Fisher Funds holding the course as the economic impact of earthquake unfolds

By Amanda Morrall

The tranquil ocean view from the second floor North Shore office's of funds manager Carmel Fisher couldn't be any further from the chaos that is now Christchurch - neither for that matter the financial hub in Auckland.

Remotely placed as it might seem to observe ruin or trade on forecast, the beach-side bunker provides Fisher - and her investment team - with the kind of perspective that both disaster scenarios and tight-knit industry environments sometimes need.

With the share-market reacting to the tragedy that continues to play out in Christchurch, Fisher is watching, waiting, and sticking tight to the buy and hold strategy that has served her company well.

"You can't read anything into short-term share prices,'' she said.

"(The situation) is awful. We can't think about much else. It's wrong to even think of quantifying it at this time. We'll find out about impacts later on, as they unfold.''

Although the earthquake, billed as the country' worst and most expensive disaster in almost a century, will undoubtedly have a flow-on effect for investors, Fisher is circumspect.

See more here from Bernard Hickey on economic impact and possible RBNZ moves.

In general terms, she has no doubt investors will be impacted. How could they not in a country as small as New Zealand where the chain of pain, emotional or financial,  ripples between two islands - be it through bloodline or bottomline.

"It will impact our economic growth because the country's reserves will need to be used to rebuild Christchurch. That will have implications because New Zealand was already going to struggle to achieve the sorts of average growth levels that it has in previous decade. It's a bit of knock back.''

Although Christchurch, with bodies still being pulled from the rubble, has a long way to dig out, the monumental job of rebuilding the Garden City has seen Fletcher Building's share prices jump from NZ$8.30 the night before the earthquake to NZ$8.64 on speculation of its commercial inheritance of the disaster.

Tower's shares, by comparison, slumped, though far less dramatically. Insurance companies have, of late, been cursed by a spate of natural disasters that have seen a reversal of fortunes for the sector.

Although one of the plums in Fisher Funds Portfolio appears also to have been affected (Ryman Healthcare which has offices and retirement villas in Christchurch) Fisher isn't budging. Not yet anyway.

Strong fundamentals

The small and medium-sized Kiwi businesses that Fisher favours may not be earthquake proof but their underlying fundamentals have tended to be rock-solid.

Fisher is deliberately selective, choosing stocks that have consistent earnings growth over three years, above market average forecast earnings growth and a price-to-earnings ratio one or less at the time of purchase.

Companies are also selected on the basis of "quality management" and a "sustainable competitive advantage.''

Her methodology, which relies heavily on research, personal site visits and analysis, has served her well. Much to the chagrin of proponents of passively managed index funds, Fisher has consistently beaten the benchmark — by a long shot. Fisher Funds NZ Growth Fund, established August 1998, has delivered a pre-tax annualised return of 12.3 per annum.  The NZ50G, by comparison has averaged 6.43% in that time.

In keeping with holding patterns, Fisher said she has no imminent plans to shuffle portfolios.

"We're not going to suddenly revisit all of our companies and say we won't hold them in the portfolio because of the potential of an earthquake in Wellington, Christchurch or wherever else the next one might be.

"Because this is a random, and hopefully, one off event. You can't analyse for all these external factors. You can't analyse for Mother Nature.''

How are your funds performing

Freak of nature metrics may have yet to make into the textbooks but cracks in the traditional performance benchmark are starting to show.

Performance benchmarking tables used to rate how KiwiSaver funds are doing have been criticised for producing misleading results. That's because calculations are based on what's known as a point-to-point formula rather than a regular savings model, where money comes into an account on a regular monthly basis. 

Morningstar for instance looks only at the unit price at the start of the year and the unit price at the end of the year.  No account is taken of the way the unit price travels during the year. Whereas with Kiwisaver, the unit price travel pattern during the year dramatically affects the investors return, as they are investing at regular stints and buying units at different prices each month. 

