.97 8.86 10.43 11.44 9.66 11.33 9.35 10.76 9.27 6.00 7.46 7.02 8.76 11.24 9.26

2.50 2.94 4.32 4.19 3.10 2.62 4.35 5.05 2.79 4.34 3.07 4.22 3.47 4.35 3.02 2.24 2.73 4.17

128.68 121.12 84.67 26.89 7.80 6.04 81.59 52.12 172.26 215.83 81.22 19.96 4.71 62.48 5.44 16.35 14.68 11.84

New Zealand INVESTOR • July 2011 • www.irg.co.nz

                 

I

47


Fund

Exit $

Grosvenor KiwiSaver Balanced Fund 1.1658 Law Retirement KS Scheme Balanced Fund 1.1071 Mercer KiwiSaver Balanced Fund 1.0256 Mercer ST KiwiSaver Active Balanced Fund 1.0234 Mercer ST KiwiSaver Conservative 1.1438 Mercer ST KiwiSaver Moderate Fund 1.0705 Milford KiwiSaver Balanced Fund 1.0566 National Bank KiwiSaver Balanced Fund 1.1086 NB KiwiSaver Conservative Balanced Fund 1.1548 OnePath KiwiSaver Balanced Fund 1.0734 OnePath KiwiSaver Conservative Balanced 1.1415 SIL KiwiSaver Balanced Fund 1.1175 SIL KiwiSaver Conservative Balanced 1.1638 Smartkiwi Balanced Fund 0.9721 TOWER KiwiSaver Balanced Fund 3024.7178 Westpac KiwiSaver Balanced Fund 1.0683 KiwiSaver Diversified Defensive PIEs AMP KiwiSaver Conservative Fund 1.2166 AMP KiwiSaver Default Fund 1.1599 ANZ KiwiSaver Conservative Fund 1.1990 ASB KiwiSaver Scheme´s Conservative (default) 1.1867 AXA KiwiSaver Conservative Fund 1.2015 AXA KiwiSaver Income Plus (default) 1.1590 Craigs kiwiSTART Conservative Fund 1.1830 Fidelity Life Capital Guaranteed Kiwi Fund 2.3005 Fidelity Life Conservative Kiwi Fund 6.0322 FirstChoice KS Scheme´s Active Cons Fund 1.1361 FirstChoice KS Scheme´s Tracker Cons Fund 1.1845 Fisher Funds Conservative KiwiSaver Fund 1.0641 Grosvenor KiwiSaver Conservative Fund 1.1984 Mercer KiwiSaver Conservative (default) Fund 1.2033 NB KiwiSaver Conservative Fund 1.2020 OnePath KiwiSaver Conservative Fund (default) 1.2049 SBS Lifestages KiwiSaver Scheme 2.2082 SIL KiwiSaver Conservative Fund 1.2087 Smartkiwi Conservative Fund 1.1151 TOWER KiwiSaver Cash Enhanced Fund 1.1785 TOWER KiwiSaver Conservative Fund 1.2034 Westpac KiwiSaver Conservative Fund 1.1493 KiwiSaver Diversified Growth PIEs AMP KiwiSaver Aggressive Fund 0.8902 AMP KiwiSaver Growth Fund 0.9418 ANZ KiwiSaver Balanced Growth Fund 1.0553 ANZ KiwiSaver Growth Fund 1.0008 ASB KiwiSaver Scheme´s Growth Fund 0.9650 AXA KiwiSaver High Growth Portfolio 0.9347 Craigs kiwiSTART Growth Fund 1.1399 Fidelity Life Aggressive Kiwi Fund 2.8961 Fidelity Life Growth Kiwi Fund 5.5993 FirstChoice KS Scheme´s Active Growth Fund 0.9601 FirstChoice KS Scheme´s Tracker Growth Fund 0.9622 Fisher Funds Growth KiwiSaver Fund 1.1362 Grosvenor KiwiSaver Balanced Growth 1.0973 Grosvenor KiwiSaver High Growth Fund 0.9690 Law Retirement KS Scheme Dynamic Fund 1.0996 Mercer KiwiSaver High Growth Fund 0.9089 Mercer ST KiwiSaver Growth Fund 0.9694 Mercer ST KiwiSaver High Growth Fund 0.9039 Milford KiwiSaver Aggressive Fund 1.4526 NB KiwiSaver Balanced Growth Fund 1.0550 NB KiwiSaver Growth Fund 0.9974 OnePath KiwiSaver Balanced Growth 1.0102 OnePath KiwiSaver Growth Fund 0.9509 SIL KiwiSaver Balanced Growth 1.0649 SIL KiwiSaver Growth Fund 1.0092 TOWER KiwiSaver Growth 1.0108 Westpac KiwiSaver Growth Fund 1.0197 KiwiSaver NZ Equity (Active) PIEs Craigs kiwiSTART NZ Equity 1.0902

