What’s been happening in the markets (February 2023) – Sharesies and Sugar Wallet make cuts

The last year or two has seen the rapid growth in investment platforms, and now we’re finally starting to see them cut back. In February 2023’s What’s been happening in the markets article we discuss Sharesies’ restructure, Sugar Wallet’s withdrawal from Simplicity’s funds, as well as interest rate changes.

This article covers:
1. Market movements
2. Product updates
3. What we’ve been up to

1. Market movements

Here’s how the markets performed to 28 February 2023, in both their local currencies and in NZ dollar terms:

Feb 2023 returns
Local currency
Feb 2023 returns
NZD
NZ shares (S&P/NZX 50)-0.61%-0.61%
Australian shares (S&P/ASX 200)-2.92%-3.10%
US shares (S&P 500)-2.31%+2.24%
Bitcoin+1.16%+5.87%

This month’s mostly negative performance comes as doubt is creeping in about whether inflation is actually under control or not. While inflation has cooled over the past several months, it still remains high and it’s not slowing down as quickly as many people would have liked. And that leads to plenty of uncertainty around what central banks are going to do with interest rates – an issue the financial markets are particularly sensitive to right now.

However, if you look at the returns of the S&P 500 in NZ dollar terms, the index actually increased over the month! And if you look at year-to-date returns, 2023 has still started positively:

2023 YTD returns
Local currency
2023 YTD returns
NZD
NZ shares (S&P/NZX 50)+3.67%+3.67%
Australian shares (S&P/ASX 200)+3.12%+5.04%
US shares (S&P 500)+3.72%+7.09%
Bitcoin+41.68%+46.28%

2. Product updates

Sharesies introduces stop-loss orders

Sharesies has recently introduced stop-loss orders for US shares and ETFs (though are planning on also introducing them for the NZX and ASX). Stop-loss orders are like sell orders which only get triggered (sent to the market) when your shares reach or fall below a certain price. For example:

  1. Let’s say you own 20 Apple shares, which are currently trading at $150 USD.
  2. You place a stop-loss order for 10 Apple shares, with a trigger price of $140 USD.
  3. If the price of Apple shares fell to $140 USD or below, an order to sell 10 of your Apple shares will be sent to the market.
  4. If the price of Apple shares stay above $140 USD, nothing happens. Your order will expire after 30 days.

Stop-loss orders are primarily used by traders, either to limit their losses by closing out a losing position at a certain price, or to lock in profits if a winning position starts to fall back down. However, there’s some risks to using stop-loss orders:

  • Price gaps – Stop-loss orders don’t guarantee you’ll sell your shares at your trigger price. Following on from our above Apple example, let’s say Apple shares suddenly fell from $150 USD to $130 USD. Your stop-loss order would trigger and sell your shares at $130, rather than your trigger price of $140.
  • Market rebounds – The price of an asset could fall and trigger your stop-loss order (causing your shares to be sold off), only for that asset to rebound in price shortly after.

Stop-loss orders are rarely used by long-term investors, because they tend to hold onto their investments for several years with the expectation they’ll recover from any downturns in price. Long-term investors often also see downturns as an opportunity to buy into their investments at a lower price, rather than a time to sell out of them and lock in losses. Given Sharesies positions themselves as a platform for long-term wealth building, it’s interesting that they’ve gone down the path of adding stop-loss functionality.


Sharesies restructure

In other Sharesies related news, the platform has begun a process to restructure their business, sadly with redundancies likely. This has resulted in some speculation among investors that this is directly related to their recent fee hikes (and the resulting loss in customers). However, we’d say that it’s way too soon to fully understand the impact of the fee changes and to make major business decisions based on them – it’s likely they’d contemplated the restructure well before the pricing changes occurred.

Some investors may be worried about the implications of this restructure, particularly around whether the business is in a bad shape or whether they’re at risk of going bust. However, this move is likely to improve the sustainability of their business – Sharesies has grown rapidly over the last couple of years, but are now suffering from a big drop in business as customers get scared away by the ongoing market volatility. This restructure realigns the business with current market conditions and hopefully puts them in a better position to make a profit.

