NZ Fund Managers

[SBQ]

@Snoopy:

I applaud you for the amount of work done, especially picking up the phone and calling up a fund manager (as it's unlikely a fund manager would be hanging out in this forum and do a proper reply). This shows your dedication to getting down to the finer details of investing. Virtually most people just don't care and go on the basis of "assuming".

In this instance 'prescribed' ends up comparing an 'after tax' return for the managed fund with a 'before tax' return for an index. In other words the officially sanctioned comparison is guaranteed to mislead! How silly is that?

This still leaves me scratching my head. There does not seem to be a standardise disclosure of the % returns various bond funds and equity funds show in their prospectus. After tax? What about after mgt fees? Do the fees vary from year to year? As I mentioned before, over in N. America, they've basically eliminated the problem of taxation with full intent of 'tax free compound returns'. The tax is deal at the individual level and the 401k/RRSP etc funds themselves do not pay any taxes. This just leaves only the management fees they charge which over the decades, have been screwed down to minimal % per year.

Funds under the PIE scheme don't appear to be that complicated in regards to taxation at the individual tax bracket. The PIE funds would operate tax free and conduct all the trading that is required on balance. Then at tax time, the portfolio funds pay a lump sum tax which becomes an aggregate of the total tax every individual has to pay. However, my beef is this paper gain tax robs valuable compound returns over many decades, not to mention a taxing of return during years when the individual is most productive on higher income and can contribute the most. It's not an 'evening' out of tax to pay through deferment.

[Snoopy]

Funds under the PIE scheme don't appear to be that complicated in regards to taxation at the individual tax bracket. The PIE funds would operate tax free and conduct all the trading that is required on balance. Then at tax time, the portfolio funds pay a lump sum tax which becomes an aggregate of the total tax every individual has to pay. However, my beef is this paper gain tax robs valuable compound returns over many decades, not to mention a taxing of return during years when the individual is most productive on higher income and can contribute the most. It's not an 'evening' out of tax to pay through deferment.

I can't disagree with the first bit of what you are saying. You are merely reflecting on the Canadian position and noticing that by contrast here in NZ: Pay as you go management fees have a negative compounding effect on returns.

However, I am not sure you are right about the 'evening out' bit.

a/ A PIE fund is taxed at 10.5% if you have an income of $48k or less.
b/ In New Zealand the incremental tax threshold rate of tax changes from 17.5% to 30% once your income exceeds $48k.
c/ The gross weekly pension rate for someone living alone is $538.24 per week (@1st April 2022). Over 52 weeks that adds up to $29,988.48.

So it would take a supplementary income stream of $18k to get a pensioner to exceed that $48k tax threshold. This in the context of an NZ minimum wage employee now earning $44k for a 40hour week job.

My summation,from all the above figures, is that if:

a/ You are a single retired person on the NZ pension, AND
b/ You have a supplementary income of up to $18k

then you are getting a considerable tax benefit from the PIE income you can derive in your senior years to lift your income to $48k. The mere fact your supplementary income stream is a PIE has reduced the amount of tax you pay on that income by (17.5-10.5)/17.5 = 40%.

No-one calls that deferment. It is a straight out cut to your personal tax bill. But it has the same effect (taxing you at a lower rate in retirement).

Below SBQ is what you said on the 'How much do I need to retire on thread'.

The idea of the national superannuation pension is it should be enough to pay for one's living cost on reasonable means. The house should be mortgage free, perhaps live down to a smaller size unit, which keeps costs lower. It should also be income tested so if the pensioner has a 6 figure income, well they don't need it. In Canada where I grew up, there's basically 3 pensions. For most annuitants, they collect both CPP and OAS. The latter being everyone gets it after age 65 and is funded and operated like NZ's superannuation. The former being you pay into it BUT is clawed back if your income at pension age is too high. Then there's the 3rd pension which resembles NZ's KS called RRSP.

So you are saying that in Canada, if you are 'too successful' in your saving, then some of your savings will be clawed back by partially removing your pension payments. That doesn't happen in NZ.

Also the maximum tax if you are on higher income in NZ that applies to your PIE investments is 28%. If you earn just more than $70k per year, probably not a 'higher income' these days, your incremental savings PIE tax is capped at 28%, verses the personal incremental tax rate of 33%. And if are lucky/skilled enough to earn over $180k per year, then your PIE gives you an 11% percentage point discount on your 39% incremental tax rate. That is quite an incentive for NZ's high income earners to save via the PIE route right there.

SNOOPY

[SBQ]

However, I am not sure you are right about the 'evening out' bit.

a/ A PIE fund is taxed at 10.5% if you have an income of $48k or less.
b/ In New Zealand the incremental tax threshold rate of tax changes from 17.5% to 30% once your income exceeds $48k.
c/ The gross weekly pension rate for someone living alone is $538.24 per week (@1st April 2022). Over 52 weeks that adds up to $29,988.48.

So it would take a supplementary income stream of $18k to get a pensioner to exceed that $48k tax threshold. This in the context of an NZ minimum wage employee now earning $44k for a 40hour week job.

