Speaker 1: Jordah and welcome to Shed Lunch brought to you by Chase's.
Speaker 1: I'm Helen Madison, and today we look at what it's
Speaker 1: like to invest in times of conflict. The Israeli Iran
Speaker 1: US ceasefire is fragile at best, but it's been a
Speaker 1: new wrecking time for investors to find out what all
Speaker 1: this means. I'll be joined by Nicholas Bagnell, who is
Speaker 1: the founder of the global equities fund t Ahu Mairangi,
Speaker 1: and our own Chezi's Matt McPherson, who is the head
Speaker 1: of Kbsaber. But before we get started, here's some important information.
Speaker 2: Investing and involves a risk you might lose the money
Speaker 2: you start with. We recommend talking to a licensed financial advisor.
Speaker 2: We also recommend reading product disclosure documents before deciding to invest.
Speaker 2: Everything you're about to see and here is current at
Speaker 2: the time of recording.
Speaker 1: Welcome Nicholas, and welcome Matt.
Speaker 3: Thank you som the US.
Speaker 1: Markets seem to have taken in their stride if you
Speaker 1: like the conflict that we've been seeing that's been playing
Speaker 1: out in the last fortnight or so. Nichourse, I wanted
Speaker 1: to start with you and to see what you thought
Speaker 1: about this business of riding back into positive territory when
Speaker 1: it is a time of conflict.
Speaker 3: Yeah, I guess at one level, I am cautious about
Speaker 3: the level of equity markets, but I don't know that
Speaker 3: the conflict necessarily has wide negative implications for the share market.
Speaker 3: It's there are very few Western companies that have much
Speaker 3: revenue from Iran or even from the Middle Eastern in total,
Speaker 3: which is different to say, the Ukraine Russian conflict, where
Speaker 3: you had quite a few Western companies that might have
Speaker 3: had two or three or four percent of their revenue
Speaker 3: coming from Russia before that conflict broke out, and that
Speaker 3: essentially disappeared for them. So that the main main implication
Speaker 3: for companies that are operating in Europe and Asia and
Speaker 3: North America is what it does to the oil price.
Speaker 1: Yes, oil has gone down up, and it seems like
Speaker 1: any gains that have retreated that didn't seem to happen
Speaker 1: from my memory with the Ukraine Russia situation so quickly.
Speaker 1: What is happening with the oil price? Is it? What
Speaker 1: are the reasons why it might have fallen again?
Speaker 3: I'm no expert on it, but I think it's because
Speaker 3: Iran's done nothing as of yet to block the Straits
Speaker 3: of Humas, which takes oil in and out of the
Speaker 3: Persian Gulf, which I think is about twenty percent of
Speaker 3: the world's oil production moves through there, and that was
Speaker 3: the major concern that saw the oil price moving up
Speaker 3: as this conflicts was starting. I mean, it is still
Speaker 3: affecting oil supply because I gather that a lot of
Speaker 3: shipping companies aren't particularly keen to send to send ships
Speaker 3: into the Persian Gulf. But you know, the world has
Speaker 3: been well supplied with a will in the last few months.
Speaker 3: Even when the oil price spiked up, it's i think
Speaker 3: still lower than it was a few months ago, so
Speaker 3: it's not at a level that's causing stress for many companies.
Speaker 1: As you say, we're not quite sure where this will
Speaker 1: all go. I mean, the big question is where or
Speaker 1: what Russia may or may not do, And it may
Speaker 1: not be immediate, it may be a bit further down
Speaker 1: the track, and there has some commentators have suggested that
Speaker 1: they would want to kind of flex their muscle again
Speaker 1: in the Middle East, and that they might even help
Speaker 1: in some way to get Iran's nuclear capability back in
Speaker 1: some form. What's your view on the Russian situation.
Speaker 3: I don't think the Russians want to be involved.
Speaker 2: Again.
Speaker 3: It looks to me like Putin is all about Russian
Speaker 3: self interest. He's not a man of principle and the
Speaker 3: you know, they were mates with Basha in Syria, but
Speaker 3: they didn't intervene when that regime falled, so fell. So
Speaker 3: I'm sure they'll use it to point to hypocrisy between
Speaker 3: the US and Israel breaching international law. While you know,
Speaker 3: they were condemned when they did it with Ukraine, but
Speaker 3: they are fully occupied with Ukraine. They're struggling there. I
Speaker 3: don't think they want to divert any military resources to Iran.
