The year that was… A look back at how our investment funds performed

It’s that time of the year when you’ll receive a copy of your annual statement. Your annual statement gives you information about how your investment has performed during the year to 31 March 2022, and will help you to understand if you’re on track to achieving your savings or retirement goals.

As well as summarising any contributions you made to your account (and in the case of KiwiSaver, any employer or government contributions you may have received), your statement tells you what your investment returns have been, and any fees and taxes you have paid.

A key driver of your investment returns is how the fund you’re invested in has performed, and as you may have seen in the media, things have been a bit up and down in financial markets of late.

The year started off well. 2021 saw growth investments, such as equities, perform well thanks to the gradual reopening of the world’s economies. With shops, hospitality businesses, factories and offices opening once again, there was a corresponding pick-up in economic activity. Equity markets tend to do well in times of economic growth because profits are higher, unemployment falls and people are generally a bit more optimistic.

Bond investments also started the year well. Interest rates in most counties were kept low to encourage businesses to borrow and people to spend rather than save. Bond investments tend to do well when interest rates are likely to remain low or steady.

However, 2022 saw a shift in sentiment. The rapid pick-up in global demand, combined with COVID-related supply disruptions meant that the prices of goods and services rose quickly (i.e. inflation). The Russia-Ukraine war added to the woes, sending fuel and commodity prices higher. This prompted the world’s central banks to begin raising interest rates, which increased volatility and removed many of the gains we saw earlier in the year. Against this backdrop, both equity and bond markets fell.

Equity markets gave back a large part of their gains, but thanks to their strong returns in 2021, still finished the year higher.

However, bond markets struggled. With inflation in some countries surging to 40-year highs, central banks are now in catch-up mode – and the prospect of aggressive interest rate hikes (such as those seen recently from the Reserve Bank of New Zealand) meant that bonds finished the year lower.

Over the year to 31 March 2022, our funds with a significant investment in shares, such as our Growth, Balanced Growth and Balanced funds, held on to their strong early gains to finish the year up.

Our funds with a significant investment in bonds gave back most of their gains. While those in our Conservative Balanced funds finished marginally higher, those in our Conservative funds may have seen a slight negative return over the year as a whole.

It’s important to put these returns into context. During the previous year, investors enjoyed exceptionally strong returns from our funds as financial markets bounced back from the heavy losses they experienced when COVID first appeared on the scene, and so it was always going to be hard for them to repeat that type of performance this year. 

It’s been a harder pill to swallow for our more conservative investors, some of who may have seen their account balances heading backwards. For them, it has been a particularly challenging time, with bond markets having been so weak recently.

It’s important to remember that the investment return you see on your statement is unique to you. Not only is it determined by the return of the fund you’re invested in, but also by any contributions you made to your account – and the timing of those. It’s possible that an investor in one of our growth funds who joined or transferred to us during the year when markets were experiencing ups and downs may also see a negative investment return on their statement.

We would remind investors that market falls are part and parcel of investing, and that even our more conservative funds can generate negative returns from time to time. At ANZ Investments our investment process seeks to deliver above-average returns over the long-term and, in that regard, our funds continue to deliver for our investors.

In fact, when you look at our long-term performance, we have historically provided strong returns for our investors, reinforcing our approach to managing your money.

Our ‘active management’ approach continues to serve us well in delivering above-average returns over the long run. Our team of investment professionals are always looking out for your investments, and their hands-on approach meant we were able to capitalise on a number of opportunities during the year.

For example, we positioned our funds to have a greater weighting to equities, and a lesser weighting to bonds, and this was beneficial as bonds had a tough time. We also held a greater weighting to strong-performing international listed property and international listed infrastructure investments. In addition, some of our appointed managers – who share our views on active management – delivered above-market returns.

As we head to the mid-point of 2022, it appears markets will likely remain volatile, with no end in sight to the Russia-Ukraine conflict, persistently high levels of inflation and a COVID-19 outbreak in China that may further disrupt supply chains. 

Nevertheless, our funds are well diversified and with this in mind, we urge investors to remain focused on the long term.