My summation,from all the above figures, is that if:

a/ You are a single retired person on the NZ pension, AND
b/ You have a supplementary income of up to $18k

then you are getting a considerable tax benefit from the PIE income you can derive in your senior years to lift your income to $48k. The mere fact your supplementary income stream is a PIE has reduced the amount of tax you pay on that income by (17.5-10.5)/17.5 = 40%.

No-one calls that deferment. It is a straight out cut to your personal tax bill. But it has the same effect (taxing you at a lower rate in retirement).

The PIE funds clearly benefit those on high income that are in a tax bracket higher than 28%. No need to show the example of $18K over amount to be in the higher tax bracket. The deferment I was explaining pertains only in Canada's RRSP scheme where funds compound over the long term without taxes until at time of withdrawal.

Perhaps the biggest flaw about the whole Kiwi Saver / PIE fund scheme is around inflation. As I said before, those who get the most benefit from KS are high income earners in the high tax brackets; they are also in age groups that are most productive - so between 25 - 45? The most they contribute at an early age, the more they lose in compound returns as IRD takes the lion share of the portfolio gains. Recall my post about John Bogle's math where even a 2% take from a portfolio that had 7% return = 5%. This 5% return only sees 1/3rd of the gain of the 7% portfolio over a 50 year time frame. The 2/3rds was robbed by IRD + mgt admin fund fees. You can't dispute the impact this has on KS funds at the individual level. Now imagine the effects inflation has in say 40 or 50 years time? This was one of the leading arguments against the KS scheme where to the average person contributing, the level of inflation would outstrip the buying power KS funds would have at the end. A person on $100K/year income that contributes $6K every year into KS, will find out that they won't have a lot left to spend after 40 or 50 years inflation eats away the returns of KS funds.

Then you have the issue of changing tax policies. What if the NZ gov't imposes some new tax scheme like they tried to do recently with GST? If the potential compound gains were not already ruined enough, the gov't does not seem to have any regard on creating incentives for retirement planning.

Now hop on over to Canada where you have deferred taxation. The effects are naturally going to be a lot less and introducing any policy to change the deferred taxation scheme is extremely unlikely.

Below SBQ is what you said on the 'How much do I need to retire on thread'.

So you are saying that in Canada, if you are 'too successful' in your saving, then some of your savings will be clawed back by partially removing your pension payments. That doesn't happen in NZ.

Also the maximum tax if you are on higher income in NZ that applies to your PIE investments is 28%. If you earn just more than $70k per year, probably not a 'higher income' these days, your incremental savings PIE tax is capped at 28%, verses the personal incremental tax rate of 33%. And if are lucky/skilled enough to earn over $180k per year, then your PIE gives you an 11% percentage point discount on your 39% incremental tax rate. That is quite an incentive for NZ's high income earners to save via the PIE route right there.

SNOOPY

Yes clawback applies when you exceed the income at retirement. Keep in mind the clawback only applies on CPP (Canada Pension Plan) scheme and the OAS (Old Age Security) pension you don't lose. The CPP is a deduction off the wage / salary pay and is mandatory. However, there's a key distinction about OAS and CPP and that is around the issue of 'safety nets' for individuals. Everyone is entitled to OAS like your NZ superannuation pension. Where CPP stops is for some reason at retirement if the income is way way too high, then portions of the CPP is clawed back. Why? Because it's around the issue of 'equity' which I find there's not much of in NZ among say the 1%. So you have the wrong incentives where the rich just keep piling on more and more wealth.

Then you have the RRSP (Registered Retirement Savings Plan) which is the deferred taxation I have spoke about. It's entirely voluntary. If the odds are that at retirement if the pensioner makes too much $$ from withdrawing their RRSP, then it's only fair their CPP is clawed back. All in all, the RRSP has been so successful that the gov't introduced other savings plans. RDSP (reg Disability SP) and RESP (reg Education SP) offer greater perks in that they can be entirely 100% tax free even at withdrawal stage. Something the Jacinda gov't could have considered in addressing the high cost of uni education ; instead of offering 1st year uni free. Parents would make contributions to nearly any investment assets (shares, ETFs, managed funds etc) and over the 18 years since their child was born, it would grow tax free, and all those funds if used for the purpose of education, is withdrawn tax free.

I should also add that in RRSPs, there is a maximum time limit (if I recall correctly) after age 80 all the funds have to be withdrawn and the tax has to be paid. Or upon death, tax is paid. The notice our tax prof at uni told us was the gov't didn't want funds to grow without serving the purpose to "fund retirement". So the incentive is there at retirement 65 to tap in the RRSP funds.

Then you have the TFSA (Tax Free SA) which anyone over 18 can start. Annual contributions limit to $6K now and is indexed to inflation on future years. All gains are 100% tax free, likewise on withdrawals.

