Tuesday, June 19, 2018

Investment Update and Forecast June/July 2018

Investment Update - June/July 2018

Generally, the month of May was consistent with the 2018 story of a global economy entering a mature stage characterised by market volatility, the gradual emergence of inflation, higher interest rates (primarily in the US) and a softening of global economic growth indicators. This cooling off period, which is usually accompanied with weaker equity markets, is likely to represent a healthy return to normal levels of growth as opposed to alarming signs of an economic deterioration. However, it is also likely to be true that the consistent and highly profitable financial markets are now behind us. Geopolitical issues in countries such as Italy, Turkey and Argentina also added new concerns for global markets over May.

The OECD’s most recent general assessment of the global macro-economic environment predicts that expansion is set to persist over the next two years, with global GDP projected to rise by close to 4% in 2018 and 2019. Growth in developed countries is predicted to remain around 2.5% per cent per annum, helped by fiscal easing in many economies. It is also considered that GDP will strengthen to close to 5% growth among some developing countries.

Although job growth is likely to ease in advanced economies, the OECD-wide unemployment rate is projected to fall to its lowest level since 1980, with labour shortages intensifying in some countries. Wage and price inflation are accordingly projected to rise, but only moderately, given the apparent muted impact of resource pressures on inflation in recent years and the scope left in some economies to strengthen labour force participation.

US 10-year bond yields started strong in May and pushed through the psychologically important 3% barrier. However, the political upheaval in Italy toward the end of May caused U.S. Treasury yields to post their largest daily decline in nearly two years, and at the end of the month, traded well below 3%.

The rally continued in oil markets early in May. The latest spur for price rises stems from American sanctions on Iran which drove Brent crude close to $80 a barrel, the highest level in four years and up by almost 50% from a year ago. However, later in the month prices dropped and traded at around $70 a barrel as supply concerns eased.

The US
While America and China continued negotiations, trade conflicts opened on new fronts. Japan, Russia and Turkey notified the World Trade Organisation that they would follow the lead taken by the EU and India in applying tariffs on American steel and aluminium in retaliation for the duties America recently imposed on such imports, unless those duties are reversed. Mr Trump, meanwhile, signalled a new battle with Europe and Japan by ordering the Commerce Department to look at imposing tariffs on imports of cars on the ground of national security, the same argument that lies behind the levies on steel and aluminium. However, so far tough talk by the White House to renegotiate trade relationships has ended up as incremental concessions.

The US Federal Reserve’s (Fed) preferred inflation gauge, the change in the core Personal Consumption Expenditure Index, reached 1.9% at the end of March. This supports the expectation that the Fed will increase the Fed Funds Rate by a further 0.50%-0.75% in 2018, with further increases expected in 2019.

The Fed continues to include the word “gradual” in its commentary regarding the expected future path of interest rates, so not to alarm markets.

If the current level of job growth is maintained and the proportion of people participating in the labour market remains unchanged, then a 3.5% unemployment rate could be hit in a year’s time. In this scenario wage inflation is likely to be the biggest concern for the Fed.

The UK
Although the Bank of England left rates unchanged in March, two members of the MPC (Monetary Policy Committee) voted to increase rates suggesting a tightening bias existed for the UK.

Italy’s political turmoil unnerved markets. Italy had been without a government since its March election, which yielded a hung parliament with no party or coalition holding a majority.  The recent jolt to markets came after populists named Paolo Savona, an economist who thinks that Italy should quit the euro, as finance minister. President Sergio Mattarella vetoed Mr Savona and the populists threatened for a moment to impeach him and even hinted at a march on Rome. Amid talk of a political, constitutional and economic crisis, bond yields spiked and global stock markets shuddered. The yield on Italian sovereign bonds rose at a pace not seen since the euro-zone debt crisis. The ten-year bond yield rose to 3%, the highest level since 2014. Ignazio Visco, the governor of the Bank of Italy, warned the quarrelling politicians about the danger of “losing the irreplaceable asset of trust”.

Emerging Markets
Argentina faces pressure to hasten economic overhaul. President Marci’s efforts to curb inflation and jump-start the economy without shocking Argentina hasn’t gone as planned. Investors continue to question the Argentina central bank’s credibility as it cut interest rates in January to support growth despite inflation at 25%, well above target. They worried about the government’s ability to reduce expenses to plug the fiscal gap and enact regulatory changes intended to improve business competitiveness and cut red tape.