Speaker 1: What about our biggest trading partner, China.
Speaker 3: They were happy to buy oil from Iran when the
Speaker 3: rest of the world was boycotting them. But I don't
Speaker 3: think that they have any interest in getting involved. So, yeah, we.
Speaker 1: Shall see times ahead. I'll bring you in here speaking
Speaker 1: of conflict and times of conflict. We have launched today.
Speaker 1: She'sy's the self select for the key we Saver scheme
Speaker 1: that we run. And some would say, gosh, why would
Speaker 1: you be doing that when we've had a week like
Speaker 1: we have, So yeah, keen to get your thoughts on there.
Speaker 4: Yeah, we launched about fifty five companies and ETFs from
Speaker 4: the US markets this morning. And I'm not going to
Speaker 4: say we weren't paying attention to what was going on,
Speaker 4: but I guess, you know, this US trading feature has
Speaker 4: been our most commonly requested feature from customers. We've been
Speaker 4: on this for several quarters. Our plans to bring this
Speaker 4: to life are phased over weeks. We have a lot
Speaker 4: of delivery and testing and things that we go through.
Speaker 4: So I guess we just took our own advice, which
Speaker 4: is don't try and time the market, and so when
Speaker 4: we were ready, you know, we rolled out. That happened
Speaker 4: to be today. But yeah, nervous over the weekend about
Speaker 4: what was happening for our scheme. I guess also just
Speaker 4: nervous about what it could mean, you know, for the world,
Speaker 4: and or that people were in terrible situations as well
Speaker 4: in that part of the world.
Speaker 1: Yeah, we must remember that too. So far, Chesse investors
Speaker 1: seemed to have not taken the fear too seriously with
Speaker 1: the conflict. There haven't been not of selling or panic
Speaker 1: or anything like that. Do you think there will be
Speaker 1: a bit more caution with something like this, though given
Speaker 1: the situation, who quite knows where it's going to end.
Speaker 4: Yeah, I think so. I mean twenty twenty five has
Speaker 4: been pretty choppy, and we had Liberation Day in April,
Speaker 4: which was around the time that we launched another US
Speaker 4: themed fund. And I guess what we see more and
Speaker 4: more is a really mature who are kind of approach
Speaker 4: from investors around volatility. There has been a number of
Speaker 4: significant events we you know, I think people learned a
Speaker 4: lot from COVID about acting on emotion, certainly with respect
Speaker 4: to changing their their KIV saver kind of their funds.
Speaker 4: And I think people, you know, you can be upset,
Speaker 4: you can be you can be concerned. But I think
Speaker 4: what people get, and I speak to a lot of
Speaker 4: customers about this, is they get that that the worst
Speaker 4: thing they can do is actually act in haste and
Speaker 4: try and you know, switch their settings off the base
Speaker 4: of sort of sentiment and things like that. So back
Speaker 4: to the basics. You know, understand your investment horizon, your
Speaker 4: your ability to be able to deal with volatility, and
Speaker 4: then you know, let time.
Speaker 1: Work for you. Nicholas, You've been investing professionally for more
Speaker 1: than thirty five years. You've seen conflicts come and go.
Speaker 1: I'm conscious to see, and a lot of that was
Speaker 1: actually with ACC, wasn't it. I mean probably the majority
Speaker 1: of that time was with ACC. And you you're picking
Speaker 1: stocks for wholesale and retail investors. I'm keen to see
Speaker 1: what your views are on how to protect the assets
Speaker 1: of investors, particularly in times of conflict. I mean you
Speaker 1: will have seen a few, would you say to that.
Speaker 3: Yeah, we follow a sort of a lower risk approach,
Speaker 3: So we emphasize investing in load to average risk companies
Speaker 3: and avoiding volatile companies where we don't have good visibility
Speaker 3: about future earnings. And that that does mean that we
Speaker 3: you know that the fund that we manage it tends
Speaker 3: to fall a lot less during market decline. So you know,
Speaker 3: certain types of companies, cyclical companies, the ones that are
Speaker 3: trading on high valueations, are more vulnerable in times of uncertainty.