To give you an idea how adamant the Cdn gov't is about saving for retirement. Some of these plans (ie RESP and RDSP) the gov't wants to invest their portion into the stock market in the same way as the individual would. Gov't matching contributions but at your choice of where you invest the funds in. Not this $521/year kind of deal in KS but serious amounts of $. Say in an RDSP if a friend or family member puts in $2000, the Cdn gov't will match it and it does not have to be returned. Where are the incentives in NZ for people with disabilities? Those wanting education but can't fund it? It's clear in Canada, the gov't wants to put investment first for the future. Among my friends and family i've been very vocal against the NZ tax scheme and KS. How all the benefits are for the rich to buy multiple houses and just simply hold it for more than 10 years and never pay a dollar in tax on the house price gain. Meanwhile the low income earners struggle to get into a level to own a house. This same logic applies to KS where the PIE funds gives the benefit to the rich so they pay less tax than otherwise. Sure the low income earners are already paying lower taxes, but that doesn't change the fact that setting a ceiling on the amount of tax they will pay is fair.

[Snoopy]

There does not seem to be a standardise disclosure of the % returns various bond funds and equity funds show in their prospectus. After tax? What about after mgt fees? Do the fees vary from year to year? As I mentioned before, over in N. America, they've basically eliminated the problem of taxation with full intent of 'tax free compound returns'. The tax is dealt at the individual level and the 401k/RRSP etc funds themselves do not pay any taxes. This just leaves only the management fees they charge which over the decades, have been screwed down to minimal % per year.

I think you might have used the wrong word here. You can't possibly expect a fund to list their returns in a 'prospectus', because that is, by definition, before any investing has happened. But if you mean 'report' (after the event), or a 'fund update', then all of those individual funds that I have looked at are quite clear in their declared returns. The returns are listed :

a/ 'Annual Return' (after deductions for charges but before tax) AND
b/ 'Annual Return' ('after deductions for charges and tax')

I am picking these two methods of reporting on NZ PIE funds are standardised by law.

The management fees for all of the bond funds I looked at do not contain a bonus element. So I am thinking in the 'bond realm', these fees are consistent from year to year, and charged at a fixed percentage of fund value. But perhaps it is just the fact that the deemed index for comparison is 'before tax', but the fund is measured 'after tax'? IOW the bond fund would have to earn 28% more than the index just to stay even with the index, let alone earn a bonus fee (if such a fee exists).

SNOOPY

[SBQ]

I think you might have used the wrong word here. You can't possibly expect a fund to list their returns in a 'prospectus', because that is, by definition, before any investing has happened. But if you mean 'report' (after the event), or a 'fund update', then all of those individual funds that I have looked at are quite clear in their declared returns. The returns are listed :

a/ 'Annual Return' (after deductions for charges but before tax) AND
b/ 'Annual Return' ('after deductions for charges and tax')

I am picking these two methods of reporting on NZ PIE funds are standardised by law.

The management fees for all of the bond funds I looked at do not contain a bonus element. So I am thinking in the 'bond realm', these fees are consistent from year to year, and charged at a fixed percentage of fund value. But perhaps it is just the fact that the deemed index for comparison is 'before tax', but the fund is measured 'after tax'? IOW the bond fund would have to earn 28% more than the index just to stay even with the index, let alone earn a bonus fee (if such a fee exists).

SNOOPY

In Canada the term prospectus is used when individuals look to send their $ to that fund. It may consist of annual reports, fancy graphs of returns they've done over the years, etc. But the main problem is they're grossly window dressed. Lots of excuses for poor year returns, change a bit of here and there, but overall the agenda with the prospectus is to entire new investors as they sit in the office with their financial adviser.

We live in interesting times with inflation out of control. My wife told me today last quarter food prices have gone up 9%. What kind of return does one have to get to beat inflation? The work you've done on various NZ bond funds has been incredible, but at the end of the day, for what means? IMO, the only fighting chance to win against inflation is through owning stocks of companies over the long term. That's because companies can raise prices to keep profits going, but in fixed term incomes are well.. fixed.

[Snoopy]

The ANZ bank is New Zealand's largest trading bank, and offers their own in house funds for investors. If you go through ANZ's own website, then you end up here:

https://www.anz.co.nz/personal/inves...compare-funds/

In the investment funds section, investors have a choice of investing in five different funds. The funds all appear to be 'under the same management team' and the risk categories are reflected in what portion of funds are invested in 'growth assets' (equities, listed property and listed infrastructure) and 'income assets' (cash and cash equivalents and fixed interest). The funds may also invest in alternative assets (hedging positions). The composition of listed assets in the five funds offered are listed below.

	Growth Fund	Balanced Growth Fund	Balanced Fund	Conservative Balanced Fund	Conservative Fund
Growth Assets	80%	65%	50%	35%	20%
Income Assets	20%	35%	50%	65%	80%
Annual Fund Charge	1.12%	1.07%	1.02%	0.82%	0.68%

If we look at the investment team roles:

https://www.anz.co.nz/personal/inves...vestment-team/

we can see that the team is very much focused on Australia and New Zealand. Expertise in other markets is 'bought in' via wholesale arrangements with overseas fund managers.

