By Amanda Morrall
Part I of a three-part exclusive interview with Gareth Morgan of Gareth Morgan Investments.
Q) Who manages GMI's KiwiSaver money?
A) We have an investment strategy team of eight people; a couple of economists, a couple of equity analysts, a couple of fixed-interest people and a couple of quants (quantitative analysts), plus me.
Q) Do you use any external managers?
Right now if we take our KiwiSaver growth fund, a quarter of the portfolio is in managers, another quarter in index trackers and then another half in individual stocks.The way we go about investing is asset allocation, it is our biggest call. On any one day deciding how much of a dollar given to you to invest is put into the market. Currency is the second one. Investment teams and finally securities. We have prudential limits on what we'll put in, so if one goes over we'll get a bruise but we won't lose an arm. In terms of the criteria for buying an investment and why we'd use a fund manager over direct investment, it comes down to market efficiency. If we have identified that some market in Asia looks set to go, the next question is how do we get exposure to that market. Do we go and buy stocks directly on the local exchange or go through a manager that specialises in that area or theme. It's a case by case. If we find a manager that has good fees, and a good philosophy then we'll use a manager.
Q) What is Gareth Morgan Investments' philosophy?
A) The first thing for us is wealth preservation. That's No.1, even for the growth portfolio. Enhancement is No.2 We have a big sign on our office wall that says don't lose the bloody stuff. The reason for that is that these portfolios are peoples' lifetime savings and they're likely not to have a chance to rebuild them if you smash them. That's why the portfolios are so diversified. I always say to people: 'Don't think you're going to make a lot of money investing in these type of diversified portfolios. You won't. You make money in your day job or you concentrate portfolios to make but with that comes far, far greater risk.' We're looking after peoples' long-term savings so I think it's totally inappropriate to be playing little segments of the market with peoples' KiwiSaver funds.
Q) What, if any, adjustment have you made to your portfolios recently?
A) Since KiwiSaver began in 2007, we've had the GFC and now we're having the second leg so those are two big thumps. For 2008, the portfolio that was mandated 100% growth, went through that period with about 45% invested, the other 55% was in cash. We had total discretion on the conservative side of clients' mandate to do what we like. If we are really scared, we can go completely to cash. But if a client has mandated that they want 80% growth, we can't go to 83%. We have to rebalance. So that's why we tend to do better in downturns because we tend to be under weighted in equities. The highest we've ever been (for a 100% mandated portfolio) is 92%.
At the moment, the 100% growth is 77% invested. This time three months ago is was 85%.
Tomorrow in Part II of our interview, Gareth will discuss benchmark performance and GMI's decision not to participate in peer comparison tables.