Harbour Asset Management: New Zealand’s economy is unshakeable

As one of only a few developed countries to have weathered the financial crisis in good shape, New Zealand has maintain a strong sovereign credit rating since. With new equity listings across multiple sectors, there’s no better time to focus funds here

Akaroa harbour, New Zealand. The country’s agriculture has allowed for strong trade ties with China
Akaroa harbour, New Zealand. The country’s agriculture has allowed for strong trade ties with China 

As sports lovers watched the 2014 FIFA Football World Cup, the famous New Zealand All Blacks became focussed on the defence of their Rugby World Cup in 2015. With an unbeaten record in 2013 and a home series win against England in 2014, the defending champions deserve their status as strong favourites.

At the same time, New Zealand’s economy and financial markets have been world-beaters, with conditions set for further success (see Fig. 1). The New Zealand economy has been growing at three to four percent with future growth underpinned by the post earthquake rebuild for the second largest city, the strong dairy prices lifted by demand from the growing Chinese middle class and record net migration. The depth and breadth of the New Zealand’s financial market has also expanded, with government asset sales and new listings in the agricultural and technology sectors.

In this environment, it has been Harbour Asset Management (Harbour) that has emerged as the premier New Zealand investment manager. Named Morningstar Fund Manager of the Year, New Zealand in 2014, Harbour has received World Finance’s Best Investment Manager, New Zealand award in both 2013 and 2014. An independent specialist, Harbour is focused on providing an expanding client base with New Zealand growth and income investment solutions.

New Zealand key facts
Source: Statistics NZ

Repeating history
New Zealand had already learnt the lesson of its own financial crisis in the mid 1980s, which had prompted widespread reforms to create a world-leading framework for monetary policy and fiscal responsibility. As a result, New Zealand entered the global financial crisis with a strong banking system, low inflation, and low levels of government debt. This provided ample scope for the authorities to respond with large-scale policy support, even though the eye of the crisis was in the northern hemisphere. Now that the rest of the world has emerged from the financial crisis, New Zealand’s economy has also benefited from three additional drivers of growth.

Following the devastating February 2011 earthquake in Christchurch, New Zealand’s second largest city, there has been a surge in residential and commercial construction, funded by insurance cover from global reinsurers, which is set to continue for many years to come. The country has benefited from very strong dairy prices and a quickly growing trade relationship with China. There is a structural change occurring across Asia, and New Zealand has the agricultural land, technology, sunshine and water to feed the growing middle classes in Asia. It is experiencing record net migration, equivalent to around one percent of the population, as foreigners are drawn to the economic prospects in New Zealand, and fewer locals are departing to foreign shores as they see better opportunities at home. These drivers of growth have not only put New Zealand at the top of the league table for GDP growth in 2013, but it is forecast to remain at the top over 2014 and 2015.

Combined with this macroeconomic backdrop, New Zealand has a vibrant capital market that is seeing new equity listings across a number of sectors. Government stability, strong growth of the local savings industry and the proximity to growing Asian markets are factors that have helped contribute to around an 18 percent growth in the equity market in the past year. Moreover, its equity market continues to provide a cash yield to global investors around 4.5 percent while local investment grade bonds also yield around 4.5 percent. These yields look good in the context of local inflation, which is hovering below two percent.

New Zealand’s Harbour Asset Management has embraced these market conditions, harnessing the experience of a team of proven investment professionals, many who have worked together for over 14 years. The company’s experience and consistent approach has delivered stellar investment outcomes for clients.

Made to measure funds
Harbour’s high growth Australasian equity strategy has delivered annualised returns of 13 percent per annum for over 14 years with an impressive 4.8 percent per annum alpha (see Fig. 2). This fund brings a core exposure to New Zealand, but also invests about 25 percent of the funds in Australia in higher growth sectors. It has a bias to faster growing sectors such as healthcare and technology, and in the 12 months to May 2014 it provided gross returns of 21 percent.

Australasian equities' cumulative performance
Source: Harbour, NZX, Goldman Sachs

Harbour invests in its staff and business to ensure that it meets the needs of its growing support base of around 60 wholesale clients and 250 independent financial advisors. The company’s client focus has also prompted the launch on new products in 2014. In March this year, it launched the Harbour Australasian Equity Focus Fund, which combines the talents of our individual in-house analysts and portfolio managers. The fund will generally only invest in stocks that are ‘buy rated’ by the Harbour analysts with final portfolio construction having no regard to their weighting in the index. These in-house ratings reflect the analysts’ assessment of the growth investment opportunity relative to current market expectations and prices.

In June this year, following client demand, Harbour launched a new income fund. It combines the New Zealand Corporate Bond Fund, which acts as ballast and provides a high quality stable income stream, and the Australasian Equity Income Fund, which provides diversification benefits that over time should provide the capital appreciation required to offset the impacts of inflation.

It has been a busy and successful time for Harbour, but like the famous All Blacks, the team is resolutely looking forward and focused on delivering future success for its clients investing in New Zealand for income and growth.