Chairman Gavin Walker said the annual result was an excellent one. “The past year has continued a pattern of very strong, above-market returns by the Fund. These returns – 16.8% p.a. over the last five years – are the result of disciplined and consistent investing.”
“Returns in the 10%-20% range are at the higher end of our expectations and will not continue indefinitely. Over the long term we expect the Fund to earn, on average, 8%-9% p.a.”
Mr Walker said the year had been a highly successful one for the Fund’s active investment strategies, particularly its strategic tilting programme. The Fund exceeded its passive Reference Portfolio benchmark by $1.15 billion (4.45%) over the year. The Guardians’ expectation is to add value above the Reference Portfolio of approximately 1% per annum, over the long term.
Over the last five years active investment strategies have added $4.54 billion (3.65% p.a.) in value to the Fund.
“These results provide a strong endorsement of the Guardians’ ability to add value, after all costs, compared to a purely passive approach to funds management,” said Mr Walker.
The Fund also exceeded its second performance benchmark, the Treasury Bill return, by $2.90 billion (11.14%) over the year. The Treasury Bill benchmark is a measure of the cost to the New Zealand Government of contributing capital to the Fund instead of paying down debt.
Looking forward, Chief Executive Adrian Orr said global markets were currently experiencing increased volatility and uncertainty. Global equity markets fell -6.49%* in August.
Mr Orr said this current volatility would inevitably have an impact on Fund returns in the short term. “It is normal to see considerable volatility in our monthly and indeed annual returns. We remain focused on our long-term strategies. As an agile and highly liquid investor, we are well positioned to manage short-term volatility, and will look to take advantage of market disruptions as they occur.”
The Guardians recently re-committed to a long-run 80% growth, 20% fixed income Reference Portfolio composition. “Given the Fund’s long time horizon – it will keep growing until 2080 – this strong weighting to growth assets is appropriate,” said Mr Orr.
Mr Orr said further detail on the Fund’s performance over the year would be provided in its Annual Report, to be published in October.
All returns are quoted after costs, before NZ tax.
*MSCI All Country IMI.