Best NZX defensive stocks

[nextbigthing]

All good things must come to an end eventually - who knows when this run will finish. But when it does, what are your NZX company suggestions if one wants to still hold some portion of their net worth in shares?

Obvious points are to invest in something with stable margins that has inelastic demand. First thing that pops to mind is things like power companies. However they are under political threat which isn't ideal. Chorus would be another option, however it's in the same boat! The retirement sector is going to have to keep doing it's thing, however they do seem fully priced which is not ideal in a defensive position (but then again what's not fully priced at the moment). Retail stocks would seemingly be a no, unless it was something people wanted more of in a downturn.

Thoughts?

[Harvey Specter]

The best defense is offence.

I have the majority of my 'low risk' investment in infrastructure companies, predominately power co's. You can imagine how well my 'low risk' investments have fared this year. I have increased the amount in retirement villages so Labour had better not come up with a NZRetire plan to cripple that industry.

[Xerof]

I've always cringed at this concept. If you think the fan is going to get discoloured, just move to cash

[Banksie]

At this stage it doesn't look promising for a labour/green government https://www.ipredict.co.nz/app.php?do=browse&cat=320 - so my pick would be utilities.

[percy]

Easy Peasy;
Cash.
HNZ,Sentinel Reserve mortgages will take off.Rising interest rates will deliver better margins.
EBO.If things get tough people will worry more.More worry results in poorer health,which will mean EBO will be flat out delivering more pills.

[MAC]

Noting that stock markets generally prosper in rising interest rate environments and IMO there is at least a year to run in this bull cycle probably longer.

I’m going to predict that investors will pile into growth stocks now for the next twelve months, watch as stocks like ATM, SUM, PEB come under strong demand.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11215946

But if you are overly concerned about black swan events for the greater market then defensive stocks like power and other utilities may provide you with some downside risk management.

If you don’t have time for a lot of fundamental analysis then diversification amongst asset classes may be best for you. Have a look also at the BEAR on the ASX.

[silu]

I'm accumulating utilities as a third National led government is almost inevitable.

[couta1]

Retirement stock is defensive and Sum is not overpriced,also the likes of ZeL,power companies,it will take a while for corporate bonds to match divvy yields including imps to match the likes of TeL and ZeL but I guess if your very long does it really matter you ride through one cycle into the next,having said that just over a year ago most of my money was in good corporate bonds and resets with an average interest rate of 7.5% gross so may be doing a complete circle in the upcoming future

[Joshuatree]

In a big correction Cash is king and some $US (still the go to currency atp). Gold(stocks for me) as well.

[winner69]

I can understand why you might think that in theory Couta, but if RYM were a "defensive" position then would you not think it would have performed better than the NZX50 during the GFC?

5590

You will note from the image attached that at times RYM performed up to 20% worse than the NZX50 during the downturn and at the trough was roughly 10% down on the NZX50 since the peak in 2007.

I can't see how that reconciles with your post above but maybe you have other thoughts??

You sure know how to ruin a good story mate

So in a big downturn most things go down ...that's a bugger

So if the NZX "collapsed" RYM could have a 5 in front of it and the much undervalued SUM could have a 2 in front of it

No way ....cause this time is different

[couta1]

Retirement stocks are defensive tumeric if you have a 5-10 year investment timeframe IMHO

[ratkin]

if everything goes down in a bear market then why not play a hedge like I said above? Common sense really...

If you pick quality and are not leveraged then there little need to worry , any crash becomes an opprtunity

[ratkin]

if everything goes down in a bear market then why not play a hedge like I said above? Common sense really...

If you pick quality and are not leveraged then there little need to worry , any crash becomes an opprtunity

[couta1]

Why have we all of sudden started talking about Doom? Is it the interest rates, doesn't interest rates always rises in election year? Make sure you have invested in good solid companys. keep up to date with news etc. Everything should be fine.
Dead right if this keeps up we will all have to get a prescription for some happy pills:cool:

[MAC]

Why have we all of sudden started talking about Doom? Is it the interest rates, doesn't interest rates always rises in election year? Make sure you have invested in good solid companys. keep up to date with news etc. Everything should be fine.

Everyone has a different life situation, risk tolerance, closer or further away from retirement, large mortgage or other debts, if you go back on some of the threads some folk cashed up two years ago.

But, I would agree, if you are debt free with a freehold house and have several years of income ahead then there should be not a great deal of concern about here, just my opinion, each to their own.

[skid]

It's not so much doom and gloom I think, it's more to do with not being too greedy.