48

I

1Yr

3 Yr 5 Yr Size $M Label

7.11 3.99 9.07 8.86 5.76 7.92 8.63 11.47 9.68 10.55 9.10 11.53 9.74 11.72 7.90 11.19

3.62

8.17 6.72 7.54 6.71 8.24 6.70 6.88 5.45 8.08 7.07 6.63 5.75 7.29 5.34 7.54 7.52 4.59 7.61 5.57 5.72 6.54 8.21 15.09 13.70 13.33 15.09 12.96 12.45 9.79 10.32 7.41 9.56 12.87 8.15 8.73 6.87 4.72 12.25 10.00 11.84 10.40 13.34 15.09 11.90 13.31 13.44 15.24 9.68 12.49

2.32 2.23 4.33 4.38 4.40 5.05 3.50 4.66 4.59 5.24 1.17 2.60 3.87 6.42 4.21 5.60 5.28 5.83 5.15 5.11 4.74 5.21 4.68 5.26 5.05 5.65 5.65 5.62 2.92 5.75 3.61 4.30 4.42 4.95 -1.81 -0.35 3.56 2.59 1.05 0.68 4.37 3.40 1.99 0.85 0.89 6.94 -0.66 -0.33 1.02 -0.53 10.72 3.53 2.54 2.37 1.07 3.76 2.85 0.38 2.86

43.40 2.40 22.73 34.46 1.35 10.52 1.70 121.96 67.01 5.26 2.15 132.06 50.91 5.03 165.95 199.63

             

40.61 352.11 53.83 913.10 15.02 448.10 8.17 21.76 27.74 4.28 50.07 101.40 16.91 437.66 77.50 416.72 42.00 152.05 2.04 324.14 30.78 434.11

          

96.34 111.70 57.96 133.67 165.84 63.74 25.42 10.90 29.10 16.05 12.45 316.00 12.09 43.40 1.60 16.55 2.66 4.58 24.60 102.36 212.12 6.24 6.25 125.52 91.63 50.16 127.25

           

0.03

New Zealand INVESTOR • July 2011 • www.irg.co.nz

         

            

Fund

Exit $

1Yr

KiwiSaver NZ Equity (Australasian) PIEs Grosvenor KS Trans-Tasman Small Co Share 1.2108 21.08 Mercer ST KiwiSaver TransTasman Shares Fund 0.9042 16.15 SIL KiwiSaver Australasian Share 0.9052 17.10 Smartkiwi Growth Fund 0.8223 16.42 KiwiSaver NZ Property PIEs SIL KiwiSaver Australasian Property 0.8824 21.83 KiwiSaver NZ Fixed Interest PIEs Craigs kiwiSTART Fixed Interest Fund 1.1081 6.42 Grosvenor KiwiSaver Enhanced Income Fund 1.2460 3.62 SIL KiwiSaver NZ Fixed Interest 1.2502 8.25 KiwiSaver NZ Cash PIEs AMP KiwiSaver Cash Fund 1.2205 4.01 ANZ KiwiSaver Cash Fund 1.0952 2.99 ASB KiwiSaver Scheme´s NZ Bank Deposit 1.1829 2.85 AXA KiwiSaver Cash Portfolio 1.1911 3.46 FirstChoice KS Scheme´s Cash Fund 1.1814 2.78 Mercer KiwiSaver Cash Fund 1.2214 4.30 Mercer ST KiwiSaver Cash Fund 1.2181 4.04 National Bank KiwiSaver Cash Fund 1.0956 2.99 OnePath KiwiSaver Cash Fund 1.1823 3.16 SIL KiwiSaver Cash Fund 1.1712 2.76 TOWER KiwiSaver Preservation 2356.7686 3.22 Westpac KiwiSaver Cash Fund 1.1533 3.07 KiwiSaver Int’l Equity (Global) PIEs Craigs kiwiSTART Equity Fund 1.1179 11.34 FirstChoice KS Scheme´s Active High Growth 0.8572 8.31 FirstChoice KS Scheme´s Global Sustain Fund 1.1557 7.90 Grosvenor KiwiSaver International Share Fund 1.0992 9.92 Grosvenor KiwiSaver Socially Responsible 1.1341 13.41 Mercer ST KiwiSaver Global Shares Fund 0.8078 13.55 Mercer ST KiwiSaver Shares Fund 0.8434 14.47 SIL KiwiSaver International Share 0.9128 9.19 SIL KiwiSaver Sustainable Growth Fund 1.0076 6.91 TOWER KiwiSaver Equity Fund 2547.8833 10.43 KiwiSaver Int’l Fixed Interest PIEs Mercer ST KiwiSaver Fixed Interest Fund 1.3376 2.67 SIL KiwiSaver International Fixed Interest 1.3253 4.44 KiwiSaver Int’l Equity (Australian) PIEs Craigs kiwiSTART Australian Equity Fund 1.0580 KiwiSaver Other PIEs Fidelity Life Options Kiwi Fund 4.6188 21.63 Grosvenor KiwiSaver Geared Growth Fund 1.2199 6.78 Mercer ST KiwiSaver Real Assets Fund 0.8338 13.09 SIL KiwiSaver International Property 0.8490 31.77 Diversified Balanced Unit Trusts & Gif’s AMP Balanced Trust (Other Fund)* 1.3970 9.36 AMP Balanced Trust* 1.6117 9.38 AMP Legg Mason Balanced Trust* 1.2960 13.04 AXA - PMF Active Growth Fund 1.6941 7.39