Rather curiously, ANZ offer a second investment platform called 'OneAnswer investment funds'.

https://www.anz.co.nz/comms/investme...estment-funds/

OneAnswer offers the multi-class asset funds as tabulated above, but in addition to that, individual single class asset funds as follows:

a/ New Zealand Fixed Interest Fund (Run by ANZ). Risk rating '3'. Management fee 0.47%.
b/ International Fixed Interest Fund (Run by external managers Northern Trust and Pimco Australia). Risk rating '4'. Management fee 0.63%.
c/ Property Securities Fund (Run by ANZ) Risk rating '6'. Management fee 1.16%.
d/ International Property Fund (Run by external managers Resolution Capital). Risk rating '6'. Management fee 1.14%.
e/ New Zealand Share Fund (Run by ANZ). Risk rating '5'. Management fee 1.16%.
f/ Equity Selection Fund (70% NZ based and 30% Aus based) (Run by ANZ). Risk rating '5'. Management fee 1.29%.
g/ Australian Share Fund (Run by external managers Tyndall Asset Management). Risk rating '6'. Management fee 1.15%.
h/ International Share Fund (Run by external managers: Franklin Equity Group, MFS Institutional Advisors, LSV Asset Management and Vontobel Asset Management). Risk rating '5'. Management fee 1.16%.
i/ International Listed Infrastructure Fund (Run by external managers Maple-Brown Abbott). Risk rating '5'. Management fee 0.95%.

Notes

1/ All fees listed above are the maximum investors will pay. There are no bonus fees payable for fund outperformance of a benchmark

---------------

Some information on these funds may be found here:
https://www.anz.co.nz/content/dam/an...ASAC-Guide.pdf

My brief summary of investment style is that both ANZ and their investing agent price fall under the category of GARP (Growth at a Reasonable Price) except for LSV which looks for 'out of favour' beaten down in price 'value assets'.

Disclosure of what is in these individual asset class funds is very poor, to the extent that it hard to find and only the top ten holdings are disclosed. Single year performance data for these funds is available here:
https://www.anz.co.nz/content/dam/an...-single-AR.pdf

And historical quarterly reports are here:
https://www.anz.co.nz/comms/investme...-fund-updates/

Fund risk ratings and management fees may be found here:
https://www.anz.co.nz/content/dam/an.../OASAC-PDS.pdf

SNOOPY

P.S. To get more of a feel for 'investment style', I always find it useful to look at the top ten NZX holdings under management.

[Snoopy]

P.S. To get more of a feel for 'investment style', I always find it useful to look at the top ten NZX holdings under management.

One thing you can't fault the 'ANZ NZ growth fund' for is 'full disclosure'. All 4,410 of the investments held are listed!
https://www.anz.co.nz/content/dam/an...ent-Growth.pdf

The ANZ Oneanswer NZ Shares Fund is a bit less forthcoming, with only the top ten holdings disclosed.
https://www.anz.co.nz/content/dam/an...922-Growth.pdf

NZ Equities Top Ten Holdings

	Oneanswer NZ share Top Ten holding fund percentage (30/09/2022)	Oneanswer NZ share Top Ten relative percentage (30/09/2022)	ANZ Growth Fund, Top ten NZ holdings percentage (30/09/2022)	ANZ Growth Top Ten NZ holdings relative percentage	NZX50 capitalisation (30-09-2022)	NZX50 Top Ten relative percentage (30-09-2022)
Fisher & Paykel Healthcare	9.83%	15.3%	0.99%	16.0%	$10.72b	13.8%
Spark	7.95%	12.3%	0.80%	12.9%	$9.37b	12.0%
Auckland International Airport	7.12%	11.1%	0.69%	11.1%	$10.60b	13.6%
Mainfreight Limited	7.98%	12.4%	0.65%	10.5%	$6.79b	8.7%
Contact Energy	6.14%	9.5%	0.61%	9.8%	$5.86b	7.5%
Meridian Energy	6.41%	10.0%	0.59%	9.5%	$12.39b	15.9%
Ebos	6.34%	9.8%	0.55%	8.9%	$7.17b	9.2%
Infratil	4.41%	6.8%	0.54%	8.7%	$6.26b	8.0%
A2 Milk Company	3.94%	6.1%	0.39%	6.3%	$4.47b	5.7%
Ryman Healthcare	n.a.	n.a.	0.39%	6.3%	$4.31b	5.5%
Chorus	4.24%.	6.6%.	n.a.	n.a.	$3.31b	n.a
Total	64.4%	100%	6.2%	100%	n.a.	100%
Mercury Energy	n.a.	n.a.	0.23%	n.a.	$7.90b	n.a.

Lots of numbers, so what is the best way to make sense of them? The figures to look at are those in every second column (the ones that add up to 100%). These give a normalised view of the proportion of shares held. I would expect the first two such columns to be very similar, because these two funds are managed by the same managers. This is broadly true, but the Oneanswer fund has noticeably higher 'relative holdings' in Mainfreight, and notably less in Infratil. The 30-09-2022 update report for Oneanswer is 'matter of fact' and offers no commentary on the thinking behind any of the holdings.