This is just my opinion of course, but from my point of view, I have made extremely good gains since late 2008 in equity markets and I simply can not see how these per annum gains can be sustained for much (possibly any) longer. I don't know where the markets will go from here however on the balance of probabilities I believe that the majority of the gains since the trough of the GFC have comfortably been made. That being the case, I feel that any attempt to eek out a further 10% 20% or what ever might come over the next 2 years or so is relatively risky. I am much more happy to bank my profits, forgo an further profits that may transpire and start sitting on the sidelines ready to jump back in when the inevitable correction/crash comes along. I might be waiting years but at least I will have banked the majority of my profits and not see any go down the gurgler should I be holding during a crash!

I personally think that is a sensible thing to do, but everyone has there own opinion.

Disc: I am still about 50% in equities but have reduced from I suspect about 85% at one stage late last year.

Well thought out IMO

[skid]

Why have we all of sudden started talking about Doom? Is it the interest rates, doesn't interest rates always rises in election year? Make sure you have invested in good solid companys. keep up to date with news etc. Everything should be fine.

Because the share markets are at all time highs and they are not backed by a solid economy--We are in the midst of the largest debt bubble ever IMO
This ''sick'' economy has been held on life support from the QEs which is now being reduced (to nothing in the end)
Most agree this cant go on indefinitely--Its just a matter of when.
When you look around do you see a healthy economy?(outside of NZ which doesnt count because it would certainly get dragged down with the larger economies?)
Interest rates in NZ are a ''nothing'' side show as the big economies dont dare to raise theirs.

[silu]

LOL ... still doesn't make them good value! :)

Not saying that they are good value but the Opposition's Power Plan hangs over the likes of MRP like an escaped fart in a lift. I can see an easy 10-20% gain within a year of Elections '14.

[MAC]

Because the share markets are at all time highs and they are not backed by a solid economy--We are in the midst of the largest debt bubble ever IMO
This ''sick'' economy has been held on life support from the QEs which is now being reduced (to nothing in the end)
Most agree this cant go on indefinitely--Its just a matter of when.
When you look around do you see a healthy economy(outside of NZ which doesnt count because it would certainly get dragged down with the larger economies

When you do witness healthy western economies and the exuberance that comes with it, in all probability your fundamental 'get out' signals will start firing, there's a good while between now and then.

While economies are growing, fiscal and monetary policies remain accommodative, and people are generally cautious and fearful then stock markets will continue to grow. The slower the economic growth and recovery the more enduring the run will be.

[Mista_Trix]

Apologies I know someones asked this before and its been answered, but I cant seem to find it (I think it was buried somewhere on a thread) ... How do I activate the ability to set up stops on an ASB Share and Bond trading account?? From memory I need to contact them - not just set it up through the interface??

Thanks.

[Bobcat.]

A freebie, with a lot of good advice:

http://ify.valuewalk.com/wp-content/uploads/2013/11/little-book-FINAL.pdf

..and here's an interesting commentary from Seth Klarman, a very successful hedge fund manager (returning to clients $4B last year from his $20B Hedge Fund):

http://www.valuewalk.com/2014/03/seth-klarman-baupost-letters/

[gv1]

Dead right if this keeps up we will all have to get a prescription for some happy pills:cool:
yeah you are right couta. Negative vibes brings depression, I mean in a person.

[gv1]

why not just stay in and set stops and/or actively monitor the market to exit at the first sign of a potential problem? What are the potential downsides of such a strategy??

I am with you mate.

[TimmyTP]

why not just stay in and set stops and/or actively monitor the market to exit at the first sign of a potential problem? What are the potential downsides of such a strategy??
I suppose one downside is, should something hideous happen whilst you are asleep, you could find yesterday's $5 bids for the stock you hold disappear during pre-open, only to be replaced by a queue of sellers and no buyers above 10c (exaggerations there are for my own entertainment).

In that case, your stops are a waste of time and you have to hope you distinguish "the first sign of a potential problem" from "false alarms".

[artemis]

Suggest RBD as a defensive stock. KFC and pizza are supposed to do well in a downturn, assume CJ would as well. Plus they consistently pay a reasonable dividend.

[TimmyTP]

In that case why hold stocks..or cash- even banks will collapse...or cash at home- thiefs will get their hands on.. or why keep the money when you could be hit by a bus while going home. Might as well enjoy, with what you have.
Not following how that relates to NewGuy's question or my response gv1. I'll try to explain my point more clearly.

Stops can be very useful in a market that is falling in an 'orderly' fashion during trading hours, but I wanted to highlight that they are not a panacea. Simply, they will not save you if it turns to custard in a very big way outside of trading hours, so you have to look for other techniques to compliment them; the original subject of NBT's thread.

Another option is to look at overseas stocks (or even cash) for a currency hedge - buy something in USD, GBP or JPY if you think that a major equity market drop will co-incide with a major rise in such currencies. I'm not 100% convinced of this either, so

My position now is ~40% stocks and 25% cash in NZ; the rest is overseas in a similar ratio. I could live for a year (maybe two) on the cash, even if I failed to get on the equity lifeboat and I lost my income. If I didn't need to do that, I could look forward to picking up some undervalued stocks whilst the market is down.
All of this is at the cost of potentially making less over the next and some currency risk.

