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G & J

Investment Review to 31 March 2017

The final quarter of the financial year to 31 March 2017, ended satisfactorily with returns for portfolios positive for the quarter, and for the financial year. Share funds, both global and Australasian focussed, performed very well, even with the profit taking in early March.

Fixed interest funds performed well, with most of the return being derived from the coupon (interest) payments. They seem to be coping with the well signalled rises by the US Fed. They have coped better than the cash funds. Property funds have remained relatively subdued and over the past year, their overall performance would at best be described as somewhat muted.

When we look back over the past year, we see that global shares outperformed Australasian shares. Over a two year period the reverse happened.

We seldom make comment on individual shares. However, we feel that this quarter, one company really stood out for the wrong reason. The Fletcher Building price really got hammered during the quarter, declining by around nineteen percent, on the news that it was not meeting previously released target forecasts. Despite this, it returned over 12% for the year, and close to 27.5% for the past two years.

How this has played out on a whole portfolio basis has tended to be strongly influenced by asset allocation. Portfolios with a higher weighting to growth assets (predominantly shares) have performed better than their more conservative counterparts.

With the largest component of the global market being the United States, much will depend on how well the markets perceive the likelihood of sustained growth during the period of the Trump presidency. This presents potential problems. The man himself, is not at all predictable, with some describing him as being unstable. Markets like stability and a predictable future.

If Trump’s protectionism campaign, brings jobs back to America (which will largely be at the expense of Mexican manufacturing, particularly in the automobile industry), and China (electronic goods, such as the Apple product range), then their domestic economy should grow. If production is politically forced back to the United States, the costs are likely to increase for American consumers, as America in general, is not a low-cost manufacturer. That is the very reason why American companies took production off shore to Mexico, China and South East Asia.

So overall, US protectionism may be beneficial for them, but it will come at the expense of their offshore suppliers. The overall impact for global share investors could well end up being neutral. Bringing production back to the United States will take years. Building new factories and of course the Great Mexican Wall should be very good for the construction industry and their suppliers.

Under Trump, there have already been negatives for the USA, particularly those associated with tourism, with potential tourists deciding to avoid travel to or via the United States. With Trump planning on decimating the EPA and wanting to use the coal reserves, the USA position on greenhouse gases and global warming, is being completely turned around from former President Obama’s position. Obama recognised that the USA had to take the lead. Trump on the other hand wants to inhale greenhouse gases.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.