In June 2023’s What’s been happening in the markets article we give a brief explainer on the recession we’ve just entered and what you might do in response, cover Smartshares’ 5 new ETFs, as well as other market happenings.
1. Product updates
New Smartshares ETFs
Smartshares launched five new ETFs on 29 June, which are available through NZX brokers like Sharesies or ASB Securities (though at the time of writing they are not yet available through InvestNow). Those hoping these funds would bring lower fees or something innovative to the market will be disappointed – In many cases Smartshares’ competitors like Kernel already offer similar funds with generally lower fees. The new funds are:
Australian Equities ESG ETF (AUE)
AUE tracks the S&P/ASX 200 Fossil Fuel Screened (AUD) Index, which is similar to the ASX 200 but excludes companies involved with Controversial Weapons, Civilian Firearms, Tobacco, Thermal Coal, Oil Sands, and companies that fail to comply with the United Nations Global Compact Principles. The fund charges a management fee of 0.50%, which is a lot more expensive compared with AUS, Smartshares’ non-ESG screened ASX 200 fund (which charges just 0.30%).
Global Government Bonds ETF (GGB)
GGB tracks the Bloomberg Global Aggregate Treasuries Total Return Index, and is hedged to the New Zealand dollar. It invests in government bonds from around the world and charges a management fee of 0.30%.
Global Property ETF (GPR)
GPR tracks the FTSE EPRA/NAREIT Developed ex Australia Rental Index, and is hedged to the New Zealand dollar. It invests in over 300 real estate related companies across ~20 countries, and charges a management fee of 0.54%. A close competitor to this fund is Kernel’s Global Green Property Fund which has significantly cheaper fees starting from 0.25%.
Global Infrastructure ETF (INF)
INF tracks the FTSE Developed Core Infrastructure 50/50 Index, and is hedged to the New Zealand dollar. It invests in 244 infrastructure related companies across 30+ countries, and charges a management fee of 0.60%. A close competitor to this fund is Kernel’s Global Infrastructure Fund which also has significantly cheaper fees starting from 0.25%.
US 500 NZD Hedged ETF (USH)
USH is a currency hedged version of the existing Smartshares US 500 (USF) ETF, which invests in the S&P 500 index. The management fee is 0.38%, slightly higher than its unhedged equivalent (charging 0.34%), and more expensive than Kernel who charges just 0.25% for the same fund. However, taking into account Kernel’s $5 per month membership fee (which applies if you invest $25,000 or more in their non-KiwiSaver funds), Kernel’s S&P 500 Fund can work out more expensive if you’re investing between $25,000 and $46,154.
– Hedged vs Unhedged funds – What’s better?
Keep an eye out for the following enhancements to the InvestNow platform in the coming months:
- The platform is looking to add an Aggressive fund option to their in-house Foundation Series range, to go along with their Growth and Balanced options. We may also see them expanding their ultra low cost index fund range (which currently includes US 500 and Total World funds).
- InvestNow are also looking to enhance their term deposit offering, adding three new banks to their roster. In the coming weeks we can expect to see ASB, Westpac, and TSB term deposits being offered alongside ANZ, BNZ, Heartland, SBS, Bank of China, and China Construction Bank, for a total of nine different banks.
Quick Kernel updates
- Kernel’s new Global ESG Fund (which we first covered in March) will finally be available from 3 July. This fund invests in over 600 companies across 20+ countries, and comes in both hedged and unhedged variants.
- Currently Kernel’s funds are only traded twice per week on Mondays and Wednesdays (compared with most other fund managers who process their orders on a daily basis). However, they’ve revealed on a recent Q&A that they’re moving to a daily Monday to Friday trading schedule within a few months.
2. We’re in a recession
You may have seen the news that New Zealand has entered into a recession, so what does this mean? The technical definition of a recession is when the economy has two consecutive quarters of negative GDP growth. This essentially means the economy has slowed down – Consumers are spending less, and businesses are less active (and perhaps even cutting staff).
But don’t panic. While talk of a recession seems scary, it’s not like the wheels are falling off New Zealand’s economy. Most recent GDP figures show the economy shrinking by just 0.1%.