Speaker 3: So rather than relying on on making timely decisions when
Speaker 3: conflict breaks out, we at all times tend to hold
Speaker 3: companies with a relatively certain future that won't be too
Speaker 3: affected by you know, a spike in the oil price
Speaker 3: or something like that. I mean, you can you can
Speaker 3: still get caught out when when Russia invaded Ukraine. We
Speaker 3: had some companies that did have a little bit of
Speaker 3: earnings from Russia and that hurt us in a very
Speaker 3: small way. But it's so it's partly about diversification, but
Speaker 3: it's it's also about not investing too heavily in companies
Speaker 3: that heavily dependent on economic conditions and over the long run,
Speaker 3: even though investors have done well from taking risk when
Speaker 3: they move from bonds into equities, within the equity market,
Speaker 3: there's been no better return from the highest risk companies
Speaker 3: than they are from the lowest risk. So there's no
Speaker 3: reward for risk within the equity market. There is from
Speaker 3: moving from fixed interest into equities. So we prefer to
Speaker 3: invest in low risk companies within the equity market because.
Speaker 1: You still think you can get the returns or history
Speaker 1: has shown and you can get the returns as opposed
Speaker 1: to sticking with the high risk which jumps into and
Speaker 1: has FAUMO and all of that. Yeah, okay, And that said, though,
Speaker 1: you need to be able to research those companies. For
Speaker 1: the poor old retail investor who's kind of looking around
Speaker 1: and seeing what their friends are doing and everybody else,
Speaker 1: that might be a bit more difficult, mightn't it.
Speaker 3: Yeah, though generally I would say it's easier to research
Speaker 3: less risky companies than it is ones at the more
Speaker 3: volatile end, because if you're buying a Tesla or an Nvidia,
Speaker 3: you're you're really guessing about what they will look like
Speaker 3: in a future that looks vastly different from today. If
Speaker 3: you're buying a regulated utility or a company that's selling
Speaker 3: something like laundry powder, you know that that market's not
Speaker 3: going to be that much different in a decade time
Speaker 3: than it is now. And if market shares shift, they
Speaker 3: shift slowly. So yeah, we as a general rule, we
Speaker 3: find companies where you can be relatively certain about the future,
Speaker 3: also the least risky ones.
Speaker 1: Right, Okay, Matt. If we look at the self select
Speaker 1: key we saver launch that we've got, that's that's as
Speaker 1: you said before, fifty plus stocks. Are there any defense
Speaker 1: related stocks.
Speaker 4: In that Yeah, I wouldn't say there are any that
Speaker 4: are specialist defense companies in that list. There are a
Speaker 4: number of companies that are classified as defense of aerospace
Speaker 4: set within say, within the index, within the s P
Speaker 4: five hundred, the companies like Boeing and Lockheed Martin and
Speaker 4: names like that, they are categorized. Those are not companies
Speaker 4: we offer individually, but they are components of several of
Speaker 4: the major indices.
Speaker 1: So through ETFs, I could be investing in those, is
Speaker 1: what you're saying, that's correct.
Speaker 4: And then there are other companies that have defense contracts.
Speaker 4: So companies Pounteers are pretty well known company that has
Speaker 4: defense contracts, even though it's not segmented as being a
Speaker 4: defense or aerospace company itself.
Speaker 1: I suppose it's defining what defenses, isn't it. Whether whether
Speaker 1: we're talking manufacturer weapons, But there's many, many aspects. It's
Speaker 1: quite a general term.
Speaker 4: Yeah, it's a challenging area, I guess because you know,
Speaker 4: companies probably like coke and pepsi and things probably supply
Speaker 4: to the defense force and so, but I wouldn't say
Speaker 4: that the defense orientated.
Speaker 1: Companies interesting, isn't it? Yeah, Nicholas. If we look at
Speaker 1: the US dollar, that always has a bearing, particularly given
Speaker 1: it sort of like the global currency, if you like.
Speaker 1: I do know though that it went up and it
Speaker 1: went down a little bit like the old price. I
Speaker 1: suppose it does seem to be though that its popularity
Speaker 1: is less than perhaps during other conflicts I mean, we've
Speaker 1: seen a lot of sovereign funds, some central banks considering
Speaker 1: their reserves being and other things besides the greenback. I'm
Speaker 1: just keen for your perspective on the US dollar and
Speaker 1: whether we think that has a bearing on So you're
Speaker 1: investing in the US, I think forty seven percent of
Speaker 1: the funders in the US. Yeah, So how does currency
Speaker 1: correlate with investing offshore? Particularly the US currency?
