In April 2024’s What’s been happening in the markets article we cover some updates to high interest savings products, look at what’s happening with Cannasouth stock, and consider how one might approach recession or war proofing their portfolio.
This article covers:
1. Product updates
2. Market Movements
3. What we’ve been up to
1. Product updates
Squirrel on call split
In recent times we’ve seen investment platforms start to offer high interest on call savings products. This includes Sharesies (with their Save account paying 4.60% interest), Kernel (who have just launched their Smart Saver account paying 4.80% interest), and Squirrel (the original high interest on call savings provider who currently pay 5.25%).
Many people think that money deposited into these accounts are held with the platform themselves, however this isn’t the case. Instead of being held with the likes of Squirrel or Kernel, the money gets deposited with a NZ registered bank. Your platform earns interest from these banks, then passes this interest onto you (after taking a small margin for themselves). For example, Squirrel earns 5.50% interest from the bank, deducts a 0.25% margin, which then results in the investor earning 5.25%.
Squirrel has recently made an update to their on-call savings product, splitting their deposits across two banks. This is to add diversification (despite the product being low risk in the first place). While Squirrel, Kernel, and Sharesies don’t like to publicly disclose which banks they hold their on-call funds with, they do say they’re AA- rated banks. That means they hold their funds with either ANZ, ASB, BNZ, and Westpac (which are the only AA- rated banks in NZ). This fact should help alleviate the safety concerns of investors using these high interest savings products, given the money is being held with stable financial institutions.
Cannasouth faces financial issues
Cannasouth (CBD) has been a hot stock on the NZX since the company was listed in 2019. Cannasouth is involved in the emerging medical cannabis industry, but has recently hit financial troubles, struggling to raise the cash required to continue operating. As a result the company has entered into voluntary administration.
The administration process involves having consultants review the business to determine what the options are for saving the company and what would deliver the best outcome for shareholders. During this process Cannasouth has been placed in a trading halt, so investors can’t buy or sell shares in the company. It’s likely to be a while before we know the outcome of this process, but current shareholders are likely to be hurt, losing a significant portion of their investment. Unfortunately this is one of the risks of investing in a speculative, immature industry.
Equitise ceases operations
Equitise was an equity crowdfunding platform, allowing investors to buy shares of unlisted, early stage companies. The Financial Markets Authority (FMA) has recently cancelled the crowdfunding services licence of Equitise due to continued breaches of their license obligations.
This license cancellation doesn’t effect any shares you may have bought through Equitise (as you have invested through the platform, not in the platform), though they will no longer be offering crowdfunding deals to NZ investors. A number of other equity crowdfunding platforms (like Snowball Effect and PledgeMe) remain open for business.
Further Reading:
– 4 things to know about investing in Equity Crowdfunding
2. Market Movements
Here’s how the markets have performed in April 2024 (as at 30 April), in both their local currencies and in NZ dollar terms:
| Local currency | NZD | |
| NZ shares (S&P/NZX 50) | -1.22% | -1.22% |
| Australia shares (S&P/ASX 200) | -3.09% | -2.42% |
| US shares (S&P 500) | -2.63% | -1.81% |
| Japan shares (Nikkei 225) | -4.68% | -7.16% |
| UK shares (FTSE 100) | 2.44% | 2.46% |
| Bitcoin | -11.39% | -10.64% |
Markets were mostly down for the month for a number of reasons. This includes the escalating conflict between Israel and Iran, persistent inflation, alongside a bit of pessimism around the economy. However, year-to-date the markets have still performed well:
| Local currency | NZD | |
| NZ shares (S&P/NZX 50) | 1.59% | 1.59% |
| Australia shares (S&P/ASX 200) | 0.81% | 2.77% |
| US shares (S&P 500) | 7.26% | 14.17% |
| Japan shares (Nikkei 225) | 14.41% | 9.75% |
| UK shares (FTSE 100) | 5.35% | 10.40% |
| Bitcoin | 49.32% | 58.94% |
How to recession and war proof your portfolio
Given recent events and the resulting fall in the markets, there is a little pessimism creeping into the investor community. Some of you may be wondering how to deal with this situation and protect your share portfolio from recessions and wars. Some actions people might consider are:
- Take your money out of the market, and wait until the economy improves before reinvesting. However, this involves timing the market. Not only do you have to pick the right time to sell your shares, you need to pick the right time to get back into the market. Even if you get the timing right, try repeat that several times over your investing career. There are constantly new economic challenges or geopolitical crises that arise – are you going to successfully time the market for all those events too?
- Rotate your portfolio into companies that are perceived to perform better during a recession or war (like consumer staples or weapons companies). However, this requires prior knowledge or research onto what companies to rotate your portfolio into, and even then there’s no guarantee the companies you pick will perform well through a market downturn. This also requires an element of timing the market around when to switch your investments. In addition, the brokerage fees involved could result in the strategy not being worthwhile.