There is a phenomena among 'active fund managers' that I term 'Index Plus' management. Such funds are not index funds. But the fund managers get timid and don't want to diverge too far away from those index fund returns they are trying to beat. The larger the total dollar amount of funds under management, the more these active funds gravitate toward becoming 'Index Plus'. That is partly because making 'side bets' on lesser known shares becomes impossible for liquidity reasons, and also insignificant in the overall context of the fund.

How much independent thinking is evident in these ANZ funds? For that we need to look at those first two '100% sum' columns in the table and compare them with the last, which represents the share proportions represented in the index. Fisher and Paykel Healthcare may be one of the top two shares on the NZX, but ANZ want even more of this pie than an index holding would give them. This is consistent with the idea of buying great companies and never selling them, with little regard for value for money. Auckland International Airport in an underweight position, even if 'takeover talk' with the Auckland Councils shareholding likely coming onto the block has subsequently seen the share price rise above any sensible earnings valuation. Takeover talk can lift a share above fair value, so I don't disparage ANZ management for holding an underweight position in what was, IMO, a very fully priced asset. Mainfreight is in an overweight position at ANZ, as is A2 milk. 'Long term Ryman' that can do no wrong (sic) is overweight. I am reminded very much of Fisher Funds when I look at the NZ shares portfolio, except that Fishers did fall out of love with Ryman.

The after fees but before tax performance for the year ended 31-03-2022 was -4.36%, with the comparable figure at Fishers being -7.4%.. Fees were startlingly higher at Fishers for the year at 3.52% (much of that being a 2.12% bonus earned in the previous year, base fee is 1.40%), alongside ANZ charges of just 1.07%. So most of ANZ's relative out-performance can be put down to lower fees.

One area where ANZ (and many other active fund managers it must be said) appear to have made some poor decisions over CY2022, is in relation to their holdings in the gentailers. I say this with a tinge of arrogance as the NZ power system is something I have put a great deal of time into understanding over the last few years. Mercury is well underweight in the ANZ holdings compared to its index rating. This is a decision a fund manager might make on a dividend yield basis, if they didn't understand the powerful synergies available from combining the old Trustpower windfarm portfolio with Mercury's Waikato river hydro system. I personally took advantage of this 'market mispricing' in the middle of last year betting against the prevailing view on Mercury (not just held by ANZ) that other gentailers were better value. Contact was widely touted as the best value at the time and has risen in price since. But Mercury has gone up much more. That little 'power misplay', while occurring largely after the 31-03-2022 balance date, is evidence of ANZ not understanding the subtleties of NZ's power system market. I am putting 1% of their fund outperformance down to that, while noting that Fishers have long underweighted the power gentailers (makes sense, do not go headlong into an investment universe that you do not understand).

Conclusion time: The ten year performance of the "ANZ Oneanswer NZ Shares Fund" is a claimed annualised 13.11% per year over 10 years. Meanwhile the NZX50 index went from about 3488 to 12089 over the same period.

3488(1+i)^10=12089 => i = (12089/3488)^0.1 - 1= => i=13.2% (no fees deducted)

This means that despite the Oneanswer NZ Shares Fund being credible, they have really only slightly under-performed the index over the ten year time-frame, after fees. I am calling the Oneanswer NZ Shares Fund, an 'index+' fund. Fees are commendably low at 1.07%. But the Smartshares NZ Top 50 ETF (FNZ) index fund has even lower fees at just 0.5%. It is not clear that the 'good active calls' have outweighed the 'bad active calls' in any meaningful way.

SNOOPY

[Snoopy]

One thing you can't fault the 'ANZ NZ growth fund' for is 'full disclosure'. All 4,410 of the investments held are listed!
https://www.anz.co.nz/content/dam/an...ent-Growth.pdf

The ANZ Oneanswer Properties Securities Fund is a bit less forthcoming, with only the top ten holdings disclosed. However these top ten holdings do make up 94% of the total value of the fund.
https://www.anz.co.nz/content/dam/an...Securities.pdf


