A flurry of better news

Despite the turmoil in markets over the past year, our diversified funds have largely maintained their value. Our cautious approach over this period served us well in cushioning funds from participating in the falls across both bonds and shares over the past 12 months. But a cautious approach does not mean missing out on positive returns when they arrive. January saw strong gains in both shares and bonds, and our funds similarly delivered strong performance.

The end of zero-Covid policy in China, alongside softer energy prices in Europe has reduced fears of a drag on global growth from economic weakness in these regions. This is a clear positive and has resulted in strong returns from shares around the world in January, including Australia where shares rallied 6.2% to new all-time highs.

Whilst we have had lower than usual exposure to shares over the past year, we did use share market weakness at the start of this year to add some exposure. Furthermore, our decision to invest more heavily into corporate bonds over the past six months has also helped performance, and these assets also delivered strong returns in January. Finally, our increased exposure to NZ bonds has started to pay off, particularly for our lower risk funds.

The start of 2023 illustrates the need to be nimble in this investment landscape. Markets have been very quick to price in good news and we are wary that over the course of this year we could yet see further volatility in shares as higher interest rates start to impinge on economies around the world. This is a particular concern for housing-sensitive economies such as NZ and to a lesser extent Australia.

Relative valuations continue to inform our positioning. Shares in general look less attractive, although we continue to like the companies we do own (see Fund commentaries for more details). Some corporate bonds still offer good returns although we have trimmed exposure after the recent strong performance. Overall, long term return prospects remain reasonable, and we are confident that we can continue to navigate these choppy markets going forward.