Facing a currency crisis, Turkey’s central bank simplified its system of multiple interest rates. The one-week repo rate (the rate at which the central bank lends money to commercial banks in the event of any shortfall of funds) became its new benchmark, which it also doubled to 16.5%. The central bank’s governor met investors to offer reassurances that monetary policy would tighten further if inflation remains stubbornly high. The Turkish lira, which has taken a battering over concerns that the central bank’s independence is under threat from politicians wanting lower interest rates, rallied in response.

While Australia’s Reserve Bank and Treasury anticipate growth picking up to 3.25% over 2019 and 2020 many market commentators are predicting more conservative growth of around 2.5 – 2.7%. The sceptical commentators attempt to balance the growth story of strong non-residential construction, government investment and exports with reservations around slower residential construction and potentially weaker consumer spending.
Spratt Financial Services
09 307 8200

Jonathan Parsons, AFA, M.Mgmt, Dip. Fin Plng.
027 201 3470


Monday, March 5, 2018

Financial News Roundup March 2018

1. Auckland Maori Hapu to provide free health insurance for its members. - NZ Herald

Auckland based Ngati Whatua Orakei has joined with NIB to provide its members free health insurance in an arrangement that is likely to cost around $3 million annually.  

2. Thousands of recently built homes covered by liquidated CBL Insurance. - Stuff.co.nz

The Insurance for thousands of recent homes covered for shoddy building practices could be put into limbo as CBL Insurance has officially gone into liquidation.

3. What went wrong at CBL? - NZ Herald

In a follow up to the previous article, the Herald looks at what factors surrounded the collapse of CBL and how it went from a trusted insurer to liquidation in the NZ marketplace.

4. Home Insurers crack down on Meth Claims. - NZ Herald

As overall claims for methamphetamine related damage increases year over year, insurers have greatly hiked excesses for meth claims and premiums to curb losses.

5. Kiwisaver fee drop 'missed the mark'. - Good Returns

A review of the default fees for KiwiSaver providers led to only two of nine major providers changing their fees in response.

6. Partners Life introduces a new range of level premium options. - Good Returns

Partners Life have introduced level premium (fixed premiums which remain the same until an agreed upon age) options for its suite of personal and business insurance products.

7. A bumper year forecast for mergers and acquisitions. - NZ Herald

Pent up demand following last year's elections may lead to a major year for acquisitions and mergers, industry insiders tip.

Tuesday, February 20, 2018

How Insurance/Investment can help your child complete their education.

When we think about our financial commitments and our debts, sometimes our child's education can slip by under the radar. Everyone knows about their mortgage, their utility bills and their credit cards, but how much its really going to cost to guide your child or grandchild through their education is often not figured into the equation. 

Private school or university fees can range from $5,000 - $25,000 per year, which is a substantial financial commitment and something worth thinking about. So if your child is starting or continuing their secondary or tertiary education in the New Year, here's what it might pay to take into consideration in your financial plan.

1. You May Qualify For Special Events Increases

In some insurance policies, special events clauses allow you to make changes to your insurance free and with no additional forms, checks or processes required. Having a child begin their secondary or tertiary education counts as one of these events under certain providers. This means that you can increase your sum assured or make changes to your plan quickly, easily and without stress. If you are a primary income earner who supports your child or grandchild as they go through their education, you can make sure that their education costs will be covered by taking the time to review and taking advantage of these clauses. 

We highly recommend taking the time to check with us if you qualify, or to review your insurance plan to make sure this new debt/liability will be taken care of and your child will be able to complete their education no matter what happens.

2. Review Your Existing Insurance Plan

If your child is starting or continuing their education it may be a prudent plan to conduct a review of your existing insurance factoring in these new financial commitments. We may find that some changes need to be made or may even be able to save you money, whilst still providing for your debts and making sure your child or grandchild has a safe, assured pathway through their education and into their chosen career. All our insurance reviews are completely free and no obligation, so you have nothing to lose.

3. The Benefits of Your Child Being Insured Early

In addition to thinking about your own insurance as your child/grandchildren start their education, its worth giving a thought to theirs as well. Getting a health and/or critical illness insurance policy in place for them has numerous practical benefits that can help make sure they and the family can overcome the financial obstacles illness or injury could present to their education and beyond.

Securing insurance cover young can mean:

  • Securing insurance cover young means cheaper and cost effective premiums.
  • Any conditions developed later on in life will be covered. Getting in young means less time for pre-existing conditions to develop which could mean possible savings of thousands or even tens of thousands in the long run. It meant exactly that for our team member who was diagnosed with Crohn's at the age of 20.
  • No exclusions, conditions or additional loading expenses in your policy.