Speaker 3: What's I mean? It is an essential part of your
Speaker 3: portfolio everists. I mean generally, if you're investing in companies
Speaker 3: that that operate globally, there's there's a there tends to
Speaker 3: be a partial offset between local currency, share price movements
Speaker 3: and currency movements. So if you're buying you know, the
Speaker 3: likes of Microsoft or Apple that is selling around the world,
Speaker 3: if the US dollar goes down, then the value of
Speaker 3: their non US revenues goes up, so you get a
Speaker 3: partial offset. The I mean, I I don't have any
Speaker 3: strong views on the US dollar and certainly how it
Speaker 3: should be affected by the outbreak of the conflict that
Speaker 3: has tended at the very much at the margin to
Speaker 3: be a sort of a bit of a flight to
Speaker 3: safety sometimes and and and during you know, currencies like
Speaker 3: the end have tended to be more have have had
Speaker 3: a stronger tendency to outform during market weakness, but they
Speaker 3: don't necessarily when it's to do with strong oil prices
Speaker 3: because they are neting boards over well. But I mean,
Speaker 3: the US economy has a lot of issues with big
Speaker 3: fiscal and trade death sits and and and certainly the
Speaker 3: what Trump is talking about doing in terms of the
Speaker 3: sort of revenge taxes could turn a lot of people
Speaker 3: off investing. And you know what is already that the
Speaker 3: world's most expensive share markets, so you know there are
Speaker 3: risks to holding that much exposure to the US dollar.
Speaker 4: I guess what we see talking to customers is the
Speaker 4: big brands coming out of the states that are global
Speaker 4: that people buy from often the ones that people also
Speaker 4: want to own part of. And I guess that's why
Speaker 4: we have so many people asking us, you know, when
Speaker 4: we're going to include some US companies in our KIP saver.
Speaker 4: People feel quite strongly about some of these brands, and
Speaker 4: they've been lifelong customers of them, So I think it's
Speaker 4: probably comes at it for US as more of a
Speaker 4: consumer kind of lead demand rather than the pure technicalities
Speaker 4: of investing.
Speaker 3: I think.
Speaker 1: Nicholas just thinking about New Zealand and whether or not
Speaker 1: this conflict and with an investor lens, whether that has
Speaker 1: any bearing for people here or our economy. Inflation, for example,
Speaker 1: there has been talked with that if oil prices do
Speaker 1: rise again, it'll be inflationary. Just ye, ken on your perspective.
Speaker 3: Certainly, if oil prices rose a lot further than we've
Speaker 3: seen so far, they could have a bearing on inflation.
Speaker 3: And the New Zealand dollar is also can have a
Speaker 3: bigger influence. It's New Zealand dollars off obviously off, it's
Speaker 3: it's it's lows, which is deflationary.
Speaker 1: But that's right, yeah, Matt. In terms of the keep
Speaker 1: we Saber funds, if oil prices were to rise and
Speaker 1: it was inflationary, what would there be an effect there?
Speaker 1: Can you explain what perhaps could?
Speaker 4: I mean? The classic scenario is that if oil prices
Speaker 4: go up, businesses costs go up, they passed them on
Speaker 4: to consumers, which is inflationary, and then central banks around
Speaker 4: the world will want to step in and try and
Speaker 4: curb that by increasing interest rates. And you know, increased
Speaker 4: borrowing costs is generally not good for businesses, and so yeah,
Speaker 4: oil prices increasing, I think translates to a headwind for
Speaker 4: business like globally. Now that's kind of the theory. I
Speaker 4: don't know what's going to happen in this situation where
Speaker 4: you know, but but yeah, I mean, rising oil prices
Speaker 4: translates to a lot of pain for a lot of
Speaker 4: people right throughout the system.
Speaker 1: I think maybe a question for you, Nicholas, I mean
Speaker 1: rising oil prices, as oil as powerful as it used
Speaker 1: to be, as we decarbonize, isn't it eventually a sunset industry?
Speaker 3: It is, And certainly oil consumption as a proportional GDP
Speaker 3: has come down over time, so it's less important than
Speaker 3: once was. And certainly I mean in terms of dollars,
Speaker 3: when when you're talking about whether it's six or seventy dollars,
Speaker 3: that's that is less significant for companies and and for
Speaker 3: inflation than when you were talking about one twenty or
Speaker 3: one forty. It's sort of so yeah, it's certainly what
Speaker 3: we've seen so far in the conflict is not really
Speaker 3: moving the need all that much. And as I said before,
Speaker 3: you know, I think if you look back at the
Speaker 3: start of the year, we probably had oil prices but
Speaker 3: higher than they are today.
