The June quarter ended on an extremely disappointing note, mainly because of the Greek financial crisis.

It is remarkable that Greece, with a population of just 11.1 million and an economy just 8 per cent larger than that of New Zealand, in US dollar terms, can have such a devastating impact on the world’s financial markets.

However, that was the situation at the end of June as investors were concerned that the country’s default would be contagious and have major implications for the euro area.

The large sell-off at month end had a significant influence on June quarter returns with the MSCI Developed World Total Returns Index recording a negative return of 0.5 per cent in local currency terms.

Meanwhile, emerging markets had a positive 0.8 per cent return for the three-month period while frontier markets were up 0.2 per cent.

The 12 months ended June 30 is probably a more appropriate timespan to measure performances and in that period the NZX had an 11.4 per cent return, the ASX was up 5.7 per cent and the MSCI World Index 9 per cent. These figures include dividends.

The right hand column of the table shows the dividend contributions. For example, in the June 2015 year NZX’s Capital Index returned 6.2 per cent and the Gross Index 11.4 per cent with the 5.2 per cent difference representing dividends paid and reinvested.

One of the most notable issues was the variation in performance between the NZX midcap, smallcap and top 10 companies.

The MidCap Index was the best performer for the 12-month period with 23 of its companies having gross returns in excess of 10 per cent and only five having losses in excess of 10 per cent.

The best performing midcap companies were Chorus, with a return of 67 per cent, Z Energy 58 per cent, Infratil 48 per cent, Diligent 44 per cent, Nuplex 43 per cent, Vector 38 per cent, Air New Zealand 37 per cent and Restaurant Brands 37 per cent.

These companies, with the notable exception of Chorus and Diligent, have attractive dividend or capital management strategies.

For example, Air New Zealand’s share price rose 23 per cent during the 12-month period but it has a total return of 37 per cent because of dividend increases and a special dividend.





Dividend contribution

New Zealand S&P/NZX Indices




50 Gross




10 Gross




Mid Cap




Small Cap








Other Markets




Australia (ASX 200 Accumulation)




USA (S&P500 Total Return)




MSCI – Europe




MSCI – Far East




MSCI – World








New Zealand dollar












TWI (Trade Weighted Index)





The worst performing midcap company was Kathmandu, which had a negative return of 40 per cent for the June year. It was the subject of a takeover offer on Wednesday, the first day of the June 2016 year.

The other midcap index companies with negative returns in excess of 10 per cent were; Pacific Edge minus 22 per cent, Skellerup minus 19 per cent, Fonterra minus 15 per cent and NZX minus 11 per cent.

The S&P/NZX SmallCap Index companies had a mixed year with 27 of the component companies recording returns in excess of 10 per cent while 24 had negative returns of 10 per cent or more.

The best performing companies were Finzsoft with a massive 416 per cent gain, Millennium & Copthorne 73 per cent and Tourism Holdings 73 per cent.

At the other end of the performance table were TRS Investments with an 83 per cent negative return, Energy Mad minus 78 per cent and Cavalier minus 73 per cent.

TRS Investment’s poor performance was mainly due to the failed attempt to acquire Mega Limited, a company associated with Kim Dotcom.

By contrast the S&P/NZX10 Index had a gross return of only 6.9 per cent for the June 2015 year. This was strongly influenced by the disappointing performances of Fletcher Building and Ryman Healthcare, which have the first and fourth highest weightings in this index.

The building supplier had a negative gross return of 3 per cent for the June year and the retirement village operator was down 6 per cent.

Meridian Energy and Fisher & Paykel Healthcare were the best performing top 10 companies with gross returns of 52 per cent and 48 per cent respectively.

The Australian sharemarket, which had a gross return of only 5.7 per cent for the June 2015 year, had a volatile first six months of the 2015 calendar year.

The S&P/ASX 200 Accumulation Index was up 10.3 per cent for the first quarter but fell 6.5 per cent in the June quarter.

The best performing June year S&P/ASX 200 companies were Qantas with a gross return of 150 per cent, Select Harvest 114 per cent and M2 Group 85 per cent.

At the other end of the performance table were Arrium with a negative 80 per cent return, MMA Offshore minus 74 per cent and Senex Energy minus 58 per cent.

The larger ASX companies had a disappointing year with ANZ Bank producing a negative gross return of 3 per cent, CBA plus 5 per cent, National Australia Bank plus 3 per cent and Westpac minus 5 per cent.

The two mining giants BHP and Rio Tinto had negative returns of 17 per cent and 9 per cent respectively.

The big issues facing New Zealand and Australia are the performance of their domestic economies and the perception that they are mainly yield sharemarkets.

The NZ economy is slowing while the Australian economy has been flat, particularly when compared with its performance over the past two decades.

Important drivers for the two economies are China and commodity prices, particularly dairy and iron ore.

Dairy and iron ore prices have plunged 60 per cent since the first half of 2013 and the two economies need a reversal of this downward trend for economic as well as psychological reasons.

But one of the more important characteristics of the NZX and ASX are their relatively high dividend yields and the overseas money they have attracted because of the global search for yield.

The right-hand column of the table shows the dividend component of the benchmark indices with dividends contributing 5.2 per cent in New Zealand, 4.5 per cent in Australia, 3.2 per cent in Europe and just 2.2 per cent in the United States.

The poor performance of high-yielding Australian property and utility stocks in recent weeks indicates that investors may be rotating away from this yield strategy.

However, these high dividend yields are hugely attractive to domestic investors as they usually carry additional imputation credits or franking credits.

But the biggest mover over the past 12 months, particularly in the June quarter, has been the New Zealand dollar.

The kiwi plunged 22.3 per cent against the US dollar in the June year and by 8.9 per cent in the latest quarter.

Earlier this year there was a great deal of talk about NZ dollar/Australian dollar parity but that prediction was short-lived as the kiwi declined by 9.2 per cent against the Australian dollar in the June quarter.

The weaker NZ dollar will benefit exporters, the inbound tourism sector and companies with income denominated in US dollars or Australian dollars.

The second half of the calendar year will be dependent on the outcome of the Greek crisis, the Chinese economy, interest rate movements and economic growth in Australasia and other developing countries.

Investors should anticipate more volatility in the months ahead although – on balance – the global environment remains favourable for equity investors.


Brian Gaynor

Portfolio Manager

Disclosure of interests: Milford Asset Management holds shares in most of the companies mentioned above on behalf of clients.