Property Securities Top Ten Holdings

	Oneanswer Property Securities Top Ten holding fund percentage (30/09/2022)	Oneanswer Property Securities Top Ten relative percentage (30/09/2022)	ANZ Property Securities Top ten percentage (30/09/2022)	ANZ Property Securities Top ten NZ holdings relative percentage (30/09/2022)	NZX50 capitalisation (30-09-2022)	NZX50 Top Eight relative percentage (30-09-2022)
Precinct Properties	15.59%	16.5%	0.38%	14.0%	$2,062m	17.7%
Stride Stapled Group	12.85%	13.6%	0.35%	12.9%	$902m	7.7%
Property for Industry	14.06%	14.9%	0.34%	12.5%	$1,225m	10.5%
Summerset Group Holdings	1.76%	1.9%	0.33%	12.2%	$2,502m (2)	n.a.
Kiwi Income Property Trust	14.22%	15.0%	0.33%	12.2%	$1,438m	12.3%
Goodman Property Trust	17.00%	18.0%	0.30%	11.1%	$2,779m	23.8%
Charter Hall Group (Aus)	1.65%	1.7%	0.28%	10.3%	$18,469m (1)	n.a.
Vital Healthcare Property Trust	9.21%	9.7%	0.23%	8.5%	$1,677m	14.4%
Investore Propwerty	5.64%	6.0%	0.17%	6.3%	$558.6m	4.8%
Argosy Property	2.61%	2.8%	0.00%	0%	$1,016m	8.7%
Total	94.59%	100%	2.71%	100%	n.a.	100%

Notes

1/ Charter Hall Group(CHC.ASX) is an Australian listed property company. On 30th September 2022, the exchange rate was NZD1.13379 = AUD1. This is the exchange rate that i have used when converting the market capitalisation of CHC to New Zealand dollars on the date of analysis. However Charter Hall is such a large entity it is worth as much as the entire New Zealand property sector combined. Given it is not even a New Zealand company, it is hard to justify its inclusion as part of any New Zealand Property sector investment analysis. Consequently I believe it would be an artificial construct to include Charter Hall Group in any asset allocation analysis for this fund.

2/ Summerset Group is a New Zealand retirement village operator. Traditionally, such operators have accumulated capital via the asset appreciation of properties within their villages to help fund their care model. However, they are not property owning companies in the conventional sense. And if we include Summerset in a property sector analysis, are we not obliged to include the other listed retirement village operators as well? Consequently I have decided to omit Summerset from any property sector proportional analysis.

-------------------------------

Lots of numbers, so what is the best way to make sense of them? The figures to look at are those in every second column (the ones that add up to 100%). These give a normalised view of the proportion of shares held. I would expect the first two such columns to be very similar, because these two funds are managed by the same managers. In practice, the picture has become distorted by the inclusion of Summerset and Charter Hall, which are not normally on the list for those seeking investment in the NZ property sector. Token holdings representing 1.9% (SUM) and 1.7% (CHC.ASX) have been included in the NZ property fund, in a much smaller proportion to those that exist in the much more widely invested growth fund. ANZ do not comment on these inclusions, so we are forced to speculate on why this might be. My guess is that it is liquidity issues in the NZ property sector, which contains only eight significant players in the NZX50.

Leaving aside Summerset and Charter Hall, ANZ have elected to significantly underweight both the Goodman Property Trust (gross yield 3.2%) and Vital Healthcare Property Trust (Gross yield 4.4%). Having done my own research into the NZ listed property sector of late, I share the same concerns, not on the underlying investments but the market valuations of these two companies. Gross yield for both is well below what might be expected from a bank term deposit, which makes it hard to see value in either purchase. Argosy is also very much out of favour. Gross yield is good at 6.3%. So I can only speculate that the long shadow Kaikoura earthquake damage to 7 Waterloo key in Wellington, the general reduction in office space demand due to 'work from home' and maybe leasing issues for the recently completed 8-14 Willis Street are weighing on investors minds. I should add that these are worries I do not personally share.

On a more positive note ANZ seem very overweight on Stride Property, which is the parent company of Investore, the listed big box retailer with a heavy presence in the supermarket sector. I also like Investore, although I do note it is saddled with some rather onerous management contracts from parent company Stride. I guess having a share in Stride is a way to claw back some of the management contract overspending at Investore.

The low return for the year ended 31-03-2022 of just 0.49%, did not compare well with the market benchmark of 1.30%. But when you consider that management fees 1.06% have been stripped from the fund result, underlying performance was better than index.

In conclusion, I like the 'allocation skew' that ANZ has put on this property fund. But it isn't enough to overcome the tyranny of the extra level of management that being part of a managed fund imposes. In listed property, this does not disprove my thesis that simply buying a property index fund will likely lead to a better return over both shorter and longer time periods than an active manager can produce.

SNOOPY

[Snoopy]

One thing you can't fault the 'ANZ NZ growth fund' for is 'full disclosure'. All 4,410 of the investments held are listed!
https://www.anz.co.nz/content/dam/an...ent-Growth.pdf

The ANZ Oneanswer Properties Securities Fund is a bit less forthcoming, with only the top ten holdings disclosed. However these top ten holdings do make up 94% of the total value of the fund.
https://www.anz.co.nz/content/dam/an...Securities.pdf