3 Yr 5 Yr Size $M Label 2.53 2.13 -1.75

2.70 0.74 8.79 13.24

  

0.31

4.81



4.67 6.54

0.17 10.44 3.48

 

4.96 3.82 4.34 3.78 5.06 4.97 3.90 3.41 4.18 3.70

26.44 24.33 146.66 15.02 7.12 7.88 1.36 39.78 0.88 12.08 12.81 103.37

         

-2.50

1.71 1.68  2.61  2.49 4.74  1.07 0.85  12.87  0.91 17.73 

8.20 7.74

 0.74 1.21 

-5.55 4.19

-4.92 -2.38 -0.54

0.02 12.03



-2.52 -1.98

45.50 1.49 0.50 3.75

1.01 1.22 -0.21 2.09

-0.03 0.92 1.60 18.08 -0.56 2.01 1.18 20.21

   



PIE fund returns are measured pre-tax. Returns for funds that have become PIEs (e.g. from 30/9/10) are shown ‘grossed-up’ (pre-tax) to transition date. These indicative returns are approved by fund managers and are for fund comparative purposes, and are not suitable for calculating an investor’s investment return. Non-PIE NZ fund returns are reported post-tax assuming a marginal tax rate of 30%. All returns are measured post management fees but before upfront fees. All distributions are assumed to be reinvested. Australian fund returns are in NZ dollar terms and are measured pre-tax but Australian exit prices are in A$ as are fund sizes. FundSource Fund Ratings are calculated from risk-adjusted returns over the past three years to 31/10/2010 comparing similar funds across all legal fund types. The top 15 per cent of funds attain 5 stars, next 20 per cent 4 stars, next 30 per cent 3 stars, next 20 per cent 2 stars and bottom 15 per cent 1 star. Funds with less than a three year history have no fund rating. Past performance is not necessarily a guide to future performance. Any representation or statement expressed in this document is made in good faith on the basis that FundSource Limited is not able to be liable in respect of such representation or statement. FundSource does not guarantee the accuracy of third-party information used to calculate fund returns. This information should not be relied upon as a substitute for detailed advice from a professional financial adviser. Copyright © FundSource Limited. [* represents a closed fund]. For more information please see: www.fundsource.co.nz. Email fundsource@fundsource.co.nz


Selected Tradeable Securities Issuer

Maturity

NZ Government 15/11/11 15/04/13 15/04/15 15/12/17 15/05/21 Corporate Bonds 7/11/12 AIA 7/11/15 15/11/16 18/06/13 ANZ National 9/06/14 31/03/15 13/07/15 15/03/16 APN Media 16/07/13 ASB 17/09/14 8/06/17 15/09/11 BNZ 15/09/12 27/05/13 27/05/15 13/08/15 15/05/14 Contact 10/03/15 Fonterra 4/03/16 15/03/14 Genesis Energy 15/03/16 16/05/16 Goodman Fielder 19/06/15 Goodman+ 15/10/16 Greenstone 16/07/12 IBRD 15/07/13 Marac 16/03/15 Meridian 16/03/17 Mighty River Power 15/05/13 28/09/12 Powerco Ltd 29/03/13 29/06/15 28/09/17 15/08/11 Rabobank 3/05/12 4/09/14 16/05/18 16/10/16 Sky TV TCNZ Finance Ltd 22/03/13 15/06/15 15/06/15 22/03/16 Transpower Fin Ltd 10/06/20 1

NZX Code

Coupon

GOV320 GOV340 GOV360 GOV380 GOV390

6.00% 6.50% 6.00% 6.00% 6.00%

Next Reset

Rating

Available Offer %

Fixed Term Investments Maturity

Issuer TrustPower

AIA060 7.19% AIA070 7.25% AIA080 8.00% Not Listed 6.32% ANB080 8.50% Not Listed 6.60% Not Listed 6.51% APM010 7.86% Not Listed 8.52% Not Listed 8.22% Not Listed 6.06% Not Listed 7.50% Not Listed 7.50% Not Listed 8.56% Not Listed 8.68% Not Listed 6.17% CEN010 8.00% FCG010 7.75% FCG020 6.83% Not Listed 7.25% Not Listed 7.65% GFZ010 7.54% GMB010 7.75% GEF010 7.35% Not Listed 7.06% MAR010 10.50% MEL010 7.15% MEL020 7.55% Not Listed 8.36% PWC080 6.59% PWC050 6.39% PWC060 6.53% PWC090 6.74% Not Listed 7.65% Not Listed 7.68% Not Listed 6.32% Not Listed 6.25% SKTFA 4.06% 16/10/11 TCN480 6.92% TCN520 8.65% TCN550 8.35% TCN490 7.04% Not Listed 6.95%

