The NZ Super Fund continued to perform above its benchmarks in the June 2018 financial year, finishing $4 billion up at $39 billion.
Chair Catherine Savage said both broad markets and the NZ Super Fund had performed well. Global equities rose in value and the NZ Super Fund beating its reference portfolio benchmark.
The fund returned 12.43% (after costs, before NZ tax), beating its passive reference portfolio market benchmark by 2.02% ($700 million). It exceeded the average return on treasury bills, its other benchmark, by 10.71% ($3.7 billion).
Ms Savage said the fund continued to take a long view, as it won’t start to experience sustained withdrawals until the 2050s.
The 2018 result took its returns since its inception in 2003 to 10.4%/year, and value added versus the reference portfolio to 1.49% – a total of $7.6 billion.
Chief executive Matt Whineray pointed to 3 reasons the fund exceeded the reference portfolio benchmark: strategic tilting, in which the fund’s exposure to different asset classes is adjusted over time; timber, primarily its 42% stake in Kaingaroa Timberlands; and an internally managed credit mandate.
However, looking ahead, he said the external environment appeared challenging: “Global growth is beginning to decelerate, inflation is starting to rise in some developed markets, and financial conditions are tightening with the withdrawal of central bank liquidity. While trade tensions have been escalating, the contagion into financial markets has been limited to date.
“While the fund remains heavily weighted towards growth assets such as shares, with many markets at or above fair value, we have lowered the amount of active risk being taken. This is a measure of how different the fund’s actual portfolio is from the passive reference portfolio – they have got closer during the year.
“We are also maintaining higher than normal levels of liquidity in the portfolio – assets that can be sold easily to meet our obligations or to fund new investments. This will ensure the fund can withstand any future market stress and take advantage of new investment opportunities as they arise. We remain committed to our long-term investment strategies and will continue to take a highly disciplined approach to active investment.”
Government support resumes
The new Government resumed contributions to the fund in December 2017, after an 8-year suspension, contributing $500 million over the 2018 financial year.
The Government monthly contributions increased to $89 million/month from July 2018 and are projected to increase to the level specified in the fund’s governing legislation by 2022. Since inception in 2003, the Government has contributed $15.4 billion and the fund has paid $6.4 billion in NZ tax.
Attribution: Fund release.