Property Securities Top Ten Holdings

	Oneanswer Property Securities Top Ten holding fund percentage (30/09/2022)	Oneanswer Property Securities Top Ten relative percentage (30/09/2022)	Oneanswer Property Securities Top Eight relative percentage (30/09/2022)	ANZ Property Securities Top ten percentage (30/09/2022)	ANZ Property Securities Top ten NZ holdings relative percentage (30/09/2022)	NZX50 capitalisation (30-09-2022)	NZX50 Top Eight relative percentage (30-09-2022)
Precinct Properties	15.59%	16.5%	17.1%	0.38%	14.0%	$2,062m	17.7%
Stride Stapled Group	12.85%	13.6%	14.1%	0.35%	12.9%	$902m	7.7%
Property for Industry	14.06%	14.9%	15.4%	0.34%	12.5%	$1,225m	10.5%
Summerset Group Holdings	1.76%	1.9%	n.a.	0.33%	12.2%	$2,502m (2)	n.a.
Kiwi Income Property Trust	14.22%	15.0%	15.5%	0.33%	12.2%	$1,438m	12.3%
Goodman Property Trust	17.00%	18.0%	18.7%	0.30%	11.1%	$2,779m	23.8%
Charter Hall Group (Aus)	1.65%	1.7%	n.a.	0.28%	10.3%	$18,469m (1)	n.a.
Vital Healthcare Property Trust	9.21%	9.7%	10.1%	0.23%	8.5%	$1,677m	14.4%
Investore Property	5.64%	6.0%	6.2%	0.17%	6.3%	$558.6m	4.8%
Argosy Property	2.61%	2.8%	2.9%	0.00%	0%	$1,016m	8.7%
Total	94.59%	100%	100%	2.71%	100%	n.a.	100%

Notes

1/ Charter Hall Group (CHC.ASX) is an Australian listed property company. On 30th September 2022, the exchange rate was NZD1.13379 = AUD1. This is the exchange rate that i have used when converting the market capitalisation of CHC to New Zealand dollars on the date of analysis. However Charter Hall is such a large entity it is worth as much as the entire New Zealand property sector combined. Given it is not even a New Zealand company, it is hard to justify its inclusion as part of any New Zealand Property sector investment analysis. Consequently I believe it would be an artificial construct to include Charter Hall Group in any asset allocation analysis for this fund.

2/ Summerset Group is a New Zealand retirement village operator. Traditionally, such operators have accumulated capital via the asset appreciation of properties within their villages to help fund their care model. However, they are not property owning companies in the conventional sense. And if we include Summerset in a property sector analysis, are we not obliged to include the other listed retirement village operators as well? Consequently I have decided to omit Summerset from any property sector proportional analysis.

I had a favourable impression of how ANZ have run their dedicated property investment fund last year. So I thought it was worthwhile having another snapshot look at how ANZ is managing their property investments, 9 months further into this period of property market turmoil.

This file on the total 'ANZ Growth Fund' holdings as at 30th June 2023 is not yet released as I write this (ANZIF-FU-300623-Growth.pdf).

The comparative 'ANZ Oneanswer Properties Securities Fund' only discloses the top ten holdings in their quarterly reporting releases. However these top ten holdings do make up 94% of the total value of the fund.

https://www.anz.co.nz/content/dam/an...Securities.pdf

The total value of the ANZ Oneanswer Property Securities fund on our reference date was $93.565m. However, the actual total funds in this sector managed by ANZ is much higher. That $93.565m does not include property investments made from ANZ's other broader based managed funds.


Property Securities Top Ten Holdings

	Oneanswer Property Securities Top Ten holding fund percentage (30/06/2023)	Oneanswer Property Securities Top Ten relative percentage (30/06/2023)	Oneanswer Property Securities Top Eight relative percentage (30/06/2023)	ANZ Property Securities Top ten percentage (30/09/2022)	ANZ Property Securities Top ten NZ holdings relative percentage (30/09/2022)	NZX50 capitalisation (30-06-2023)	NZX50 Top Eight relative percentage (30-06-2023)
Precinct Properties	16.45%	17.57%	18.22%	0.38%	14.0%	$2,046m	17.7%
Stride Stapled Group	11.85%	12.65%	13.11%	0.35%	12.9%	$765m	6.6%
Property for Industry	13.79%	14.73%	15.28%	0.34%	12.5%	$1,188m	10.3%
Summerset Group Holdings	1.82%	1.94%	n.a.	0.33%	12.2%	$2,237m (1)	n.a.
Kiwi Property Group	13.27%	14.17%	14.70%	0.33%	12.4%	$1,439m	12.3%
Goodman Property Trust	19.41%	20.73%	21.50%	0.30%	11.1%	$3,115m	26.9%
Oceania Healthcare	1.54%	1.64%	n.a.	?	?%	$558m (1)	n.a.
Vital Healthcare Property Trust	9.31%	9.94%	10.31%	0.23%	8.5%	$1,544m	13.4%
Investore Property	4.35%	4.65%	4.82%	0.17%	6.3%	$522m	4.6%
Argosy Property	1.85%	1.98%	2.05%	0.00%	0%	$945m	8.2%
Total	93.64%	100%	100%	?%	100%	$11,564m (2)	100%

Notes

1/ Summerset Group and Oceania Holdings are New Zealand retirement village operators. Traditionally, such operators have accumulated capital via the asset appreciation of properties within their villages to help fund their care model. However, they are not property owning companies in the conventional sense. Consequently I have decided to omit Summerset and Oceania from any property sector proportional analyses.