4. Consider an Education Investment Fund

Our professional investment services can offer managed funds without a minimum starting amount - perfect for an education fund that can grow and prosper over time, eventually helping your child or grandchild finish their education successfully, without the burden of too much debt on their life. Backed by the most cutting edge research, we can consult with you and find the best option for your unique financial situation. If you want to get started or make an enquiry, just contact us today and ask a question or request a free, no obligation consultation.

Wednesday, December 6, 2017

UPDATE: Smokers and Insurance - How Much You Can Save By Quitting

UPDATE: With the next New Year's cigarette and tobacco price increase about to take effect and plain packaging about to become mandatory throughout New Zealand, it's more important than ever to consider the possible benefits to your health and your wallet of quitting. 

Statistics estimate that 15% of adult New Zealanders smoke, or a total amount of around 550,000 people. Smokers in New Zealand have it tough in so many ways, and it's about to get even tougher. Not only are smokers mired in an unhealthy and destructive habit, every year this habit takes more and more out of them financially. Since 2010, due to new tax laws passed by parliament, the price of cigarettes and tobacco has risen dramatically.

A pack of 20 cigarettes has risen from around $13 to between $22-27 in 2017 (between $24-30 in 2018) depending on the brand of choice. With 10% tax increases set in law at least until 2020, smokers can expect that they will soon be paying upwards of $30 per pack or $1.50 for each cigarette. A pack a day smoker will be out $200 per week, a cost likely higher than all their groceries for the week combined.

In 2017, each of these set their owner back over $1 a piece. In 2018, the cost is set to rise yet again.

Unfortunately, that's not all a cigarette habit can cost. If you're a smoker and you have personal risk insurance in the form of life, trauma, TPD, income protection or health/medical insurance, you're paying a lot more in premiums than non-smokers are. This is because as a smoker, you are more likely to develop serious health conditions and thus, you pose a much higher risk to the insurer. How much more will a smoker pay? In some cases it can be up to double the amount of a non smoker of the same age.

The good news is, that if a smoker manages to quit, their premiums can be revised and changed down to a non smokers level if the smoker manages to maintain it for a significant period of time. For instance, if you quit smoking 12 months ago and are paying smoker premiums on your insurance, you will be eligible to apply for changes and have your costs significantly reduced. A pack a day smoker who manages to quit could easily save between $12,000-$15,000 a year through not having to pay for smokes combined with the savings on their insurance. That is enough for a significant vacation, a brand new car or many many shopping sprees. Even those who only smoke a pack or two a week could save around $5000 a year by cutting it out.

With the cost of the habit now sure to increase further in the years to come, now could be the time to dial it back or endeavour to quit entirely. Your wallet would definitely thank you for it.


Monday, November 6, 2017

The Benefits of Using an Insurance Broker

1. Insurance Mistakes Can be Costly.

While we can sometimes think of insurance as being a simple matter, it can no doubt be a complicated prospect and the costs of getting things wrong can be high. If you don't have the right amount of cover you could be left unable to service your debt if something goes wrong, or people who depend on you could end up in trouble or out of pocket. In our years of professional experience, we've come across people who've filled out forms incorrectly, chosen the wrong type of insurance entirely, or overlooked a crucial detail, leaving them in a much worse situation when they need their claims.

Nearly all of these mistakes could have been avoided by consulting with a professional adviser. Insurance brokers take the time to assess what you really need and guide you through the process, eliminating unneeded costs, getting you the right insurance, making sure your real needs are covered and getting those forms 100% correct every time.

2. Your Claims Processed Stress Free

If you need to make a claim on your insurance, chances are you are going through one of the most stressful times of your life. During this time, processing claims, filling out forms and making sure everything is squared away is a true hassle, and one that you really can't afford to get wrong. Our Insurance service includes full claims management and support, helping you fill out forms correctly, guiding you every step of the way and making sure you get your claim processed as you need it every single time.

You don't need any more stress in your life, and making the choice to use an insurance broker to source your cover will take this claims stress out of your hands.

3. The Insurance Marketplace Can Change

The insurance market in New Zealand is ever-changing. New products and providers come and go, and the best insurance for your situation one year could be very different to the best insurance for you the next year. An insurance broker will conduct regular reviews of your insurance to make sure that what you're getting is still the best deal for you. If it is found that it's not, you'll be able to change to continue to get the best cover at the lowest prices. The best way to keep on top of the market and always get the best is to have a professional insurance broker in your service.