What should I do?
There is no exact playbook for what to do in a recession, because every recession is different. No one knows exactly what will happen next, whether conditions will get worse and become a long and severe recession, or whether it’ll be a short and mild one. We have no idea precisely how many jobs will be lost, which industries will be affected the most, and how many people will default on their mortgages.
But the fact that we’re in a recession might provide some motivation to review your budget, cut expenses, and update your CV. Most importantly you should have an emergency fund – Money you put aside in a safe and easy to access place for any unexpected expenses or life events (like losing your job). However, this is something you should have regardless of whether we’re in a recession or not. Things like job losses can occur at anytime, not necessarily during a recession.
– Emergency funds – Where should you keep your rainy day money?
Impact of recession on the sharemarket
Many people think that the market is going to go down now that we’re in a recession. But this won’t necessarily be the case. In fact, the NZ sharemarket went up in the days immediately following the news we had gone into a recession! That’s because the sharemarket is forward looking – It was already expecting the economy to enter into a recession so it didn’t drop off a cliff when the news was confirmed.
While we don’t know what’ll happen next, as long as you’re investing long-term and shares are the right asset class for you, it’s not a good idea to time the market. If you stay out of the market because you’re scared the recession will hurt its performance, you might miss out on the market’s eventual recovery. This recovery tends to happen before the economy actually improves – Remember the sharemarket is forward looking so it goes up in advance in anticipation of the economic recovery.
Overall, in a recession you should stay the course – Keep investing and continue to have money set aside for emergencies regardless of what’s happening in the economy. There’s a lot of fear and uncertainty out there, and it’s understandable to feel the need to take action and prepare. But often it’s investors who stay calm and stick to their plan who get the best results.
3. Market Movements
Here’s how the markets performed to 29 June 2023, in both their local currencies and in NZ dollar terms:
|May 2023 returns|
|May 2023 returns|
|NZ shares (S&P/NZX 50)||-0.04%||-0.04%|
|Australian shares (S&P/ASX 200)||1.46%||2.27%|
|US shares (S&P 500)||5.18%||4.43%|
US shares have done particularly well this month, as it seems like we’re reaching a turning point in investor optimism around the economy and interest rates finally starting to stabilise. There also seems to be a lot of hype around Artificial Intelligence, and as a result some tech related companies have been booming. For example, Apple and Amazon, both large constituents in many indices, are up over 6% this month. And Nvidia is up over 180% year to date! Perhaps the market is getting a bit too excited over AI? It’s not exactly clear how the hype will translate into opportunities and greater profits for these tech companies, and only time will tell how AI will truly impact the world.
|2023 YTD returns|
|2023 YTD returns|
|NZ shares (S&P/NZX 50)||2.92%||2.92%|
|Australian shares (S&P/ASX 200)||2.22%||3.69%|
|US shares (S&P 500)||14.51%||19.81%|
4. What we’ve been up to
In case you missed them, here’s the articles we published over the month:
A bit light on new content this month, but we’ve been caught up with other projects, and the articles we have in the pipeline are taking way longer than expected to complete.
We’ve also been spending time reviewing our investment portfolio, and will likely be making some minor changes to our index fund investments after being with Kernel for about 1.5 years:
- Firstly, our Global 100 holding has grown a decent amount while our other funds are flat or slightly down, so we’ll rebalancing our portfolio by trimming our global exposure and reinvesting into our other holdings.
- Secondly, at the same time we may switch and consolidate some funds into Kernel’s new Global ESG Fund. We don’t believe there’s a definitive best between the Global 100 and Global ESG funds (and we don’t have a crystal ball to tell which one is going to perform better). But rather we have a personal preference towards the greater diversification the Global ESG Fund provides (especially as index funds are becoming an increasingly large part of our portfolio). The ESG aspect of the fund isn’t of massive importance to us, but it is a bonus.
Outside of investing we visiting the local temple, went for a walk around Puhinui Reserve, and baked some tasty bread.
Thanks for reading and your ongoing support!
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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.