AAA AAA AAA AAA AAA AAAAA AA AA AA Not Rated AA AA AA AA AA AA AA AA BBB A+ A+ BBB+ BBB+ Not Rated BBB+ Not Rated AAA BBBBBB+ BBB+ BBB+ BBB BBB BBB BBB AAA AAA AAA AAA Not Rated A A A A AA

1m 1m 1m 1m 1m

2.57 3.17 3.97 4.63 5.04

$300k+ 4.2 ref 5.6 ref 5.89 $300k+ 4.2 $300k+ 4.85 $300k+ 5.27 $300k+ 5.38 $300k+ 7.87 $300k+ 4.41 $67,000 4.96 $100,000 6.02 $170,000 3.1 $300k+ 3.79 ref 4.27 ref 5.34 $300k+ 5.34 $20,000 5.06 $80,000 5.1 ref 5.28 ref 4.84 $124,000 5.64 $30,000 6.8 $300k+ 5.95 $30,000 6.7 $300k+ 2.99 $50,000 9 $300k+ 4.86 $114,000 5.91 $135,000 4.43 $300k+ 4.48 $300k+ 4.73 $300k+ 5.73 ref 6.34 $300k+ 2.96 $211,000 3.4 $25,000 4.67 ref 5.93 ref $92.50 $300k+ 4.88 ref 5.94 ref 5.95 ref 5.95 $34,000 6.05

NZX Code

Coupon

Next Reset

Rating

15/12/14 TPW080 7.60% Not Rated 15/12/16 TPW090 8.00% Not Rated 15/12/17 TPW100 7.10% Not Rated 15/10/14 VCT050 7.80% BBB+ Vector 15/06/15 WHS010 7.37% Not Rated Warehouse 19/12/11 Not Listed 7.24% AA Westpac 28/11/13 Not Listed 7.05% AA BBB- (Fitch) 15/09/12 WKS020 9.65% Works Local Authority Bonds 29/09/17 AKC050 6.52% AA Auckland Council 2/12/13 Not Listed 7.05% A Tauranga CC Hybrid Debt Securities 15/09/16 ANB040 7.16% 15/09/11 AAANZ National 2/03/17 ANB050 7.60% 2/03/12 AA23/07/17 ANB060 8.23% 23/07/12 AAPerpetual ANBHA 9.66% 18/04/13 A+ 15/11/17 Not Listed 8.77% 15/11/12 AAASB 15/06/17 Not Listed 8.42% 15/06/12 AABNZ Perpetual CASHA 10.04% 19/12/12 A Credit Agricole 7.50% Not Rated Fletcher Building In 15/03/12 FBI080 15/03/13 FBI040 8.90% Not Rated 15/03/15 FBI090 8.50% Not Rated 15/03/17 FBI100 7.50% Not Rated Perpetual FCGHA 5.30% 10/07/11 A+ Fonterra 15/07/41 GPLFA 8.50% 15/07/16 BBGenesis 15/11/12 GFN030 8.30% Not Rated GPG Finance 15/12/13 GFN020 9.00% Not Rated 15/11/11 IFT040 8.50% Not Rated Infratil 15/11/12 IFT110 7.75% Not Rated 15/06/16 IFT150 8.50% Not Rated 15/06/17 IFT160 8.50% Not Rated 15/02/20 IFT090 8.50% Not Rated Perpetual IFTHA 4.99% 15/11/11 Not Rated Perpetual RBOHA 4.21% 8/10/11 AARabobank 15/05/15 SKC030 7.25% Not Rated Sky City Ltd 15/09/12 TPW020 8.50% Not Rated TrustPower 15/12/15 TPW070 8.40% Not Rated 15/06/12 VCT040 8.00% BBBVector Redeemable or Perpetual Preference Shares Perpetual ASBPA 4.78% 15/11/11 A+ ASBPA Perpetual ASBPB 3.80% 15/05/11 A+ ASBPB Perpetual BISHA 9.89% 28/03/13 A+ BNZIS Perpetual BNSPA 9.10% 30/06/14 A+ BNZIS2 15/04/15 CBAFA 3.59% 15/04/12 A+ CBAFA Perpetual KCSHA 8.15% 4/05/15 BBB Kiwi Capital Perpetual OCFHA 4.92% 15/10/11 BBBOrigin Perpetual QHLHA 5.42% 12/03/14 Not Rated Quayside Perpetual RCSHA 8.79% 18/06/14 AARabo Capital Perpetual WKS010 9.80% 15/06/12 Not Rated Works