4. Zero Cost and Zero Obligation.

All the service that an insurance broker provides for you, from giving advice to sourcing your insurance, to conducting reviews and providing ongoing support, is entirely 100% cost free. All you pay for is your insurance premiums. Your insurance broker is paid by the insurance companies themselves at no additional cost to you, so you have nothing to lose by consulting one.

5. Better Deals Than Going It Alone   

In many cases, a reputable insurance broker can leverage their solid relationships with New Zealand's insurance providers to secure you better terms and/or better rates than you could find by going it alone. A broker can also get you indirect savings in cutting out aspects or benefits that you don't need and setting your sums assured at the level you need and not too far in excess of it. When combined with all the other benefits, we believe that taking the time to consult with an insurance broker is a no-brainer.

6. The Knowledge and Experience You Need

Our insurance team has over 100 years of combined experience in the insurance field. That's over a century's worth of knowledge and experience that they bring to help clients get the best and deal with anything that could arise. That knowledge is simply invaluable in crafting your insurance policy, maintaining it and making sure that it works the way it needs to and only the way it needs to. Alone, you could be at risk but with 100 years of experience behind you, you will be secure.

Sunday, October 22, 2017

New Accident and Illness Cover: Is It Right for You?

Spratt Financial Services can now offer you a new and more cost effective option to cover your income in the result of an accident or illness that renders you unable to work. With the new personal accident and illness cover option, income protection insurance is now attainable to even more people who need it. This new insurance could be right for you if: 

  • You are 60 or older and are ineligible for typical forms of disability income protection.
  • You work in a 'high risk' profession and have trouble getting approved for Income Protection Insurance.
  • You want to protect your income should something happen, but you find traditional forms of income protection insurance too expensive for your budget.
  • You wish to add the most cost effective form of income insurance to an existing insurance portfolio.
  • You have income protection, but are concerned about rising costs as you age.
    Personal Accident and Illness cover is in effect identical to a traditional income protection policy, but with a few key differences. If you suffer an accident or illness that renders you unable to work for a protracted period of time, accident and illness cover will pay you the amount agreed upon to cover the wages you are missing from your employer. This amount is decided at the time you take out your policy. For instance, if you are earning $60,000 and set this as your sum assured, you will receive (after the agreed upon waiting period) monthly payouts of $5,000 so that you can maintain your lifestyle, pay the bills and support the family while you're unable to work.

    The key differences between a Personal Accident and Illness policy and a traditional Disability Income Protection policy are:

    • Unlike income protection, there is no age limit, making this a good option for those over 60 who are still active in the work force. 
    • The policy will include a maximum claim term, for instance a year or two years of claim payouts before the benefits will cease.
    • The policy is not guaranteed to renew each year and will be reviewed by the insurer based on your current health conditions and claim payout history.
    • Thus in most cases, a personal accident and illness policy will be less expensive than an Income Protection policy.

    These days, more of us are working and staying active in their later years. We recommend the new personal accident and illness option to those who may be approaching retirement age who want an option to protect their valuable income until that time arrives. We also think this could be a good option for those of any age who have considered income protection but decided not to proceed due to factors of cost, or people of 'high risk' professions that have trouble getting regular income protection insurance. This type of insurance comes with a few added conditions outlined above, but having it could be the difference between having the funds to support your life and not.

    If you think a personal accident and illness policy could be right for you or you have any questions, use the form here or email enquiry@sprattfinancial.co.nz and one of our professional insurance team will get right back to you. All of our services are completely free and with no obligation to proceed, so you have nothing to lose and everything to gain.

    Monday, September 11, 2017

    Investment Update (September 2017)

    We are of the view that the nine-year equity bull market is not yet over with global stocks posting modest gains amid healthy corporate earnings reports and improving outlooks. The momentum of the world’s three main economies (US, China and Europe) is positive, with growth lifting all nations through accelerating trade volumes. This positive momentum is likely through to 2018, although the outlook is not without risk. At current company valuations, the US equity market is susceptible to the Fed starting to raise the policy interest rate. 

    Additionally, political risk has been an increasing feature of the investment landscape in the last 12 months. Recently, the election-weakened UK government is facing imminent and difficult Brexit negotiations, US President Trump coming under sustained investigative pressure from Congressional committees, and deterioration in relations with nuclear renegade states such as North Korea and Iran, create an environment in which markets could prove more vulnerable to negative news shocks.

