The Blog

$5.5t USD in negative yielding government bonds!!

JP Morgan estimates that over $5.5t (yes, trillion) of investor funds are currently in negative yielding government bonds. To put that into plain interest, if you purchased $10,000 (Euros to be correct) worth of German 5 year bonds currently at -0.308%, after 5 years, your $10,000 would be worth $9,846.94. To clarify, this doesn’t mean that the quarterly interest payments are negative, it means that the amount an investor is prepared to pay for the bonds is so expensive, that when it matures; combining the capital being repaid (the face value) and any income generated works out that the ‘total return’ or ‘yield‘ is negative. If, like most people, you are asking why someone would invest into a bond which returns negative yield, this article discusses a few ideas, mostly that it is about having liquidity (meaning they can access their funds quickly if needed). However there are a number of reasons behind this and trying to pin point exactly why is a waste of energy, it just goes to show that looking to the past to predict the future will be […]

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Waterman Capital Presentation 15th February 2016

Waterman Capital is a private equity investor established in 2004 to provide capital and management expertise to mid-market businesses based in New Zealand, with a long track record of investing in, and adding value to businesses in that space. We are excited to offer you the opportunity to attend a presentation from Executive Directors Lance Jenkins, and Chris Marshall to hear about an opportunity to invest in their third fund.

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Responsible Investing

Why investors should be concerned about a dam bursting in Brazil The Responsible Investment Association of Australia state “Responsible investors all understand that companies or assets won’t thrive whilst ignoring environmental issues (pollution, climate change, water and other resources scarcity), social issues (local communities, employees, health and safety), corporate governance issues (prudent management, business ethics, strong boards, appropriate executive pay) or ethical issues.” On November 5th, 2015 a dam co-owned by BHP burst, killing 13, injuring hundreds and impacting thousands. Brazil’s government has subsequently filed a law suit against BHP and Vale for $5.2b USD to compensate those affected. Investing ethically is no longer about being a ‘green, tree-hugging hippie’, it is about understanding that companies who cause catastrophic disasters will be hit where it hurts, usually in the form of billions of dollars, which in turn, hurts the shareholder. BHP price post 5th November 2015 source: Bloomberg   How Sustainability Can Drive Financial Outperformance The University of Oxford and Arabesque Asset Management have undertaken a study which analyses the links between “responsibility and profitability”. There is a drive for transparency for the stockholder. […]

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Eurozone – Further easing expected

Eurozone – Further easing expected The Eurozone markets are anticipating that the European Central Bank (ECB) will increase the Quantitative Easing (QE) program in 2017. This has led to the European debt market interest rates continuing to fall into negative territory with 40% of all Eurozone government debt now offering investors NEGATIVE interest rates. We anticipate that the QE will continue into 2016, and potentially into 2017, as the Eurozone continues the slow grind out of recession. Once the ECB ceases the QE this will leave only Japan underwriting the excessively high asset prices around the world, which will lead to more uncertainty around the sustainability of prices, and we will be watching all markets with an increased level of concern Chart 1 – Who’s still doing QE? Source: BoE, DB Global Markets Research Chart 2 – Negative Yields on Euro Gov Source: Jack Di-Liza, Bloomberg Finance LP, DB Research

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Market Update

When will rates go up in the US? Globally the financial world remains focussed on Janet Yellen, Chair of the Board of Governors of the Federal Reserve (the Fed), as she continues to suggest that the Fed will increase interest rates in the US at some stage before the end of this year. As shown below in chart 4 the market is now pricing in a much higher expectation of rates rising in December 2015. If the US Fed does commence tightening in December we can expect to see the market volatility increase for a short period of time, before potentially moving into a more sustainable growth period. As shown in the table below in the past we have varying performance through tightening cycles, but on average it has been a positive share market with a sustainable climb in values. This table comes with the common disclaimer that past performance is not a good indicator of future performance, but while history may not repeat to often, it certain rhymes.      Chart 1 – Market’s assumed probability of a move   Table  […]

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The problems with short term thinking…

We see a lot of investors who have a long term plan, someone in their mid 40s potentially needs an investment strategy to cover a period of 60 years (or more!), yet so often our decisions are based on what makes them happy today, typically believing that they have time to ‘deal with’ the consequences. This is compounded when the decisions being made are clouded with emotion, rationalism is quickly thrown out the door! Here is a good article titled “Short-Termism: it’s more contagious than the flu” – we can’t agree more.    

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Socially Responsible Investing is Funding Youth Mental Health

At first glance the Future Generation Global Investment Company looks just like any other, run-of-the-mill international investment fund, however on close inspection this fund will provide some very tangible benefits for Australian and  New Zealand “at risk” youth.   All of the fund’s underlying managers have either donated their services for free or at significantly discounted rates in order to benefit this  very worthwhile cause. The discounted fees are donated annually to charities working closely with  Australian and New Zealand youth suffering  mental health issues.   The fund regulators and administrators have come on board as well , with both the Australian stock exchange and the funds Auditors heavily discounting their own  fees to assist the cause. Read more here Disclaimer The information provided in this email is general only. It does not take into account the investment objectives, financial situation or particular needs of any person and may not be appropriate for your requirements. We strongly suggest that investors consult a financial adviser prior to making any investment decision.

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New Zealand’s Property and Dairy Industry

September has been an eventful month in the property market with New Zealand becoming the most overvalued property market in the world. As shown in the table below, when we take an average of the house price divided by average income, and the house price divided by the average rent, New Zealand property is currently trading at 62% above its historical averages, making it the most overpriced in the developed world. Chart 3 – Global Property Prices Source: OECD, Deutsche Bank Global Markets Research, monthly chart pack New Zealand Dairy Over the last month dairy prices have rallied globally, which will be a welcome relief to New Zealand farmers. In the last 2 auctions, being mid-August and early September the global dairy trade prices have risen by 15% and c11% respectively. This is still leaving the price per kg of milk solids low, and Fonterra has not revised their forecast from $3.85 ($4.25-$4.35 including dividends) To date farm land in New Zealand has continued to hold its historically high prices, and hence banks are still supportive of farmers drawing on […]

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The information provided in this email is general only. It does not take into account the investment objectives, financial situation or particular needs of any person and may not be appropriate for your requirements. We strongly suggest that investors consult a financial adviser prior to making any investment decision.