I think someone mentioned that how much you prepare is related to your appetite for risk. [I]What you do is a slightly different bag of onions IMO and there are lots of options.

Oh - in the NZX stock picking competition, I have RBD as my defensive stock, because I noticed fast food went relatively well in the last downturn and its price looked to recover quickly. I don't own any real RBD shares though.

[winner69]

In that case why hold stocks..or cash- even banks will collapse...or cash at home- thiefs will get their hands on.. or why keep the money when you could be hit by a bus while going home. Might as well enjoy, with what you have.

When the great Unraveling occurs some time in the next 10 years and we reach Crisis point people will 'come to the jarring realization that they have grown helplessly dependent on a tettering edifice of anonymous transactions and paper guarantees. Many of us wont know where our savings are, who their employer is,what their pension is, or how government works.The era will have left the financial world arbitraged and tentacled - debtors wont know who holds there notes, homeowners who own their mortgages, and shareholders who own their equities - and vice versa'

Those were the prophetic words of Strauss and Howe in 1997. The other things they said could happen have happened .... and all this seems to be coming true as well

The mess will all be cleaned up by the Turmeric's generation but the world will be a different place

[Beagle]

I think Goodman Property Trust is a good defensive stock. Beta 0.53. Well managed, moderate gearing, dividend yield 6.51% nett, partially exempt (PIE) and partially imputed so your gross yield is considerably higher depending upon your marginal tax rate. Weighted average lease term 5.4 years. This company is doing well and doesn't hurt to have a few in a well diversified porfolio to add too the average yield.
The bonus is this company seems to be working its portfolio very well in a growing economy.
Disc, I own some.

When a stock drops below it's 100 day moving average is my cue to get out, which nearly triggered a SUM exit:ohmy:

The other defensive stratagies I employ are, always have a reasonable percentage of your Net worth in cash, (you never know when this might be handy), and i have no debt.
I also have some silver, (the real metal not some silly certificate).

[Bjauck]

The other defensive stratagies I employ are, always have a reasonable percentage of your Net worth in cash, (you never know when this might be handy), and i have no debt.
I also have some silver, (the real metal not some silly certificate).

Different people put different meanings to "cash". Just for interest is your meaning "notes and coins only" (stuffed in a safe or in a mattress for example)? Or does it include deposits in a bank on call account? Short term term deposits? Longer term term deposits (1+ years)? Tradeable Corporate bonds?

[Under Surveillance]

When the great Unraveling occurs some time in the next 10 years and we reach Crisis point people will 'come to the jarring realization that they have grown helplessly dependent on a tettering edifice of anonymous transactions and paper guarantees. Many of us wont know where our savings are, who their employer is,what their pension is, or how government works.The era will have left the financial world arbitraged and tentacled - debtors wont know who holds there notes, homeowners who own their mortgages, and shareholders who own their equities - and vice versa'

Those were the prophetic words of Strauss and Howe in 1997. The other things they said could happen have happened .... and all this seems to be coming true as well

The mess will all be cleaned up by the Turmeric's generation but the world will be a different placeI'm sure that few would credit prophets who spell so badly. Surely Strauss and Howe didn't write tettering edifice or wont know or there notes as you quote them?

[winner69]

I'm sure that few would credit prophets who spell so badly. Surely Strauss and Howe didn't write tettering edifice or wont know or there notes as you quote them?

Just my bad typing ....so please don't blame Mr Strauss or Mr Howe

If I texted it the spelin wld have bn wrse ....or something like that

[couta1]

Just as well its been said to take everything on here with a grain of salt,well that settles it there really isn't anything to worry about after all besides there's enough barking dogs on here to scare us cats away before the real action starts:scared:

[RTM]

Yes....the discussion has been useful for me as well. Thanks all.
I am just trying to start retirement and have a bit of cash with which I am somewhat unsure what to do.
Leaving it in cash to me is not attractive.....as inflation will significantly erode its value over the years. What really concerns me is what is going to happen in the USA (and other countries) with all the money printing that has gone. Eventually this must result in high inflation in the USA, (some say really high inflation,15-20% ???) high interest rates leading to another collapse in the US housing markets, a major drop in the value of the US dollar ( worse than parity with Kiwi ??? ).
What will the effect of all this be on New Zealand ?
In this situation...where should we put our dollars ?
Yes...the utilities are attractive here for me as well....barring to much political interference of course.

[RTM]

Yes....agree completely with what you say there Turmeric. Currently. Of course its not quite as attractive as that when tax is taken into account. I'm more concerned about when inflation is quite a bit higher, over a longer term. But perhaps we are not going to endure this in NZ for a while. Thanks for that.
PS...no, cash is not under bed.