And the good news for investors is that if they actually do go bust, your money would still be safe. Remember you’re investing through Sharesies, not in Sharesies, and the value of your investments isn’t determined by the platform itself. Any investments you have through the platform are held by a custodian, not kept on the Sharesies balance sheet. This separation means your money can’t be taken away if Sharesies stops operating – if that were to occur, either another company would buy the Sharesies platform and keep it operating as usual, or your investments would get sold off for cash (allowing you to buy them back on another platform).

Further Reading:
What happens to your money if InvestNow or Sharesies go bust?


Sugar Wallet withdraws their managed funds offering

Sugar Wallet is an investment platform which launched in 2022, initially offering investment into Simplicity’s Growth, Balanced, and Conservative funds. They later added gold as an investment option. However as of mid-February, Sugar Wallet ceased to offer Simplicity’s funds, leaving gold as their offering. Existing investors have been given the option to sell off their funds, or transfer their units to be held directly with Simplicity (as long as they meet Simplicity’s minimum investment of $1,000).

Perhaps Simplicity told Sugar Wallet to stop offering their funds, like how they blocked InvestNow from doing so back in 2017. Or perhaps the Sugar Wallet team genuinely wanted to put 100% of their efforts into becoming a gold investment platform. Regardless of the reasons, this move won’t come as a big loss to the NZ investment community – Sugar Wallet’s offering was an inferior one, charging investors a $36 per year account fee to invest in Simplicity’s funds when you could always invest direct via Simplicity for free.

Further Reading:
Sugar Wallet review – Clipping the ticket?


OCR increase – The impact on interest rates

The Reserve Bank of New Zealand increased the OCR this month, raising it 50 basis points from 4.25% to 4.75%. It’s widely expected that interest rates on bank deposits (e.g. savings accounts, term deposits) and borrowing (e.g. mortgages) will increase following the OCR adjustment.

Variable interest rates (such as savings accounts and floating mortgages) tend to be more sensitive to OCR movements. At the time of writing there’s already been a few rate changes so far including:

However, fixed term interest rates (term deposits, fixed term mortgage rates) can be less sensitive to OCR increases. They might not even change significantly in response to the most recent OCR change, because they’ve already priced in the increase. Essentially the RBNZ had already signalled the most recent OCR rise in advance, so this ultimately led to banks putting fixed rates up in advance. So when the previously predicted OCR rise actually occurs, interest rates won’t necessarily move in response. At the time of writing we’ve yet to see any substantial changes to fixed mortgage and term deposit rates.

3. What we’ve been up to

Money King NZ site

The Money King NZ site was much quieter this month as markets fell and the frenzy over Sharesies’ fee changes died down. But it’s great to have so many regulars supporting us and reading our articles every week. In case you missed them, here’s the articles we published over the month:

A heads up for those subscribed to us via email – Our email service Mailchimp is increasing their prices next month, making it no longer viable for us to use them to send out our articles by email. We’re looking for an alternative provider to switch to, but there is a risk that we don’t find a solution in time. So just in case you notice that we’ve been missing from your inbox, you can still find us on social media via Facebook, Instagram, Twitter, or LinkedIn.


Our investing activity

Our investing activity has been more or less the same recently, focussing on investing in index funds every week. However, we’ve made a small change this month by stopping our participation in most of the Dividend Reinvestment Plans (DRPs) on our NZX shares.

We’ve always liked DRPs. They allow investors to automatically reinvest their dividends into buying more shares, free of brokerage and often at a small discount. But we’ve decided to stop most of our DRPs as they’ve resulted in us having increased concentration towards certain companies, and due to the fact we’re also gradually shifting away from individual shares (and into index funds). By taking most of our dividends as cash, we’ll have the freedom to reinvest them into more favourable investments.


Outside of investing

The big talking point of the month was the extreme weather events affecting the country. We were fortunate to come out of them without any issues, and we hope all our readers have stayed safe from the wet and windy conditions too. But with the poor weather we didn’t get up to much this month, though managed to get out to Howick Historical Village (through their Waitangi Day free entry promotion), get coffee and croissants from Receptionist Coffee, and start growing some veggies in our garden. Here’s hoping that March is a much more stable one!

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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.


