Tag Archives: Tobias Taylor

Investing through uncertainty: It’s a matter of time

Posted on by
Reply

Equity markets for the year so far can be described in one word: Volatile

The current situation in markets is being driven by rising interest rates, alongside multi-decade high inflation, clogged supply chains and the war in Ukraine.

Times like these can often spark our ‘fight or flight’ instinct, or alternatively investors might avoid any risk altogether. But both scenarios could potentially harm the likelihood of achieving long term investment goals. It highlights the importance of having an investment plan to guide your decision making.

The length of time you look to hold your investments – the ‘time horizon’ – is important, because the approach you take when investing for the long-term may differ to that over a shorter period. This is all dependent on an investor’s unique risk tolerance, investment goals and needs, which are key for investors to clarify from the outset.

Investment returns

Does time really heal everything?

A longer timeline generally means an investor has greater capacity to take on risk, with the ability to withstand short-term drops in value. This allows a plan to be created for a well-constructed, diversified portfolio, which would usually contain a mix of asset classes (e.g., equities/shares, fixed income/bonds, cash) with different levels of investment risk and return.

When assessing an investment risk profile, there are a few key areas we regularly discuss with clients at Jarden; the amount of investable assets available, any cashflow demands, and their investment time horizon. This period ends when they need to draw down capital from their investment portfolio. It’s also important to think about the level of risk an investor is comfortable taking on, as well as any prior investment experience.

In periods of volatility, seeing a real-time decline in your portfolio’s value can be painful. However, conditions change, and any sudden reactions could result in losing potential future gains. Looking at the US equity market daily returns (excluding dividends) from 1927 to 2021, an investor who stayed in the market for all days would have made a 6.1 per cent capital gain (per annum), while those who missed the 25 best days made only 3.5 per cent.

By staying in the markets for longer periods, there is enough time to see them turn.


Our wealth research team analysed rolling returns from a sample “Balanced” portfolio (60% growth assets and 40% income assets) classified as medium risk from 1992-2020.  It showed over shorter periods of time, the portfolio was exposed to higher risks of negative returns. But over longer periods of time, the portfolio had historically produced positive annual returns on average.

Occasional changes to a portfolio – aligned with investment goals – can be beneficial. However, making decisions in reaction to current events can carry a greater risk of not meeting your aims, and create stress.

The next time an investor thinks about altering their portfolio, they should consider whether today’s situation impacts how their overall investments align with their objectives, or if their goals have changed. Often, it can be best to stay put.

This research has been prepared by Jarden Securities Limited (Jarden) which holds a licence issued by the Financial Markets Authority to provide a financial advice service. The information in this research solely relates to the companies and investment opportunities specified within. The nature and scope of any financial advice included within that research is limited to generic and non-personalised commentary about that investment only, such as the performance and the investment outlook of the company concerned. Any such commentary does not take into account any individual’s particular financial situation, objectives, goals or appetite for risk. We recommend that you seek financial advice that is specific to your personal circumstances before making any investment decision or taking any action. No fees, expenses, or other amounts will be payable for the provision of any financial advice in this research report. However, if you act on any information or advice contained in this research report, a brokerage fee (and other fees such as an administration and custody fee) may be payable to Jarden. For fees payable for brokerage and other services provided by Jarden, information on our complaints and dispute resolution process, and the duties applicable to us for providing financial advice, please see our publicly available disclosure statement at https://www.jarden.co.nz/our-services/wealth-management/financial-advice-provider-disclosure-statement

Video Interview – 15 minutes with Tobias Taylor.

Posted on by
Reply

Tobias Taylor is the chief executive of Midlands Mortgage Trust. The fund has $52 million in loans out on $120 m in security, so he says the firm has a lot of head room in its asset allocation. He says once you talk to your investor clients in the numbers and facts – they’re pretty happy to continue to get a regular investment return that’s above the banks.

Tobias says Hawke’s Bay’s economy will hurt later in the year, but he’s optimistic that it won’t be as bad as elsewhere in the country. Here’s the quick 15 minute catch up with Tobias.

 

Looking ahead – what will change

Posted on by
Reply

What are your predictions?