[RTM]

Yes....agree completely with what you say there Turmeric. Currently. Of course its not quite as attractive as that when tax is taken into account. I'm more concerned about when inflation is quite a bit higher, over a longer term. But perhaps we are not going to endure this in NZ for a while. Thanks for that.
PS...no, cash is not under bed.

[skid]

I think it depends on which is most important to you RTM-Is it taking a chance to increase your money-or holding on to what you have.
It is worth noting that while some retired folks have increased their wealth over the past few yrs-There are plenty of others that have lost it all on some of those bad investments that we have heard all about(like the finance cos.)
Do you have enough now to live moderately comfortably ?
Do you own your home?(thats by far the most important thing to get out of the way)
If you have ''extra cash''(meaning you can still live comfortably without it)-then you may want to have a go after research.
If not,then most agree that retirement age is not a great time to be risking your security.

I believe what Tumeric says makes good sense.
Im also baffeld at just what motivates those that seem to feel the need to trash others ideas(Is it fear of anyone even raising the thought that your empire may crash?--(as in the particular share or the economy in general)--is it just the thought that we are being excessive which is inconvenient?(like in the global warming thread)

Im retirement age as well and personally Ive decided to keep my powder dry--There are to many disturbing things about the world economy these days for me to take risks with anything above what I need to live the way I like (which is not extravagant)

Interest rates are going up as you know so saving is going to be better rewarded in the year coming.

[RTM]

The other factor is that we also need money to live on.
Not wanting to eat into our capital at to fast a rate, living on ~4% is probably feasible.
But of course that will see our capital eroded.
Living on 1%....yeah right !

Hence interest in this thread...what stocks to protect against inflation, and provide a reasonable divi at the same time.

PS We do have a vege garden !

[skid]

I think it depends on which is most important to you RTM-Is it taking a chance to increase your money-or holding on to what you have.
It is worth noting that while some retired folks have increased their wealth over the past few yrs-There are plenty of others that have lost it all on some of those bad investments that we have heard all about(like the finance cos.)
Do you have enough now to live moderately comfortably ?
Do you own your home?(thats by far the most important thing to get out of the way)
If you have ''extra cash''(meaning you can still live comfortably without it)-then you may want to have a go after research.
If not,then most agree that retirement age is not a great time to be risking your security.

I believe what Tumeric says makes good sense.
Im also baffeld at just what motivates those that seem to feel the need to trash others ideas(Is it fear of anyone even raising the thought that your empire may crash?--(as in the particular share or the economy in general)--is it just the thought that we are being excessive which is inconvenient and they dont want the party to stop?(like in the global warming thread) Who knows?

Im retirement age as well and personally Ive decided to keep my powder dry--There are to many disturbing things about the world economy these days for me to take risks with anything above what I need to live the way I like (which is not extravagant)

Interest rates are going up as you know so saving is going to be better rewarded in the year coming.

Hopefully you have invested in Kiwisaver(you wont find many shares that have a 50% return)and you must not be far away from being able to cash in.

As was mentioned -there are more than one way to be in cash.
I prefer the highest interest I can get and still be ''on call'' (just in case)

[TimmyTP]

SKid out of interest, what is the "high interest" account that you have whereby your money is still on call? and what is the interest rate? I use ANZ serious savers (3.75% once the bonus interest is added for a monthly deposits of $20 or so). I get around the fact that u forgo your interest if you withdraw in any month by having multiple serious savers and switching the money around to ensure I dont actually forgo interest if I ever need to call on any of the money. That's the best I've been able to come up with, but always on the search for a better rate.
Rabo have a similar thing, called "Premium Saver" at 4%. You can do a little better if rolling term deposits/term funds spread throughout the year suits you - Rabo is good here, because their minimum deposit is quite low.
I suppose there are higher rates if you don't mind compromising on the credit rating - I would rather keep my Boring and Safe money somewhere boring and (as much as you can trust the ratings) safe though and enjoy the fun and games with my Exciting and Risky money.

[Beagle]

Different people put different meanings to "cash". Just for interest is your meaning "notes and coins only" (stuffed in a safe or in a mattress for example)? Or does it include deposits in a bank on call account? Short term term deposits? Longer term term deposits (1+ years)? Tradeable Corporate bonds?

Interesting question. Cash means different things to different people. Many would argue that short / medium term bonds which are readily tradeable are a cash equilivent and I can't say i completly disagree, after all its just a 3 day settlement we are talking about from date of sale... to others a rolling 3 month term deposit is a cash equilivent. I think few would take the position that a one year or more term deposit is cash but it could be argued that it is on the basis that most banks will let you out of such a deposit early, albeit with a substaintial interest rate penalty. Others might take the view that cash isn't cash unless you can actually count it in your hands but the obvious security issues can cause problems as we found out recently, (one of our kids stole a significant amount of money from where my wife thought she had it well hidden).