2/ $11,564m represents $11,564m/ ($11,564m+$2,237m+$558m) = 80.53% by market value of the NZX50 derived fund top ten.

-------------------------------

Lots of numbers, so what is the best way to make sense of them? The figures to look at are those columns that add up to 100%. These give a normalised view of the proportion of shares held. I would expect the:

a/ Oneanswer Property Portfolio AND
b/ The ANZ Growth Fund (Property Constituents only) Portfolio

to be very similar. These two funds are run by the same managers (ANZ). (As I write this the contents of ANZ's growth fund at our 30-06-2023 reference date have not been released. I will update columns 4 & 5 when these figures become available). The 'property' investment picture has become distorted by the inclusion of Summerset and Oceania, which are not normally on the list for those seeking investment in the NZ property sector. Token holdings representing 1.82% (SUM) and 1.54% (OCA) have been included in the NZ property fund, which are nevertheless in a much smaller proportion to those that exist in the much more widely invested growth fund. ANZ do not comment on these inclusions. So we are forced to speculate on why this might be. My guess is that it is 'liquidity issues' within the NZ property sector, which contains only eight significant players in the whole NZX50, that is the reason (ANZ is a relatively large player in the managed fund and kiwisaver investment sector).

Leaving aside Summerset and Oceania, ANZ have continued, relative to the property index, to be significantly underweight in both the Goodman Property Trust (gross yield 3.87%, c.f. PFI at 4.54%) and Vital Healthcare Property Trust (Gross yield 4.4%). We are told industrial property in key areas of Auckland is in short supply and consequently double digit rent rises are on the cards for landlords in this sector as rental contracts roll over. But even so, PFI (where 'ANZ Oneanswer' are overweight) looks like a much better bet yield wise than GMT. Meanwhile 'Vital Healthcare' are somewhat unique in that healthcare landlord space, a fact that seems to have market investors willing to pay a premium that 'ANZ Oneanswer' are unwilling to mimic. Even with expected rent reviews factored in, GMT and VHP are producing returns well below what an investor might expect from a term deposit. Despite being too big to sell out of one of the big eight property sector players entirely, the portfolio under-weighting of both GMT and VHP continues looks to look like a sound strategic move by 'ANZ Oneanswer'.

Argosy continues to be very much out of favour. Gross yield is good at 8.38% (PIE tax rate 28%). The Kaikoura earthquake damage to 7 Waterloo key in Wellington, resulted in facade repairs of $14.5m. These were booked in FY2022. Removing this cost should have improved FY2023 AFFO earnings by the same amount. Yet the increase in FY2023 earnings was only $10m. A National lead government, come election time, may torpedo future demand for government department office space, which is a key market for Argosy's office portfolio. Could it be the shunning of Argosy is a reflection of those Auckland based fund managers not liking the prospects for Wellington property in general and government based tenants in particular? I note the Ministry of Business Innovation and Employment, tenanted at 15-21 Stout St Wellington, has a lease that expires on March 2027. That one lease is nearly 10% of Argosy's total property portfolio!

'ANZ Oneanswer' continue to be very overweight on Stride Property, which is working towards the goal of becoming the 'on the ground manager' of other people's property portfolios. In the past this has meant Stride building up their own property portfolio before floating/selling those assets off to third party investors. Stride is the parent company of Investore, the listed big box retailer with a heavy presence in the supermarket sector. I like Investore for its defensive tenant nature. Nevertheless I do note it is saddled with some rather onerous management contracts from parent company Stride on one hand, while negotiating constrained rent deals from powerful Countdown supermarket parent Woolworths of Australia on the other. IOW Investore, which has a fairly 'neutral rating' in 'ANZ Oneanswer's portfolio overview has a constrained income stream and little leverage in being able to control their own expenses. Having an overweight shareholding in Stride would be a way for 'ANZ Oneanswer' to claw back any potential 'management contract overspending' at Stride's 'strategic investment' (18.83% shareholding) in Investore.

ANZ's investment arm has been in the news -post these tabulated results- reducing their shareholding in the Kiwi Property Group. However the number of shares sold down 'so far' are more in line with bringing the KPG shareholding back to a 'neutral portfolio position', rather than expressing any deep disgust at the prospects of KPG looking out into the future.

The low 'ANZ Oneanswer' nz property fund return for the year ended 30-06-2023 of -1.23%, did not compare well with the market benchmark loss of -0.09%. But when you consider that management fees 1.10% have been stripped from the fund result as was tax paid, the underlying fund performance was near enough to line ball with the ANZ reference index.

In conclusion, I like the 'allocation skew' that 'ANZ Oneanswer' has put on this property investment fund. But that small skew isn't enough to get them too far away from falling into the general basket of being an 'index tracker plus' property fund.

SNOOPY

[stoploss]

Snoopy you might like this
https://www.fundsmith.co.uk/news/202...n-bank-shares/