I can hardly claim this is a prediction, because it is well documented. But certainly, in the immediate term, we will continue to live in a low interest rate environment. For borrowers, this is good news. However, for savers and investors in income assets, it’s not so great.

One aspect of this is not fully understood. Post KiwiSaver, main street banks do not have to compete for the term deposit billboard rate as much as they used to. This is because within their own KiwiSaver products, they can assign the income end of the portfolios to their own instruments.
This effectively helps fund their domestic loan book by stealth, while charging a management fee to do so. When the organisation then sells you this as an investment solution, this is called “vertical integration”.

So better deposit rates at the bank billboard are a long way off. Time to think differently!

What’s likely to change in your sector?

More regulation and more compliance. On the lending front, the Credit Contracts and Consumer Finance Act (CCCFA) Amendment Bill is going to have some immediate implications come June 2020.

Here at Midlands, with both investing and lending, we are mature in our adoption of anti-money laundering (AML) considerations, as well as continuous disclosure, transparency, and our focus on good customer outcomes.

These changes mean that financial services providers like Midlands must get “closer” to clients. That requires investment into relationships and the delivering of soft skills if not actually giving financial advice per se. But we have to ask a lot of questions of our clients.

For this reason, I struggle with organisations moving away from genuine local relationship models and with “robo advice” or online lending models. To me, it’s an exploration in protecting margins and revenue without investing into customers and communities. Because we have had a very good run in investment returns, I do feel there are some fair-weather models being rolled out to investors that may be challenged in a market correction.

I also struggle with some passive management models for this same reason. Automated electronic trading based on macro asset allocation, with no micro company research really bothers me. Especially when you consider Environmental Social and Governance (ESG) factors.

But personally, I hope the powers that be do look further into “vertical integration” and if it is delivering better client outcomes. Certainly, the findings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia indicate it may not.

What opportunities do you see?

For us at Midlands, it’s pretty easy. Invest in our relationships and educate our investors and borrowers. We have a vanilla offering that suits our conservative investors.

We continue to significantly outperform bank deposit rates, while remaining fully liquid (no lock in of funds). We do this by close management of a quality first ranking security loans book across New Zealand.

While banks have reduced their lending and offer low interest rates to retail investors, we can continue growing as we are. We are proud to be non-bank.

What technology advancements will have an impact on how do business?

During our lending process, while we personally inspect every property we lend against, a lot of the initial discovery due diligence process can be done on-line now. This is important to ensure the quality of our lending book. This is only going to get better.

Regarding investments, the speed to market of online services used to be hamstrung by AML requirements. This gap has closed very quickly, and we are aware of this. Certainly, something we are looking into.

Making cents of the market

Posted on by
Reply

It is the process of anticipating what could lie ahead, and the creation of methods and processes to help minimise the potential negative effects of future influence… but can you ever truly 100% futureproof a portfolio?

The truth is you can’t completely 100% future-proof any portfolio, because investment involves risk no matter how low, and the future is uncertain. But where we lack a crystal ball in life, we can still set a healthy projection for the future by identifying our personal objectives and re-evaluating our investment mix throughout our lives to make it as resilient to negative influence, as possible.

Over time, we’ll go through several investment lifecycles. Our goals and assets in our thirties will likely vary greatly to when we’re near or post retirement age and there are plenty of factors we need to consider at regular intervals over the years to ensure our investments evolve to reflect our lifestyle, risk profile and assets. We should also re-evaluate as markets fluctuate and threats or opportunities present themselves.

The identification and monitoring of our goals will ideally take into consideration a broad range of potential experiences in relation to what’s happening globally. In doing so we should consider how our future outcomes could be impacted by things like technology, political instability, boom and bust business cycles or environmental factors. We’re not talking fear or panic driven decision making, but mere logical consideration to how these factors may affect our goals. This helps us to work out how we should strategise so it aligns with our expectations.

When analysing our goals, it isn’t all cold numbers and projections. More and more we’re seeing the conscious investor looking into more ethical opportunities. Socially responsible investing acknowledges there’s an emotive side and behavioural biases when it comes to the choices we make in life, and it’s important to consider how this should affect the decisions you make with investing too.