Me, I use the BNZ serious saver which has a current rate of 3.75% once the bonus interest kicks in, far better than the average call account which seems to be about 2.5% at present, although this is likely to have changed or about too in line with the RBNZ increase yesterday. My definition of cash is same day immediate access at call. That way, for example, if you think there's some huge exogenous shock about to happen, (not suggesting there is), or you want immediate access to snap up some incredible bargain, its there.
I know I pay a slight cost to have immediate access to funds, (a rolling 90 term deposit gives a slightly higher rate as does the other alternatives mentioned above), but having immediate access to significant funds makes me feel more comfortable.

[Bobcat.]

I read it somewhere on this thread, I'm sure, but can't find it now. Somebody mentioned BEAR.asx. Well thanks. I looked at it last night and decided to buy this morning around $1800.

However now that there has been a >1% fall in US Equities overnight, I suspect that BEAR.asx will lift today above my target price before dropping away slightly Monday as (I expect) die-hard sucker bulls will see last night's dip as yet another buying opportunity to lift the DJIA, S&P500, etc to a shoulder pattern tonight before it drops away again (next week?).

Moving what I do not have in Precious Metals to short Equities as of Monday.

Others' thoughts?

BC

[Bjauck]

I know I pay a slight cost to have immediate access to funds, (a rolling 90 term deposit gives a slightly higher rate as does the other alternatives mentioned above), but having immediate access to significant funds makes me feel more comfortable.
I read somewhere that a good guide for a reasonably prudent minimum cash holding was to have an on call balance equal to six months living expenses with short term term deposits equal to about another two years of expected living expenses. I think corporate bonds perhaps would end up being cheaper than term deposits to cash in suddenly. The commission payable being cheaper than the lost interest on a td.

[BobbyMorocco]

SKid out of interest, what is the "high interest" account that you have whereby your money is still on call? and what is the interest rate? I use ANZ serious savers (3.75% once the bonus interest is added for a monthly deposits of $20 or so). I get around the fact that u forgo your interest if you withdraw in any month by having multiple serious savers and switching the money around to ensure I dont actually forgo interest if I ever need to call on any of the money. That's the best I've been able to come up with, but always on the search for a better rate.

I do exactly the same thing with Westpac. So long as I make at least one deposit and no withdrawals (every month) I get 3.80%. There is also no minimum deposit so I literally transfer one cent on the first of the month into each of my online bonus saver accounts. The women at the bank thought I was completely bonkers for wanting to set up multiple online bonus saver accounts, but like you I don't want to lose out on all the interest if I ever dip into those funds, so splitting them up makes perfect sense to me and I'm glad to hear others do the same.

[skid]

SKid out of interest, what is the "high interest" account that you have whereby your money is still on call? and what is the interest rate? I use ANZ serious savers (3.75% once the bonus interest is added for a monthly deposits of $20 or so). I get around the fact that u forgo your interest if you withdraw in any month by having multiple serious savers and switching the money around to ensure I dont actually forgo interest if I ever need to call on any of the money. That's the best I've been able to come up with, but always on the search for a better rate.

We have a similar deal with Rabo--The 1 month penalty for withdrawing is really just in case of emergency(ours or the market)
Otherwise Kiwibank has pretty good interest with 30 days notice.

Ill have to look in to that ''muliple accounts ''idea------good thinking

[Beagle]

I do exactly the same thing with Westpac. So long as I make at least one deposit and no withdrawals (every month) I get 3.80%. There is also no minimum deposit so I literally transfer one cent on the first of the month into each of my online bonus saver accounts. The women at the bank thought I was completely bonkers for wanting to set up multiple online bonus saver accounts, but like you I don't want to lose out on all the interest if I ever dip into those funds, so splitting them up makes perfect sense to me and I'm glad to hear others do the same.

You guys are on too something here that I hadn't thought of, (multiple serious saver accounts to get around the bonus interest problem for making a withdrawl during the month). Little snippets of valuable info like this is what makes this such a great place :) Thanks for sharing.


I read somewhere that a good guide for a reasonably prudent minimum cash holding was to have an on call balance equal to six months living expenses with short term term deposits equal to about another two years of expected living expenses. I think corporate bonds perhaps would end up being cheaper than term deposits to cash in suddenly. The commission payable being cheaper than the lost interest on a td. Yeap, makes good common sense to me.

[Bjauck]

How about twelve 12-month roll-over term deposits...earning that bit extra interest...so that one matures each month. That way you will have a term deposit maturing each month in case your current account needs a top up for those bills. This may require at least $120,000 for the Tds ($10,000 minimum with the ANZ). $120,000 may equate to 2 years living cost for some anyway.