    United States
    In late July, the Federal Reserve kept interest rates unchanged and said it expected to start winding down its massive holdings of bonds "relatively soon" in a sign of confidence in the US economy.
    The Fed indicated the economy was growing moderately and job gains had been solid, but it noted that both overall inflation had declined and said it would "carefully monitor" price trends. Steady job creation in the economy has pushed the US unemployment rate to 4.3%, near a 16-year low.

    The annual rate of Chinese GDP growth has been on a gradual upward trajectory over the past year, rising to 6.9% in the last quarter to June 2017. Tighter credit conditions imposed were expected to slow real estate investment. On the positive side retail sales and industrial production was up 11% and 7.6% respectively. This supports our contention over the last few years of extreme China angst that the authorities have the will and the means to support the economy when required.

    Japan’s GDP second quarter figures showed that it has expanded for the sixth consecutive quarter, led by a strong rise in private consumption. This may be a positive for the Japan sharemarket but the BOJ pushed out any chance of rate rises for another 12 months (2019). This points to keeping monetary policy extremely accommodative for some time yet.

    The region’s economy is expanding as year on year growth was up 2.1%, the highest level seen since 2011. Confidence indicators are positive and business sentiment is at levels not seen for a long time. Unemployment across the region is at a nine-year low of 9.1%, GDP growth is expected to be 2.1% for 2017 and inflation of 1.5%.

    A lot of this positivity appears to be from a pickup in world trade. The Euro has been one of the best performing currencies over this period increasing against the USD and most of the main crosses.
    It is expected that the ECB’s monetary policy will begin to ease, but this is not expected to start until 2018.

    The outlook for Australia is moderate growth over the next one to two years, low inflation and an ‘on hold’ central bank, with the risks to growth still to the downside. The Australian economy managed to steer away from a negative GDP result in the March quarter thanks to a modest rise in consumer spending, higher business investment and a bounce back in inventories. Activity data in the second quarter has improved with retail sales spending and exports up, strong business conditions, but growth in 2017 is still likely to be about 2.0%.

    Another positive is that the decline in resource sector spend will fade and momentum from other sectors outside of resources will support wage and employment growth in 2018.
    The RBA left the cash rate unchanged at 1.50% in its August meeting with an indication they are in no hurry to move the cash rate from here, but the next move could be up.

    New Zealand
    The New Zealand economy has come through a relatively subdued six months. A series of one-off negatives impacting the final quarter of 2016 (dairy production) and the first quarter of 2017 (transport and construction) conspired to deliver below trend growth of 0.9% over the six months to March. Two consecutive quarters of low growth begs the question of where to from here? With financial conditions supportive, tourism booming and migration strong, we assume a modest rebound over the next few months to around the 0.7% per quarter we think underlying growth is running at. A key implication of the recent Monetary Policy Statement is that, if the economy struggles to reach this growth rate, the Official Cash Rate (OCR) may have to be cut further to deliver the demand pressures required to hit the RBNZ’s inflation target.

    Earnings momentum is now positive for all major equity regions and we expect this to continue, supported by a solid economic backdrop. A normalising global economy should allow central banks to unwind their ultra-accommodative interest rate policies. We believe that long bond yields are set to rise further during 2017 and 2018.

    Improving economic growth around the world will generally support equities and challenge bonds. That’s because this growth is more ‘traditional’ in nature, arising from better employment and demand, and thus allowing prices (and potentially profits) to rise.

    For the remainder of 2017 we are not anticipating further significant upside in either Australasian or global share markets. Investors are aware of high valuations and may well move to protect the capital gains in their portfolios, rather than take on additional risk. An alternative scenario – market ‘euphoria’ in which investors simply become too complacent and push markets up into a climax marked by narrowing leadership and mounting volatility – remains a distinct risk, but it is still not our main case. This assessment could change if monetary policy normalization were to be interrupted and put on hold yet again, whether for economic or geopolitical reasons. Given the clarity with which the major central banks are now preparing markets ahead of policy moves and the robustness of the global expansion, any significant interruption seems unlikely.

    Source: Select Wealth Management/JMIS NZ – This is not intended as specific investment advice and is for general information only – Please talk to your Authorised Financial Adviser for more information. While every effort has been made to ensure accuracy Select Wealth Management Limited, JMIS Limited, nor any person involved in this publication, accept any liability for any errors or omission.

    Spratt Investment Services – Ross Wallace & Jonathan Parsons
    Phone: 09 307 8200
    Email: investments@spratt.co.nz