Paying attention to our concerns or stance on certain subjects can help focus us on our journey, as well as the outcome, opening us up to take a more tailored, holistic approach. Our needs might be complex, but that doesn’t mean our investment strategy can’t harmonize with them.

MARKET THREATS AND OPPORTUNITES

When we discuss influences such as threats and opportunities in the market, we are trying to recognise that which we can’t yet see in full and anticipate what that could look like for ourselves. We mentioned political instability and BREXIT offers an example: it was a multifaceted disruption to the market that surprised many with its result. It reinforces the importance of recognising triggers early.

According to Statistics New Zealand “Over a fifth of New Zealand’s investment in the UK at the end of June 2016 was portfolio investment” including KiwiSaver investments. The UK is also mentioned as being 14% of New Zealand’s total investment overseas, which is no small fish by any means.

A political event like this pulls on our emotions and biases. Sterling driven assets are becoming less attractive to some and the current state of political turmoil has pushed spooked investors toward more defensive investments. That’s not to say there’s a rule book for this kind of political instability or how we invest. It depends on our individual aversion to risk, our biases, our asset allocation and our goals.

Using comfortable retirement as our hypothetical goal – a riskier investment might appeal to you if you were still receiving a steady income. But as the years pass by and you get closer to retirement you might feel less comfortable with the risk.

Utilising objectivity, our circumstances and projection as tools, we should be able to determine if it is in our interest to keep a hypothetical investment in the UK or whether to change it out for something more suited to our goals.

The takeaway is – though we might not be able to completely ‘futureproof’ our investments, we can get them close. Just keep in mind that as our circumstances, goals and stance change – our investments will likely need to change with us. Well researched and thought out diversification, with effective asset allocations aligned to your personal goals is the most effective tool we have when trying to protect your investments.

Diversifying more than your portfolio

Posted on by
Reply

As many readers will know, as well as being a Hawkes Bay based financial adviser who has been servicing Bay clients for over 10 years, I also have a national role with AdviceFirst. Today, AdviceFirst includes the now rebranded Spicers business and has a strong presence with 15 offices throughout New Zealand.

As part of that amalgamation between Spicers and AdviceFirst, I was appointed into my role as Head of Wealth Management. I am privileged that a national organisation like AdviceFirst allows me to fulfil these responsibilities based from Hawkes Bay. Indeed it seems more and more that Bay based professionals are enjoying roles at a national level and working remotely, even at a senior level.

I have a strong duty of care and managerial responsibility for 35 Wealth Management Advisers across the country. The Profit therefore offers a great platform to discuss another regional and national aspect of duty of care to our respective industries that I feel should be top of mind for all professional disciplines: diversity.

So, I ask, what do you picture when I say financial adviser? You’re probably imagining a male of a particular age – which is often how financial advice has been commercially represented. That’s why securing and nurturing a diverse next generation of financial advisers is a top priority for our industry as we see our ranks of veteran financial advisers naturally decrease.

A knowledge gap is appearing, a gap which we need to fill with the transference of skills and expertise between peers to maintain the high standards for which our vocation is held. It’s our legacy.

AdviceFirst has been working hard to influence and promote diversity within our own organisation, setting a precedent for the next generation of Financial Advisers. Between 2016 and 2018 our percentage of advisers under forty years of age has increased by 13 %.

Along with benchmarking ourselves, building up the ranks of younger advisers, whose development is supported and mentored by our more seasoned financial advisers, is key to ensuring our clients’ needs for quality advice continues to be met competently and practically for years to come.

We’re not just closing the gap on bringing a fresh approach into the industry. Over the past three years we have been working to increase the percentage of female advisers in our business from 18% three years ago, and we have now reached 31% with over 150 years combined industry experience between them. Of course there is more to do, it is important to keep lifting our own standards in this way, nevertheless AdviceFirst is proud to be making good progress to ensure we have more diverse representation.

It’s also important to us that we represent positive change in financial advice and that our efforts mean we are well positioned to advise younger generation x and generation y investors, who are globally set to inherit assets in the trillions from their baby boomer parents (not to mention their own earnings) – and encourage the securing of those assets with accessible and smart financial advice.