[BobbyMorocco]

Roger, if I understand BobbyMorocco correctly I think I actually go one step further, which if anything you might find interesting.

For example (1) I try as much as possible to predict in advance when I might be needing cash so that when the 1st of the month comes along (and I have received my full interest on all accounts for the previous month), I do my transfers, and (2) I not only transfer the amount of money I need out of one of my serious savers (let's say I need 5k but my smallest serious saver has 10k in it) but I transfer out the whole account total (i.e. the full 10k) into my checking account, take the 5k I need, and then put the remaining 5k into one of my other serious saver accounts. If I am explaining this properly, then hopefully you will see the advantages of doing this.

In relation to (1) by doing all transactions on the 1st of the month you only lose 1 days worth of interest (interest is accrued daily in these accounts but paid monthly if I understand correctly), as opposed to say on the 15th where you you would lose 15 days.

and (2) by transferring the full amount out of the account, any excess (in my hypothetical example the other $5k) will still receive interest for basically the full month as well.

It also means that (3) you don't need heaps of different accounts to do this in the hope one of them will have roughly the amount of money you need to withdraw, you just need 2,3 maybe 4 accounts tops for this to work perfectly.

It only equates to little amounts saved each month of course but over the years (and depending how much cash you have and how many transactions you make) you will of course save yourself a lot of money).

Hope the banks aren't reading this and cover-up this little loop hole :(

By the way, if there is a flaw in my way of doing things, as always I would like to know :)

Yeah mate, that's pretty much how I do it too. I didn't want to mention the entire process in the first instance because I thought it had the potential to confuse people unnecessarily, but you obviously understand and have done a good job of explaining it.

The last couple of years I've spent the majority of my time backpacking around the world and this is the best way I've come up with to be able to earn the best possible interest rate on money I'm likely to spend while travelling. So before the beginning of each month I work out what I'm likely to spend in the upcoming month and I go through the process of transferring money from one of my bonus saver accounts into my current account. I then recycle what I don't think I'll need back into a different bonus saver account, in order to continue to earn the highest interest rate.

Yes, you are right, interest is accrued daily and your theory of taking out the entire amount from one account to put into your check account and recycling what's unlikely to be needed back into one of the other accounts that you haven't withdrawn from in my view is spot on and the best way to make sure you keep earning the best possible interest rate.

I believe you could do this successfully with just two bonus saver accounts if you were right on top of your budgeting and so forth, I however like to have a couple spare in case I misjudge how much I'm going to spend in a particular month while on the road or if I run into an emergency.

It took a little bit of time in the beginning to get this system working the way I'd like, but now I think I'm into a pretty good routine that's working well.

I also hope the banks don't change this. I don't think they will though. When I first did it the teller asked why I was doing this and I told her honestly that I could get a better interest rate (at the time) with bonus saver accounts than taking out a six-month term deposit. Plus it allows me to make withdrawals while travelling and not be significantly affected. While we were setting it all up she had a puzzled look on her face so I asked "Have you never had this request before?" and she said "No, this is quite unusual." So it wouldn't have surprised me if she had mentioned it to a few of her colleagues or manager later in the day. I walked out knowing she thought I was a weirdo, but I didn't care because I felt confident I was getting the best possible interest rate for my needs. Two years down the track, it's all going well despite the interest rate I'm getting now is not quite as good as it was...... but that will probably change shortly.

[TimmyTP]

How about twelve 12-month term deposits...earning that bit extra interest...so that one matures each month. That way you will have a term deposit maturing each month in case your current account needs a top up for those bills. This may require at least $120,000 for the Tds ($10,000 minimum with the ANZ). $120,000 may equate to 2 years living cost for some anyway.
I do just that, but the minimum with Rabo (with exactly the same credit rating) is only $1,000. This also means you can open more, smaller TDs, just in case you want to break the term on one of them - then you wouldn't lose all of the interest.

[...]You can do a little better if rolling term deposits/term funds spread throughout the year suits you - Rabo is good here, because their minimum deposit is quite low.[...]

Another benefit for me is that, in the extremely unlikely event of a significant downturn, it will stop me running out and buying up everything in sight on day 1!

[sharer]

How about twelve 12-month roll-over term deposits...earning that bit extra interest...so that one matures each month. That way you will have a term deposit maturing each month in case your current account needs a top up for those bills. This may require at least $120,000 for the Tds ($10,000 minimum with the ANZ). $120,000 may equate to 2 years living cost for some anyway.

Really close to what i've been doing for years with TSB, only now got to the stage of having a rotating mix of 3 or 6 or 12 mth deposits; all the interest & maturing lumps of capital fall into my cheque acct (hardly ever used for cheques nowadays) as a holding pen awaiting decisions each month. When the stars are aligned there might be occasional diversions to riskier bonds or equities, but their fruits fall back into the same basket & surprisingly soon replace the diverted deposits again. It could be simpler, but gives me a chance to chat with a human once in a while. Worth much more than a few extra pennies of interest. TSB always makes me feel welcome, where the others all left me wondering why we put up with foreign bankers running our country.