Neither of the above are great ideas, and are more likely to hurt rather than help your investment returns. The only reliable way to truly recession and war proof your portfolio is to not invest at all. That way can totally avoid a drop in value in your portfolio when two countries decide to fight or when the economy is having a hard time. However, not investing at all raises new types of risks:
- While you’ll miss out on the downturns, you’ll also miss out on the upswings in the market. Over the long-term these upswings should well outweigh the downturns, resulting in higher returns versus bank deposits (yes, bank deposits currently offer high returns, but that’s not expected to continue forever). Without taking on more risk, you won’t get higher returns.
- Your money will likely be eroded away by inflation if it’s invested too conservatively. In addition, you might not end up with enough money for retirement or other financial goals.
Therefore, we think the best solution to be a successful investor is to accept downturns as a normal part of investing, ignore them and keep investing and contributing to your portfolio (picking up cheaper shares in the process). The markets have gone through several recessions, wars, and crashes over the decades, yet there’s never been a case where they haven’t recovered. There’s no silver bullet for avoiding recessions or wars, and occasional downturns and market volatility is just the price we pay for the higher returns we get from shares.
3. What we’ve been up to
On holiday
Recently we’ve been on holiday in Japan. It was our first proper overseas holiday in several years, allowing us to enjoy exploring a country we’ve never been to. Japan was full of incredible food, beautiful sights, and friendly people, leaving us hungry to see even more of the world. That’s one of the reasons why we invest, so that one day we won’t be dependent on our paycheque, giving us the freedom to do whatever we want to do.
Altogether we spent just under $10,000 NZD for two of us on our two week trip, which we thought was really reasonable considering it was Japan’s peak tourist season:
- Accommodation – $3,100
- Flights – $2,800
- Local trains/buses – $900
- Food – $800
- Shopping – $600
- Attractions/activities – $500
- Miscellaneous expenses – $900
Selling investments
Contact Energy was a company we’ve held since 2015. We initially purchased $3,000 worth of shares at $4.60, adding another $2,000 at $5.60 during the Covid crash in 2020, plus added more shares throughout the years via a capital raise and the dividend reinvestment plan. This month we sold all our Contact shares at a price of $8.45, for a capital gain of over 50% plus over $2,000 in dividends.
Despite being a successful investment, we’ve been looking to sell our Contact Energy shares for a while now. Our focus over the past few years has been on our index fund investments, including our Kernel NZ 50 ESG Tilted Fund which has a hefty 11% weighting towards Contact. As a result we had doubled up our exposure to the company by owning the shares directly, as well as indirectly through the index fund.
So by selling our individual shares in Contact and reinvesting the money into our index funds, we’re not losing our exposure to CEN, and are actually diversifying our portfolio (as every dollar previously invested in the compan y is now being spread across the hundreds of companies contained in our funds).
Thanks for reading and your ongoing support!
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Disclaimer
The content of this article is based on Money King NZ’s opinion and should not be considered financial advice. The information should never be used without first assessing your own personal and financial situation, and conducting your own research. You may wish to consult with an authorised financial adviser before making any investment decisions.
HI Moneyking,
Can you please suggest whether investing in Kernel save or Kernel cash plus fund is the best option among them.
What are pros and cons for emergency fund among them. Please explain
Hi, there is no definitive best between the two. The Cash Plus Fund is an actively managed fund invested in a diversified range of assets (including bonds and floating rate notes), whereas Smart Saver is simply a deposit with a bank.
The Cash Plus Fund offers a higher yield (~6.1%) and PIE status for better tax efficiency, but takes at least a day longer to withdraw your money from and may have short periods of negative performance.
Kernel Save is slightly faster to get your money out of and is extremely unlikely to have any periods of negative performance. But has a lower interest rate (4.8%), and it’s not a PIE.
So it’s up to you to decide what’s best – do you want higher returns, or do you want something faster to access and less risky? The best answer could very well be a combination of both.
Hi MoneyKingNZ,
Need some opinion of yours please? I’ve started my investing journey not too long ago. As of today, I have some shares (via InvestNow) of Foundation Series (both in US500 and TWF) and Smartshares US Large Growth ETF (not too sure why I bought that). I have been consistently investing via the monthly plan. Since learning investing, I have been improving my knowledge and right now I feel like I have been micro diversifying too much – as in I am investing in the same thing but different portfolio/provider? For example, I feel like Foundation Series US 500, Foundation Series TWF and Smartshares US Large Growth are essentially the same thing. To simplify my investing strategy, I was thinking of just stick with one – Foundation Series TWF and stopping buying the other 2. Also, should I even consider selling them? I mean, at the moment, I am earning from all 3 of these shares but I feel like the moment I sell, my tax will eat up all my gains. What is your thought on such situation? Thanks!