We can do this while remaining true to our traditional values and an advice model that is very much relevant to our post war clients. Our clients don’t all have the same needs or background which is why it’s beneficial to work with an Adviser who can understand you and your goals while offering a flexible approach and choice.

As we evolve with social and cultural expectations, we’re building on the foundations that have been expertly set for us by our predecessors. Every time a new and younger generation grows, they bring with them a fresh approach that reflects their era, goals and preferences while remaining stabilised by the experience that helped raise them up.

One example of why we’re pushing for a more diverse offering relates to elderly clients. In this situation there can be a diminished capacity, often due to a passing of a loved one or pressing health concerns. In times of crisis or dealing with difficult decisions about a personal estate or investments, we need to be there for clients. In planning we can offer a level of experience and empathy that is more easily realised and provide our clients with an open and responsive relationship, improving the advice process. Trust is at the core of our value proposition and principles and that trust is better realised with the option for prudential stewardship.

Succession planning isn’t just for investors looking to the future. Succession planning is for all of us, AdviceFirst included. Our journey will continue…

When keeping calm and carrying on paid off

Posted on by
Reply

Recently I had the pleasure of traveling around New Zealand with economic commentator and journalist Bernard Hickey’ where we have been presenting to AdviceFirst clients and local professionals about themes important to today.

We have also been joined by fund managers Fergus MacDonald of Nikko Asset Management and Craig Stent of Harbour Asset Management. Our event series included a Hawke’s Bay leg, at the Black Barn winery. Bernard has been sharing an important message which we think is timely today.

It was the darkest moment of the global recession. September 2008 and financial markets were on the brink of collapse. Economist Bernard Hickey was at a New Zealand Superannuation press conference expecting to learn how the fund was going to protect taxpayers’ money. Instead, what Adrian Orr, who at the time was the CEO of New Zealand Superannuation, said next would leave the economist shocked.

“Everybody was thinking it was end time for global markets,” said Hickey. “Lehman Brothers had collapsed. AIG had collapsed. The US Government was enacting giant bailouts for the banks and car companies. Financial markets had fallen 20 percent. Some people were saying it seemed like the end of capitalism.

“New Zealand superannuation had $14 billion funds under management, and we were on the eve of the new Government halting contributions to this fund. I fully expected Adrian Orr to announce counter measures for hunkering down and sitting it out.

“Instead he called the world a supermarket packed with discounts, and he was getting out the shopping trolley – they were going to run out and buy as much as they could.”

Speaking to the Christchurch leg of AdviceFirst’s Financial Markets Update roadshow, Hickey said that today the New Zealand Superannuation Fund – which has not benefited from any Government contributions for almost a decade – is worth $38 billion.

“The moral of the story is ‘keep calm and carry on’. The NZ Superannuation Fund had a long-term horizon. They knew that volatility is a fact of life and that all ups and downs can be navigated with a good plan and an eye for opportunity – all investors should keep this in mind.”

Hickey said the current volatility, including US President Donald Trump’s tax cuts, big spending and potential trade war with China, shouldn’t be a surprise because periods of peace are always followed by volatility and change.

“More than 250 years ago the invention of steam powered engines precipitated a period of growth and globalisation that ended with World War One. After the Second World War the world trucked along through a period of new technology and rebuilding, until the 1970s when we had the end of the gold standard, two oil shocks and the end of the Cold War.

“But even that period was followed by growth through the 1980s and late 1990s. Growth continues in the long run, particularly when new technology fuels a new surge in productivity.

“We’re now seeing a second industrial revolution that began with Steve Jobs’ introduction of the iPhone in January 2007. Like the steam powered engine, the technology that powers the iPhone is ushering in a new era of growth and globalisation

“This new industrial revolution will create a lot of value for some people, like investors in Netflix and Amazon, so it certainly isn’t time to be assuming it’s the end of the world or that things are going to get worse. If history shows us anything it’s that things always get better in the long run –our real challenge will be the fair distribution of that wealth.”

Hickey’s message?

Don’t be surprised by a return to volatility – decreases always seem more dramatic than increases – and don’t overthink things.

“Like Adrian Orr, learn to look past the headlines and the hype,” he said.