[Beagle]

Thanks guys. Yeap I think 3 serious saver accounts would do the job perfectly :) Surely its within the bank officer's comprehension that one might have 3 different things they're saving up for. I'll look forward to pulling their leg in this regard if they look at me like I've just arrived from another planet when I open the extra 2 accounts.

[nextbigthing]

Turns out the correct answer was 1) Cash and 2) Spark.

Where to from here?

[Lewylewylewy]

If you pick quality and are not leveraged then there little need to worry , any crash becomes an opprtunity

This is what I'm doing. Currently I'm 99% cash, just waiting on the sale of a few houses, then gonna try to pick quality with good dividend history when the crash comes (I must be the only person here hoping for another GFC lol).

[Nasi Goreng]

I think two of the best defensive companies in NZ are POT and AIA. Both are expensive with high multiples and may need that pullback you are looking for. I can't see their businesses being disrupted in any way barring a catastrophe which is something that you can't exclusively rule out for other infrastructure stocks. Both offer growth opportunities particularly POT with bigger ships coming in 2016.

Disc: Hold POT and would buy more on a dip.

[skid]

Ive got 3 different serious savers with 3 different banks,but the idea of keeping one small is a great idea to minimize lost interest--good thinking guys--moving away from big banks--(dont get me started on HSBC)

[Beagle]

Good idea to give this thread some serious airtime.

Lets face it with growth prospects globally looking fairly weak the outlook for the balance of 2015 and into 2016 is hardly stellar is it !

Overall I have a focus on maintaining a fairly large cash allocation while the market continues to correct downward or sideways for the present time (at best), and what stocks I do own must be on compelling metrics, reasonable PE and high dividend yield.

I outright refuse to own any NO PE or high PE stocks (anything on a PE over 20 is too rich for my blood), regardless of growth outlook as in my view this is a no B.S. market and any stock that can't justify its lofty PE with a commensurate and sustainable growth rate is vulnerable to a very serious correction. Growth stocks in general are vulnerable in a soft economy to softer growth rates thus making their PE's look excessive. I would put POT, AIA and RYM in this category as all are too expensive for modest growth.

I favour REIT's for their defensive characteristics, long leases and well diversified income streams with a bias away from retail, I hold GMT and ARG in modest quantities. Gross yields over 8% should support prices well when one is looking at 2% cash rate in a few months time.

Next I favour export stocks that will seriously benefit from the lower dollar, SKL and AWK

I hold a modest quantity of PGW because of its super low PE and great yield and I think its been beaten to a pulp already and then my AIR which while somewhat vulnerable to a pullback if consumer sentiment worsens further is on such compelling metrics that in my view the potential returns well and truly outweigh the risks. Demand to date through CY 2015 has been very encouraging notwithstanding the softer economy.

I won't own financials in this environment as they're extremely vulnerable to a weaker economy and a massive potential blow-out in bad and doubtful debtors.

I am looking for other idea's as my cash position is a little high but I am very cautious on the near term market prospects and believe the likelihood of the NZX50 going up materially in the next 6-9 months is very, very slim.

[Harvey Specter]

I wouldn't say POT or AIA are defensive as they are dependent on the world economy. I disagree a bit with Roger on RYM as people will still get old regardless of the economy and while their property prices may be inpacted, this will reverse as the economy improves such that any negative is timing only (their day to day revenues will remain constant).

The gentailers should remain strong (revenue wise) with the reduction in planned generation but they are already well priced so could fall.

[xafalcon]

I like MEL at current SP but PE or the "Tiwai uncertainty" may put you off. The reasons I personally like MEL - very high storage levels going into a potentially dry summer, NZ electricity usage is growing, NZ generation capacity being retired, good dividend stream, captive market (Tiwai the notable exception, but risk is shared across all generators), will probably benefit from upcoming transpower HVDC link cost reallocation, outside comcom scope, 51% govt owned, significant SP correction already happened

I know you already have SKL, which appears to be in a very good position

[bull....]

if the world goes to custard all stocks go down, its just a matter of hoping you picked the ones that go down the least.

anyway I have mel for income as a long termer and a few growth stocks still and plenty of cash , I don't like any of the retirement stocks like rym,sum etc as there models have not been tested in a declining property market and I guess if the world turns to custard we will find out

[Nasi Goreng]

[QUOTE=Harvey Specter;591828]I wouldn't say POT or AIA are defensive as they are dependent on the world economy. /QUOTE]

My rationale for putting POT and AIA in defensive area is that they are industries that don't look like they could be disrupted so even if world economy tanks, the businesses will still be there so if you are looking for a 20 year investment, you should do ok here.