Comments

  1. Hey MoneyKing,
    It’s been a while since my last comment, but I’ve been reading all your posts, which are all great! Thanks!
    I have a comment (and question) about the performance of SP500, but actually directed towards the discussion of hedged vs unhedged. Although the index went down more than 2% in USD terms, it went up more than 2% in NZD terms due to NZD losing value against USD.
    This is great (although pointless from a long term point of view) for the money we already have in such a fund, but terrible for the money you are adding to the fund now. Basically, when you put money into the unhedged one, the NZDs deposited in the NZ domiciled fund will turn in less USDs which then turn in less units in the US fund (or companies if the fund directly invest in companies).
    So, I tend to agree that a hedged fund and an unhedged fund would result in similar performance over time (but prefer unhedged given the potential of lower fees), but this I think misses the point of when you are making the deposits in such funds. For example, if you make a deposit now in the hedged fund, you are basically buying the same fund cheaper compared to an unhedged fund.
    Where this goes is, if you have the option of having something like TWF and TWH, or Kernel Global 100 with its 2 forms hedged/unhedged, wouldn’t it have a better performance over the long term if you use both? At the risk of adding complexity, if you deposit more on a monthly/weekly/bi-weekly/ basis to the fund that is lower and less to the fund that is higher, basically buying more of the cheaper fund, wouldn’t you get a better performance over the long run and take advantage (or actually, avoid missing future gains) of the currency fluctuations?
    Note though that this reasoning completely ignores how hedging contracts work, and if they have any duration in time and how are reviewed/repriced.
    What do you think?
    Thanks,
    Juan

    1. Hi Juan, very interesting question. You’re essentially making a tactical allocation to hedged/unhedged based on where markets have moved, and perhaps that could work out well for you at least in the short-term. But a couple of considerations:

      First, how do you define which fund is lower and which is higher? For argument’s sake, let’s say Fund A is up 2% for the month and Fund B is down 2% for the month. Let’s also say Fund A is down 15% for the year and Fund B is down 10% for the year. So based on that data, do you invest in Fund A or B? Is your baseline for determining which fund is lower or higher based on 1 month performance, 12 month performance, or something else like the exchange rate of the day? What if you pick the wrong “lower” and “higher” fund and the market goes in a different direction to what you expect?

      Second, if we expect both hedged and unhedged funds to deliver roughly the same performance over the long-term, then it shouldn’t matter whether you deploy your capital into Fund A or B. Over the long-term your entry point into your funds becomes a minor consideration in the grand scheme of things.

      So perhaps the key question is whether the potential gains are worth the extra risk and complexity? While you likely have the knowledge and experience to make it work well, for most investors a simple strategy and portfolio beats out a complex one.

      1. Thanks for the answer. Actually, what I have in mind is a lot simpler and doesn’t consider where the market is headed, but where it’s been.
        I DCA on a monthly basis. I get paid, I make the transfers into different funds I have.
        In simplistic terms, let’s say I had at the end of January $1,000 in both TWF and TWH. During Feb roughly TWF is +2% while TWH is -2%, so at the end of Feb the balance ended up being around $980 in TWH and $1020. So, when a new deposit is made what if you instead of splitting them 50% to each you put more to the cheaper option and less to the more expensive one so to bring them back together. Basically, re-balancing between the 2 funds by buying more of the cheaper fund and less of the more expensive one.
        But I do know at the end these are all technicalities and bring additional complexity which may be unwanted by most. I was just curious about your opinion!

      2. Thanks, that makes more sense. By rebalancing to a 50:50 split as you make your investment contributions it’s a lot simpler. A lot of fund managers do this already, so you’re not alone in your thinking!

  2. Hiya money king, is investing in TD with invest now more riskier than dealing directly with the bank (I.e.ANZ who offers a lesser return)? What are your thoughts? The product disclosure form downloaded from invest now is the same as from the bank direct. Thanks

    1. The main risk of TDs is the bank going bust or getting into some financial strife, which would result in them not being able to pay back some or all of your deposit. That risk is identical regardless of whether you go through InvestNow or direct, given you’re holding the same underlying product with the same bank.

      You might also be concerned about the counterparty risk associated with adding InvestNow as the middleman in your TD. However, InvestNow doesn’t even touch your money in the first place, but rather they just exist to facilitate your deposit with the bank. Simply put, they couldn’t take your money and run away with it, nor would you lose your money if InvestNow shut down. So we wouldn’t consider this a material risk.

      1. Thank you ! that answers my concern, and I also verified with IN. So far I am liking the IN customer service much better than the banks’ 😉

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