Available Offer % ref ref ref $30,000 $15,000 $300k+ $50,000 ref

5.75 6.5 6.7 5.15 6.37 3.16 4.47 6.1

ref ref

5.6 4.3

$300k+ $300k+ $300k+ $40,000 $300k+ ref $30,000 ref $70,000 ref ref $10,000 $50,000 ref ref ref ref $20,000 ref ref $30,000 $20,000 ref ref ref $20,000

4.68 4.68 4.9 $107.20 4.84 4.79 $86.00 6.25 6.6 7 7.15 $85.00 $102.65 7.5 7.5 6.9 6.5 8 8.1 8.5 $62.60 $82.50 6.9 6.25 6.5 5.8

$20,000 ref ref $20,000 $20,000 $20,000 ref $20,000 ref $20,000

$75.90 $72.50 $105.40 $108.50 $93.00 $104.00 $68.00 $88.50 $109.00 23

= Current yields listed are indicative, subject to availability and exclude brokerage payable.

This list is intended to provide investors with a guide only and contains debt instruments such as Bonds, Capital Notes and Preference Shares, each of which has a particular structure. We recommend that investors consult with IRG Investment Advisers to determine the most appropriate risk exposure for their individual portfolio. Yields are changing daily and some issues have annual rate resets. Call IRG on 0800 474 669 to discuss. These rates are current as at 16 June 2011. Rates are subject to change at anytime and should be reconfirmed by calling IRG on 0800 474 669

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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Investments

Fixed term investments All rates below (unless otherwise specified) are offers under the Government’s Retail Deposit Guarantee Scheme. For enquiries regarding non-guaranteed rates, please call us on 0800 474 669. FINANCE COMPANIES - Debenture Stock Minimum 3 6 9 12 18 Investment Months Months Months Months Months

STANDARD TERMS Broadlands Finance*

$500

2 Years

3 Years

4 Years

5 Years

8.75

9.00

9.75

9.75

10.00

10.00

Fisher & Paykel Finance**

$1,000

4.62

4.87

5.37

6.25

6.75

7.00

7.20

7.30

7.35

F&P existing investors

$1,000

5.12

5.37

5.87

6.75

7.25

7.50

7.70

7.80

7.85

General Finance

$5,000

6.75

8.00

8.50

9.00

8.50

8.00

Marac Finance**

$1,000

4.00

4.50

5.25

5.50

5.75

6.00

6.50

6.75

6.75

NZF Money*

$1,000

4.50

5.75

6.25

8.60

8.75

9.25

9.50

9.25

9.25

NZF Money*

$10,000

4.50

6.00

6.50

8.85

9.00

9.50

9.75

9.50

9.50

$1,000

3.70

4.20

-

6.20

6.45

6.95

7.15

7.40

7.60

$10,000

3.90

4.45

-

6.40

6.65

7.15

7.35

7.60

7.80

$100,000

4.00

4.50

-

6.50

6.75

7.25

7.45

7.70

7.90

$5,000

3.75

4.25

4.25

4.40

4.50

4.80

5.60

5.90

6.15

PGG Wrightson Finance**

UDC Finance*

4.25

CREDIT RATINGS - Finance Companies Standard

NON - STANDARD TERMS

Govt. Guaranteed until

& Poor’s

Oct-10

AA

3

BBB-

3

3

PGG Wrightson Finance**

BB

3

3

Fisher & Paykel Finance**

BB

3

3

B

3

CCC

3

UDC Finance* Marac Finance**

Broadlands Finance* NZF General Finance

Dec-11

Broadlands Finance

Minimum Investment $500

30 Months 10.00

* Participant of Government Guarantee Retail Deposit Scheme until October 2010 (up to $1,000,000 per eligble depositor per institution) ** Participant of Government Guarantee Retail Deposit Scheme Extension until December 2011 (up to $250,000 per eligible depositor per institution)

3

NOTE: • We are mindful that historic data may not be a predictor of the future. We recommend that clients review each investment to ascertain that it’s appropriate for their needs. In this market we believe caution is appropriate and clients should not take undue risks. • IRG recommends that before investing investors consider the size of the investment contemplated in relation to their total portfolio and overall risk as the level of risk and return varies considerably between Finance Companies. • We recommend investors call IRG to assist in determining the appropriate risk exposure for their portfolio and to receive the relevant Investment Statement and Research on these and other investments. • Rates for Finance Companies not mentioned in this listing are available upon request. • There are no Entry or Exit Fees payable on investments held for the full term in the above Finance Companies. • Brokerage received by IRG in connection to a Finance Company investment is paid by the issuer at standard industry rates. These rates are freely available from either the Finance Company or IRG and are summarised in the investment statement.

These rates are current as at 17 June 2011. Rates are subject to change, and often do, therefore they should be reconfirmed by calling IRG on 0800 474 669. A disclosure statement is available free of charge upon request by phoning 0800 474 669.