Speaker 1: So yeah, yeah, that's right. Yeah, Matt, just getting back
Speaker 1: to something that you said before about investors and getting
Speaker 1: more use to volatility. What about if you don't have
Speaker 1: a lot of time, or that you're thinking you might
Speaker 1: like to get a deposit for a house. What can
Speaker 1: people be thinking about? What can investors be considering given
Speaker 1: that there could be more volatility? Or it's about writing
Speaker 1: it out.
Speaker 4: Yeah, I think I'll just repeat like a really well
Speaker 4: tried in line here, which is, understand your investment horizon.
Speaker 4: If you are looking at investing in equities, have a
Speaker 4: ten year horizon. If you need your money back in
Speaker 4: less time than that, then think about are a more
Speaker 4: conservative allocation?
Speaker 1: Mm hmm, as in you're thinking, yeah, look at it.
Speaker 4: All depends on that time. I mean, you know, within
Speaker 4: a couple of years, you'd be looking at a conservative
Speaker 4: be certainly looking hard at conservative funds, you know, two
Speaker 4: to five balanced funds. We've seen a lot of people
Speaker 4: over time end up in situations where they were trying
Speaker 4: to take their money out at exactly the wrong time,
Speaker 4: and with hindsight, those people that they should have understood
Speaker 4: your investment horizon.
Speaker 1: Now I want to ask you both before we finish,
Speaker 1: what should investors be thinking about when there is conflict
Speaker 1: in the world, given that a lot of our investors,
Speaker 1: particularly are invested offshore.
Speaker 3: Nicholas, I mean, I would caution against making changes to
Speaker 3: your portfolio because of the outbreak of conflict. And you know,
Speaker 3: good investment is about choosing a portfolio. We shouldn't have
Speaker 3: to change it where you don't suddenly realize you've got
Speaker 3: a risk when conflict breaks out. So yeah, I would.
Speaker 3: I mean, sometimes market reactions or lack of reaction can
Speaker 3: create an opportunity, but there's there's no It's going to
Speaker 3: be different each time. So you shouldn't think that there's
Speaker 3: some simple rule that you should buy something or sell
Speaker 3: something when conflict breaks out. You know, we're all always
Speaker 3: looking at companies trying to fore cars what future cash
Speaker 3: flows we think they can deliver to shareholders and see
Speaker 3: is that a good return and is it better than
Speaker 3: we can earn elsewhere, So we can repeating that in
Speaker 3: analysis whether we've got conflict or not. But it's not. Yeah,
Speaker 3: there's no simple rule that you should buy A and
Speaker 3: sell B when conflict breaks out.
Speaker 1: Matt, what's your perspective because I mean, a lot of
Speaker 1: key we saver investors probably you know, listen to the
Speaker 1: news or watch it and you know on social media,
Speaker 1: and we have a lot more coming at us now
Speaker 1: and it might be harder to resist fear or whatever
Speaker 1: might be happening at the time. So, yeah, what's your perspective. Yeah?
Speaker 4: Interesting. On the weekend I saw a number of professional
Speaker 4: professionals and commentators advising people not to look at their
Speaker 4: KIPI savers again, and like, it's good advice, don't get
Speaker 4: me wrong, but it's also not the advice that those
Speaker 4: professionals follow themselves, you know, And so you know, if
Speaker 4: it's really good advice, then it should be for everyone.
Speaker 4: I think just contrary to that, I think confident investors
Speaker 4: are comfortable with volatility and portfolio is they realize that
Speaker 4: that's an element of a healthy market and reflects that
Speaker 4: they've got risk in their portfolio, which over the long term,
Speaker 4: you know, risk equals well translates into into returns to
Speaker 4: something which type of risk. Yeah, I seen, But I
Speaker 4: guess the point is I'm not a believer in ignoring it.
Speaker 4: I think I think to become confident, I don't think
Speaker 4: you should always put your head in the sand. I
Speaker 4: think the only way to get to get comfortable with
Speaker 4: it is through some experience.
Speaker 1: Thanks Nicholas and Matt, and thank you for joining us.
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