Fisher conceded existing benchmarks were flawed, but suggested they were useful to the extent that everyone was sized with the same yardstick. She was hopeful the industry and or regulators and financial watchdogs would come up with a more meaningful gauge. That's something interest.co.nz is actively working on. 

So what's a more meaningful way to assess KiwiSaver fund?

Fisher said fees and good communication were key.

"There's no doubt about that (fees counting for a lot) particularly with more conservative fund. If you are only earning a relatively low return, which you tend to do with a low risk investment, the difference between a 1% and a 2% fee is going to make a huge difference to your ultimate outcome. Less so for a growth fund, hopefully, if the growth fund manager does a good job.

"I think every member should look at fees, make sure they're in the ball park. You don't necessarily have to go for the lowest fee or the highest if you want to go for the highest make sure their returns are signficantly higher than everybody else so you are getting a decent return for the fees. So look at the reasonableness of fees."

Although the Government actuary provided a rough best practice guideline it's really only by looking at what other charge that you can get a feel for it.  Even then, it can be difficult as fees and expenses aren't consistently reported in the same way by all providers.

Fisher dismisses criticism that KiwiSavers have been deliberately misled by the fund management sector selfishly trying to carve into the returns.

'It doesn't have to be complex'

"Some of the talk I've heard: it almost implies that all fund managers have been dastardly and that we've hidden all sorts of things but it's not that complex. There are not that many elements to a KiwiSaver fund.

"There are the investment you've make, the expenses you take out and then you divide that by the number of units. So I applaud the fact the industry is moving more to a standard approach. If that gives investor more comfort -- fantastic. Anything we can do to make investors more comfortable about KiwiSaver and savings in general is fantastic."

Communication is obviously an important aspect of making fees and performance understandable for investors.

Fisher said good communication was a cornerstone of her company's policy.

"Our mission statement when we started the company 14 years ago was to make investing understandable, profitable and simple. To make it simple you need to communicate in a way that people can understand. For a lot of investors, they've just been scared of the share market, haven't understood it and thought of it as a casino.

"So rather than just say, your funds have gone up 1% this month, aren't we clever. We've say you're fund has gone up 1% because of these three stocks in particular. And these three companies, this is what they do and this is why the share prices went up. They announced a good profit result or an acquistion or whatever.

"So if they read in the newspaper that Pumpkin Patch has had a bad profit result, they're less likely to panic because they understand why we bought shares in Pumpkin Patch and they also know that Pumpkin Patch is just one of 15 different companies that we invest in.''

"KiwiSaver investors who come to us will get the same investment portfolio as someone who comes to us with NZ$50,000 to invest. We have New Zealand shares, Australian shares and international shares. In our conservative KiwiSaver we have infrastructure and fixed-interest.''

"Our stock picking style is our favourite companies and our favourite companies are regardless of whether you are a NZ$100 a month, NZ$50 a month or NZ$3 million investor.''

Fisher Funds has more than NZ$200 million under management in its KiwiSaver account and is aiming for more, although she won't say how much more.

"What's important to me is that Fisher Funds is well respected and well regarded as a fund manager. If we keep achieving good returns then I know the money will come and investors will want to join us. My target is to just be the best or in the top group of performers, I don't need to be No.1 (although I like it) as long as I'm in the top group of performers and investors have a good experience in terms of communication and client service on the way through."

And what will Fisher Funds look like in 40 years when today's newly enrolled KiwiSavers roll into retirement?

Fisher hesitates, then smiles.

Even for a long-term investor, 40 years is a hard one to imagine.

"If I'm not here,  which I hope I am, the very capable people I work with keep the dream going.''

See Interest.co.nz's details on Fisher Funds' performance and fees here.

* This article was first published in our email for paid subscribers earlier today.  See here for more details and to subscribe.

(Updated March 3, 2011 with a correction on Fisher Fund returns for NZ Growth Fund)