MARCH 2010 NEWSLETTER
19 March 2010
FIDELITY OPTIONS KIWISAVER
Fidelity Life tops KiwiSaver survey – Fidelity Life's Options Kiwi Fund was the top performing KiwiSaver Fund out of 113 surveyed by research house FundSource, over the two years to 31 January 2010, with a return of 16.8% per annum due to strong performance over the latest year when the fund returned 45.9%

Options Portfolio Results for February 2010
The Options Portfolio had another positive month, with a return of 1.1% for February. The year-to-date return was 26.8%.

The Portfolio has had a great year, with only two negative months in that time – less than the three or so we’d normally expect. However, possible storm clouds are looming, in the shape of fallout from the well-publicised debt problems that Greece is having. These are causing markets to take a closer look at the debt positions of other countries such as Spain, Italy, the UK and even the US.

The hangover from the massive fiscal injections has been a significant jump in indebtedness as countries deliberately went into deficit to boost spending. What economists are now looking at is not just the level of indebtedness, but how long it might take some countries to return to surplus – which has to come from a cut in expenses, a rise in revenues, or a combination of both. The result is increasing uncertainty.

Uncertainty creates volatility in bond yields, and the US 10-year rate is no exception. This volatility – at least in the short term – creates the potential for sudden, sharp rises or falls in yields. If large enough, these could have an impact on the Options Portfolio’s returns. The good news for us all is Tyndall’s experience, now over five years and well-tested through the toughest investing climate in seventy years.

HOW DOES IT WORK?
I have a good one page explanation from Fidelity about how the options Fund works. If you would like an email copy send me a return email to stuart@savingworks.co.nz and put “How it Works” in the subject line.

SWITCH TO THE OPTIONS KIWISAVER FROM FIDELITY
The Hulich Funds have received a lot of bad press as they have been found to be artificially inflating their returns.

If you are in these ( or any other fund for that matter) and wish to swap out email me your postal address to stuart@savingworks.co.nz and put “Fidelity Kiwisaver” in the subject line.
I will send you an application form and investment statement.

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HOUSE PRICES
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In his latest Weekly Overview Tony Alexander from the BNZ listed a number of factors that will cause house prices to head back up again next year. This will be in spite of rising floating mortgage rates from sometime near the middle of this year.

• Construction of dwellings is running at 14,500 per annum and we need at least 23,000.
• Net migration inflows are running at 23,000 and not the ten year average of 13,000.
• Investors are reacting to tax worries by pulling out of construction deals involving leasing newly built properties back to Housing NZ.
• Finance to build new subdivisions is extremely tight now that the traditional finance company business model has been shattered.
• While net migration flows are expected to ease off from late this year, a high proportion of those leaving are likely to be skilled tradespeople and this will also reduce the ability of house construction to recover.
• The rise in GST will boost construction costs 2.5%.
• The recovering global economy and rising commodity prices means rising prices for house construction materials – as seen recently with price hikes for steel and timber products.

And to top it all off, the anecdotal evidence suggests rents are finally showing some decent increases as landlords realise they should be pricing their houses like they were running a business and not just squatting for capital gain.
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MACQUARIE BANK AUSTRALIAN $ CASH MANAGEMENT TRUST
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Maquarie have written to all holders of their A$ cheque book facility asking them to vote on changing it into the A$ Cash Management Account. However the Cash Management Account will not be available to NZ based clients.
This is a nuisance to say the least.
We found it very useful to have an Australian $ cheque account for the following reasons

- - We used it to collect dividends from Australian Shares.
- -The account earned interest – It is great to have an interest earning cheque account.
- - If we wished to buy anything in Australia we could write an A$ cheque directly
- - If we wished to buy an investment in Australia we could write an A$ cheque directly
- -MacBank operated a very efficient and cost effective telephone exchange facility between NZ$ and A$.

This convenience would go when Macquarie closed the CMT for NZ Clients. A few phone calls and research showed me there is an alternative.

GoldmanSachs JB Were have an Australian $ denominated account with all the features, and a few more, of the Macquarie account. It is called the GoldmanSachs JB Were Cash Trust. It is available to people in NZ and give us all the convenience of an interest bearing Australian $ cheque account.
I am opening one and will be transferring my A$ into it before Macquarie close the CMT accounts.

WOULD YOU LIKE AN A$ CHEQUE ACCOUNT?
If you would like an Investment Statement and application form email me your postal address to stuart@savingworks.co.nz. Put A$ cheque account in the subject line.

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INTEREST RATES
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To me it looks as though we are at or near to the bottom of the interest rate cycle. A number of the commentators I follow now expect the first RBNZ OCR hike to be in Q3 (previously June)
and for the pace of tightening to be more gradual.

One effect of this is that the quality Bonds I, and some of you, purchased over the last two years are now trading at a premium on the secondary market.
If you think that you may not be able to hold these bonds until they mature, now or sometime over the next few weeks would be a good time to sell.
Here is a selection of some secondary market prices taken from the exchange today.

Prices are quoted as per $100 face Value.

Auckland Intl Airport 2016 AIA080 $107.002
Contact Energy 2014 CEN010 $104.76
Rabo PIE Capital Secs RCSHA $106.00
Fonterra 2015 $105.34
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IMPORTANT: This email newsletter is not intended as personal
investment advice or recommendation. Investors should ask for
and read the investment statement and/or Prospectus or Product
Disclosure Statement (PDS) carefully and satisfy themselves that
any investments referred to are appropriate for their
circumstances and portfolio. For any fund or share past
performance in most cases is useless in predicting future
performance. Believing otherwise can be very dangerous to your
financial health.


Happy Investing
Stuart Scott
SavingWorks NZ Ltd
5 Rupi Court, Mt Wellington, Auckland.
Ph: (09)527 8449 0274 901 884
email: investment@ihug.co.nz

Learn how to make your savings work for you. Set up an effective
savings plan Visit http://www.savingworks.co.nz

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