50

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New Zealand INVESTOR • July 2011 • www.irg.co.nz


INVESTMENT OPPORTUNITY IRG has been approached by a client to obtain investors in a private placement

13% P.A. PAID QUARTERLY 2 year TERM

The terms are: Term: 2 Years Interest: 13%p.a. paid quarterly Security: 1st charge over assets with a 160% cover The investor must meet the private placement criteria as this is NOT an offer to the public. If you wish to register for further information please contact Brent King. brent.king@irg.co.nz • Tel: (09) 304 0145 or 0800 474 669

a,b,c... Great read! Tony Falkenstein is a well known and successful entrepreneur in New Zealand and overseas. This book is simply brilliant. It it filled with great quotes and every two pages covers a letter of the alphabet. Take the pearler on the cover for instance: “Never Hire a Person Who Walks Slowly...” - classic and so true.

The ABC of Business is available for $24.95 incl postage. Simply email your name, contact details, address and preferred method of payment to abc@irg.co.nz and we’ll call you and facilitate the rest of the transcation. Payment can be done via Credit or Barter Card. Read the full book review in the May edition of NZ INVESTOR.

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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51


Trusts

Court cuts through trust The days of trusts offering families protection for their assets appear to be over, as a recent High Court decision makes clear, writes Michael Coote

A

key assumption made in setting up a family trust is that it permanently disposes of property that otherwise would belong to the trust’s originating settlors. The existence of a trust then, enables the settlors and the beneficiaries (who may be the same persons) to assert that they are not the legal owners of the trust’s property. If a trust has been around for long enough and operated legally, its beneficiaries might expect the trust’s property to be protected from claims arising against themselves in a lawsuit. This expectation may be in vain however, as a recent High Court ruling showed. The legal case in question was made all the more interesting because the person who lost his appeal before the High Court - Rod Petricevic, former boss of failed finance company Bridgecorp – was a trustee, but not a beneficiary, of a family trust central to the dispute. It was Petricevic’s wife Mary’s beneficial interest in the R M Petricevic Trust that turned out to be the core issue in the appeal case. The judge found that Mrs Petricevic’s beneficial interest could be lawfully regarded as part of her personal means and by extension, under the Legal Services Act, treated as part of her husband’s personal means. By way of background, Mr Petricevic was facing trial over charges laid against him by the Serious Fraud Office. Because he had been bankrupted, Mr Petricevic applied for legal aid to fund his defence at the trial. The Legal Services Agency (LSA) denied him legal aid on the ground that he was a trustee, along with his wife, of the R M Petricevic Trust. According to the LSA, this “close-knit family trust” held considerable assets, did not have an independent trustee, and Mr Petricevic’s wife and adult sons – but not Mr Petricevic himself - were its discretionary beneficiaries. The LSA claimed that the trust had made substantial benefits available to its trustees Mr and Mrs Petricevic, and in particular had provided large financial advances to Mr Petricevic in the past.The LSA decided that even if the bankrupt Mr Petricevic could claim to have no money personally, it would regard all the assets under trust as his assets and income, and thus concluded that he could pay for his own defence. Mr Petricevic appealed this decision to a legal aid review panel, which upheld the LSA’s decision. He then went to the High Court in an attempt to overturn the review panel’s decision, but Justice Edwin Wylie dismissed this appeal. The LSA argued that under the Legal Services Act, it was 52

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

entitled to take into account the means of an applicant’s spouse when assessing means relevant to granting legal aid. Mrs Petricevic was a beneficiary of the trust that she and Mr Petricevic were the trustees for, and thus the LSA counted her assets in trust as also being Mr Petricevic’s under the Act. There was some debate between counsel as to the nature of Mrs Petricevic’s beneficial interest in the trust. Counsel for Mr Petricevic argued that because Mrs Petricevic was a discretionary beneficiary, her interest was only “an expectancy”. Counsel for the Crown countered that Mrs Petricevic could access the trust’s assets at Mr Petricevic’s discretion, and therefore it was legally correct to treat the trust’s assets as part of her means in accordance with the Act. Following on from this argument, if accepted, Mrs Petricevic’s assets in trust were her husband’s assets for the purposes of identifying a legal aid applicant’s means. “The focus is on [a legal aid] applicant’s ‘means’,” said Justice Wylie. “Although the word is not expressly defined in the Act…in determining whether or not an applicant has sufficient means to enable him or her to obtain legal assistance, the agency must have regard to the applicant’s income and disposable capital.” In summary, Mr Petricevic’s means were deemed sufficient to pay for legal services because his spouses’s means were deemed sufficient, even if the spouse’s means were beneficial interests in a discretionary family trust.

