Despite Annual Loss, Active Strategies Helped NZ Super Fund
Posted on 09/12/2022
As at June 30, 2022, the New Zealand Superannuation Fund (NZ Super Fund) stood at NZ$ 55.7 billion, down from approximately NZ $59 billion at the end of the previous financial year. The fund lost -6.99% for the latest fiscal year. The downturn in global markets has seen the value of the NZ Super Fund reduce by NZ$ 3.3 billion in the 12 months to June 30, 2022.
NZ Super Fund claims that its active investment strategies cushioned the overall impact by delivering record value-added returns. The passively-invested Reference Portfolio, which sets the overall portfolio risk target and makes up approximately 60% of the NZ Super Fund, returned -14.24% in the 2021/22 financial year. It is an index made up of 80 percent equities and 20 percent fixed income. The Guardians’ active management saw NZ Super Fund significantly out-perform this passive Reference Portfolio benchmark by 7.25%.
Government contributions (net of NZ tax) since inception have been NZ$ 12.6 billion.
NZ Super Fund CEO Matt Whineray said in a press release, “Our Strategic Tilting strategy continues to perform above expectations and deliver strong value, with returns in 2021/22 largely driven by higher bond yields as central banks hiked interest rates in response to inflation.”
“Timber also continues to outperform, headlined by our investment in Kaingaroa Timberlands, a radiata pine forest in the central North Island of New Zealand.”
“Our global macro opportunity, a hedge fund strategy that bases its holdings primarily on the overall economic and political views of various countries or their macroeconomic principles, and our internally managed tactical credit mandate, also delivered strong returns. Tactical credit investments provide debt funding while using downside protection to mitigate or prevent a decrease in the value of an investment.”
“Equity factors investments in developed markets had a very strong year, reversing prior under-performance. Factor-based investing is a long-term strategy that uses a range of criteria – such as value, quality, momentum and low risk factors – in an effort to out-perform traditional equity benchmarks, while taking lower levels of risk. An allocation to the “value” factor, which had historically weighed negatively on performance, started to reverse in late 2021, after global equity markets began to pull back after reaching all-time highs.”
“The external economic environment continues to present challenges to investors. Heightened inflation, and the associated response by central banks to push up interest rates to suppress demand, places considerable pressure on investment returns for both bonds and equities,” says Whineray.
