By Amanda Morrall
2011 was a "game of two halves" for investors with the equities market starting off with a roar and ending with a hiss.
The New Zealand equities market, up 4% in the first quarter, closed the year down 1.0%, Australian equities ended down 10% from a 6.5% first quarter rush, and international equities fell from a 7% start to -5% finish.
Morningstar's Chris Douglas, co-head of research, said the ups and downs were driven by environmental and economic mayhem that impact hardest on markets mid-year and beyond.
"When you look at the first quarter, it was fascinating. The New Zealand equity market in the first quarter was up around 4%, the Aussie market 6.5% and global equities around 7% and that was despite the Christchurch earthquake and stuff going on in Europe. The market seemed to have great resilience.''
So what happened?
"What didn't happened,'' quips Douglas.
"We had further natural disasters; the earthquake and tsunami in Japan. We had issues around the euro, the U.S. debt ceiling debacle, the U.S. downgrade from triple AAA to double AA and the other thing was that China, which has been a major part of global growth over the last few years, also showed signs of slowing too which had an impact on performance.''
Good year for bonds
It wasn't all bad news however for 2011. Bonds in particular enjoyed a good year with New Zealand government bonds up 13%, and the overall composite bond index up 10%.
And despite all issues around sovereign debt, global bonds were up around 8% for 2011.
Property was another asset class that enjoyed relatively good gains, said Douglas.
"The New Zealand property market in particular, it was up over 11% so it's had a very good year with double digit returns for its investors. Global property finished the year up 2%.''
While the sharemarket suffered the greatest volatility and losses, Douglas said New Zealand equities stood up better than most.
"When you think about the volatility and what happened last year, to have a return of -1% is pretty damn good if you ask me.''
The performance was especially good relative to our closest neighbour. Australian equities slid close to -11% by year's end.
"The slow down in China impacted that market more than most; it's obviously resource dependent and it has a lot of financials exposure with the banks too.''
While global equities ended down 5%, all things considered Douglas suggests it could have been worse.
"When you look at what the issues have been, what we went through, it's not a disaster by any stretch of the imagination.''
KiwiSavers may have no other choice but to roll with the punches but Douglas said they shouldn't be too disheartened.
'Volatility could be good'
Volatility could prove a good thing long-term with KiwiSavers enjoying the benefits of underpriced shares added to their portfolios. (See Morningstar's 2011 KiwiSaver report here).
"If I am an investor and I've put my entire life savings into the market then volatility matters but with KiwiSaver, when you look at the nature of KiwiSaver, the majority of investors are very much at the early stages of their investment horizon and they've got 10,20 30 years to go.''
Douglas said the regular savings structure of KiwiSaver could be most advantageous for those many years away from retiring.
"They are dollar cost averaging a little bit of money into the market every time they get their pay packet so it's a great time to invest. When you are just drip feeding into the market you want that volatility, you want to be buying at market lows so when that money gets invested, it can enjoy the uptake when markets do rebound and we know they will rebound. We just know that it's just going to be volatile for the next few years.''
Regardless of how close or far KiwiSavers are away from retirement, Douglas said investors should resolve to find out where they are invested and whether their fund is suited to their risk appetite.
"Don't just look at your KiwiSaver assets in isolation, look at what your other investments are, your liabilities and make sure you are in the appropriate risk profile. Seek advice, there are a lot of very good advisors out there.''