Some lessons for trustees and beneficiaries The High Court case brings out some points worth considering for those involved with family trusts: 1. An independent trustee can help strengthen the beneficiaries’ interests from legal attack by lending additional credibility to decisions made by the nonindependent trustees 2. Non-beneficiary trustees should avoid placing themselves in a position of appearing to benefit personally from the trust 3. Trustee-beneficiaries may have their beneficiary interests compromised by having too close a relationship with the other trustees 4. A beneficiary’s interest in a trust can be drawn into a spouses’s claim for legal aid 5. Details of how a trust is structured and managed can be subject to public scrutiny if they become matters before courts and other authorities such as the Legal Services Agency 6. Independent qualified professional advice is highly desirable, rather than trying to DIY with family trusts


Classifieds

Simon Weil Partner/Trust Specialist Level 11, 51-53 Shortland Street, Auckland 1010 DDI (09) 915 5465 simon.weil@morrisonkent.co.nz www.morrisonkent.co.nz www.themaintenanceman.co.nz

INVESTOR NEW ZEALAND

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

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53


Vehicles

Tsunami impacts on car sales

Drive

With fewer cars coming out of Japan following the March quake, shortages are being predicted for some models, giving vehicle manufacturers operating outside the country a chance to capture a greater market share

M

than others. otor Trade Association (MTA) says the new “We are seeing the results of that in our market,” he says. vehicle market for May showed the first effects of the March earthquake and tsunami in Japan, “The effects are likely to be felt for some time yet. Those brands with some or all of their production facilities outside with several leading brands reporting sharply of Japan are likely to benefit significantly.” lower sales. Holden led the new car market for the first time in many New car sales in May are generally higher than April, one months with sales of 560 units – 12 percent share of the of the quietest months of the year for the industry. While that market. trend was repeated this year, the increase in sales was less than Hyundai continued to perform strongly with sales of usual, due to the restricted supply of cars that appeared to affect market leader Toyota and to a lesser extent Honda. Both 454 units – 10 percent share of the market. In third place was Suzuki with 433 units – 9.5 per cent share, followed by companies suffered disruption to production facilities as a Ford with sales of 422 units – 9 per cent share, with Mazda result of the disaster due to lack of electricity and availability rounding out the top of parts. five with sales of 420 Registration data from units –also with a 9 per the NZ Transport Agency cent share. shows the overall new Traditional market vehicle market of 6,563 leader Toyota was back units was up 953 units in sixth place with sales (17 per cent) compared of 331 units – 7 per cent to April 2011, and up share. 146 units (2 per cent) The race for individual compared to May 2010. passenger car leadership For the year to date, also had a somewhat overall sales are still ahead unfamiliar look. of 2010 by 2,912 units (9 Suzuki Swift took per cent). top spot with sales New car sales of 4,535 Toyota held strong in the light commercial segment with of 286 units ahead of units were up 277 units HiLux sales of 450 units making it New Zealand’s top Holden Commodore on (7 per cent) compared selling model overall. 205 units, followed by to April 2011, but down Holden Captiva with 181 units, Hyundai i30 with 173 units 81 units (2 per cent) compared to May 2010. For the year to and Ford Mondeo on 151 units. Long time leader, Toyota date, new car sales are still ahead of 2010 by 1,430 units (6 per Corolla, was in ninth position with just 88 sales. cent). “Obviously, there will be quite a few brands vying to fill The new commercial vehicle market was strong during May. the gaps created by the supply constraints being felt by some Sales of 2,028 units were up 676 units (50 per cent) compared Japanese based manufacturers,” says Stronach. to April 2011, and 227 units (13 per cent) compared to May Toyota held strong in the light commercial segment with 2010. For the year to date, new commercial sales are still well HiLux sales of 450 units making it New Zealand’s top selling ahead of 2010 by 1,476 units (21 per cent). model overall. MTA’s marketing and communications general manager Some way back in second spot was Nissan Navara with sales Ian Stronach says the results are not surprising and that some of 221 units and Ford Ranger in third with sales of 208 units. Japanese brands are more reliant on their local production

54

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New Zealand INVESTOR • July 2011 • www.irg.co.nz


Ethics

Bottom line comes before the environment

I

n the 2011 Grant Thornton International Business Report, New Zealand ranked near the bottom of 39 countries surveyed for the importance of ‘saving the planet’ when it came to assessing what was driving businesses in the implementation of more ethical business practices. Probably more surprising, is the company that New Zealand is keeping in the ‘save the planet’ stakes. Of the 39 countries surveyed, the United States was bottom of the class with only 15 per cent of respondents thinking ‘saving the planet’ was important, followed by Australia 20 per cent, Denmark 22 per cent, Italy 23 per cent, Germany 25 per cent, Netherlands 26 per cent, Hong Kong 27 per cent and then New Zealand on 28 per cent. Top of the list were Georgia, Philippines and Turkey. Eugene Sparrow, partner, Privately Held Business of Grant Thornton New Zealand says that compared with the last survey in 2008, the importance of saving the planet to New Zealand businesses had decreased by 9 per cent. “New Zealand businesses have been working hard to get through the global financial crisis,” he says. “The nice-to-haves went out the window a couple of years back. As we see the economy improve and business pick up I expect we’ll see a shift in attitude. Given New Zealand’s population, it may just be that businesses here don’t believe they can make a significant difference to the planet.” Sparrow also says that while New Zealand businesses remain focused on the merits of corporate social responsibility (CSR) in terms of building brand, securing key staff and winning future contracts, the figures have weakened in the last three years. “In 2008, 82 per cent of New Zealand businesses based the drive to implement ethical business practices around the

recruitment and retention of staff. This has dropped to 62 per cent. However, once again I’d expect to see this pick up as our economy strengthens,” says Sparrow. “The same for cost management which dropped from 68 per cent to 59 per cent while public attitudes and brand building increased slightly from 55 per cent to 57 per cent, highlighting the importance of public opinion in shaping businesses’ CSR priorities Sparrow says that from a global perspective, there appeared a sharp division between the more mature economies and those of the BRIC nations. “As businesses, and indeed consumers, in mature economies struggle with the fallout from the economic downturn, altruistic concerns over the environment have been forced into a backseat role. Businesses are focusing on the bottom line and consumers are looking for ways to make declining real disposable incomes go further,” says Sparrow. “That said, businesses in emerging markets, as we have seen with the wider global economy, appear ready to take the initiative in driving the CSR agenda forward. “Sixty per cent of the BRIC nations and 59 per cent of those in the ASEAN group cite saving the planet as a driver towards more ethical business practices, compared with just 30 per cent in the EU and 27 per cent in North America.” As for CSR, in an increasingly crowded and dynamic marketplace, businesses globally are becoming more aware that adopting a proactive approach to wider corporate social responsibility issues can help them to stand out in the minds of employees, consumers and investors. “This importance is being overshadowed in many places by the oppressive global economy, but as business picks up, this importance will increase, possibly very quickly,” says Sparrow.

New Zealand INVESTOR • July 2011 • www.irg.co.nz

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55

Illustration: © GreatFreePicture.com

New Zealand may pride itself as being a ‘clean green’ country, but as Grant Thornton’s Eugene Sparrow says, when it comes to the boardroom, the environment is not a priority


Parting Shot

Make good decisions Predicting the future when it comes to currencies and investments is not as easy as it seems, writes Brent King

I

n my line of business people are always asking if I can predict the future. What will happen to currencies, interest rates, what is risky, what is safe? Where can I can I get the best return for my money? Each of us has a view on the future and anyone can be right or wrong. The big factor is how often we are right and how often we are wrong. Does one raise a wet finger to the wind, or do due diligence to seek out trends and solid data to make rational and informed investment decisions. While the answer is clear, investments are fickle – and there is always a surprise when you least expect it. We have seen highly rated businesses such as Enron disappear in a matter of hours, even though they had audited accounts and billions of dollars in assets and in revenue. Enron surprised most watchers when it failed, even though bond rating agencies had reviewed their accounts and given them great ratings. We must all be aware and careful. Don’t rely solely on your advisor. Check their credentials, consider what they are recommending and whether it is right for you. It is your money, you are taking the risk, you need to feel comfortable. Investments I like right now are still in the commodity sector. I am moving more toward the food sector though (although I still think there is value in some hard commodities). A recent trip to Asia brought this into focus for me. I found that the reoccurring theme there is the food supply and the food chain. The interconnection of countries’ food supply became obvious when the recent Ecoli outburst occurred in Europe. The Spanish, the Germans and then the Russians, were all involved in an issue that became very acrimonious very quickly. Who would have thought that bean sprouts could cause such a problem? One of the few areas that New Zealand has a competitive advantage at is food. We produce world-class produce that can attract a premium abroad. Food that is safe to eat is essential. Think about this sector and watch for opportunities.

Bank deposits One of the ongoing questions we are asked is ‘how can I earn more on my money without taking undue risks?’ Bank interest rates are now very low and the difficulty is to 56

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New Zealand INVESTOR • July 2011 • www.irg.co.nz

Enron claimed revenues of more than US$100 billion in 2000. It went bankrupt in 2001.

pay living costs out of this amount. How can bank deposits be inflation proof. It’s a big ask at the moment after one has taken tax off interest payments of around three per cent. We have seen real interest in the Genesis bond issue recently. This company is in the energy sector, it has a strong balance sheet and the government owns it. The bond had a yield of 8.50 per cent for five years then it is reset. The bonds are tradable, you can buy or sell them, and there is consistent demand for them. This has given investors a very good return with acceptable risk based on the above. An experienced, qualified and registered advisor can assist you in finding investments such as this. You basically get double the bank rate and you are invested in a governmentowned company. It is not a time to take risks. It is time to be very smart with the way that you invest. The Genesis bond investment is not hard to understand and is a useful addition to many portfolios. I am not recommending this as a buy for you. I do not know what your personal circumstances are. I am recommending this as something to consider and to assess as to whether it is right for your portfolio. Don’t get stuck with low interest rates. Seek smart ways to grow your money. Read the papers and the magazines and talk to your advisors and consultants. Look after your money, but make sure you are helping it to grow.


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