Power, telecommunications and even banking have the potential to be disrupted in a big way. These are the industries with low PE's and high dividends. I'm holding some myself but if you think 10-15 years down the track, could Tiwai be gone, solar power generators for the home/car, cell phones that don't require cell phone towers, trade me banking and insurance etc. In saying all that, I think we are good for the next few years.

[Beagle]

if the world goes to custard all stocks go down, its just a matter of hoping you picked the ones that go down the least.

anyway I have mel for income as a long termer and a few growth stocks still and plenty of cash , I don't like any of the retirement stocks like rym,sum etc as there models have not been tested in a declining property market and I guess if the world turns to custard we will find out

RYM got smacked up pretty badly during the GFC and hasn't proven resilient in this downturn so far either.

Harvey - RYM is a stock I want to like as I have huge respect for their track record and management have done a stellar job but unfortunately I think all the good news has already been priced in and its priced for perfection. I'd love to think they can be perfect with their growth record ad infinitum and certainly the population demographics are supportive but technically it looks weak and vulnerable so as much as I want to like this stock and own it and have done, the really minimal unimputed dividend yield means unless the SP has northwards momentum my gut instinct is one is better off seeking safe harbour in a better yielding stock.

MEL - I really don't like the Tiwai point risk overhang. I understand according to brokers MEL gets smacked, (by far) the least in a Tiwai closure and recent generation capacity withdrawals e.g. (GEN shutting down another rankine unit) are broadly supportive of a greater generation-consumption balance but I don't really find the yield compelling in light of the Tiwai risk overhang.

I saw JB Were touting FBU earlier this week as good value. Nothing could be further from the truth IMO. Definitely a cyclical stock, the PE isn't compelling, technically it looks broken and this is surely the perennial under-performer that everyone always want's to see do better but very seldom does.

Might just buy some more SKL...seems to be a strategy that Selwyn Cushing likes and it's working for him...

[Harvey Specter]

Nasi Goreng - I see. Defensive from a disruption perspective, not an economic meltdown perspective.

Roger - They may well get battered but their recurring income wont suffer and property prices should increase again leaving them un-impacted in the longer term (as opposed to those that lose revenue over a period of time). Agree it is fully priced though.

[Arbroath]

I think more people/posters should think in terms of where the companies they hold or might buy will be in 10 years time. It is useful to look at this past performance while also thinking about potential disrupters that might occur. My short list of 5-6 NZ equities I'd favour:

Infratil - 6% gross yield and is undervalued at $3 imo. It has a good spread of defensive assets (owns 51% Trustpower, 20% Z Energy, 20% Metlifecare, 66% Wgtn Airport, 50% Retire Australia and 100% NZ Bus).
Freightways - solid track record and quite resilient throught the GFC (no-one is unaffected by those types of events). Decent yield at 6% gross and grows at GDP+3-4% annually over time.
Ryman - always seems expensive but demographics are set for the next 15-20 years. Continued double digit growth makes them a cheap hold after 3-4 years ownership.
Trademe - becoming a service delivery channel rather than a second hand goods platform. Brands provide consistent cash flow and nice 6-7% gross yield.

I could happily own those 4 stocks with a combined gross yield over 5% with solid growth prospects and a good spread of assets and industries covered (airports / freight & couriers / retirement property & care / fuel / transport / power generation & retailing / online goods & cars, real estate, jobs platforms). In 10 years that portfolio of 4 will have probably generated a gross return of c. 10% per annum

[skid]

Nasi Goreng - I see. Defensive from a disruption perspective, not an economic meltdown perspective.

Roger - They may well get battered but their recurring income wont suffer and property prices should increase again leaving them un-impacted in the longer term (as opposed to those that lose revenue over a period of time). Agree it is fully priced though.

Dont think for a second that property prices are immune to a downturn--I own properties ,but IMO they have done their dash in terms of growth compared to the past--There are many scenarios that could affect our property market--the biggest, starting in China-spreading to OZ-and then NZ. Even if this doesnt play out there will most likely be a drop in Chinese buyers if things get much worse over there.
And of course the fact that just how much debt can an average family take on to buy a run of the mill -1 million dollar house in Auckland,especially if that disruption comes along --meanwhile some bright spark with a charitable mind comes up with affordable decent care for the elderly that doesnt require the kind of profits that rocket share prices ---I have a neighbor who is putting up with Rymans prices while they wait for a spot in just such a place---I wouldnt put it near the top of defensive shares.

[percy]

KW as our friend Steve Fleming always told us;
Share prices follow earnings............
buy EPS growth.

[HRM]

Infratil - 6% gross yield and is undervalued at $3 imo. It has a good spread of defensive assets (owns 51% Trustpower, 20% Z Energy, 20% Metlifecare, 66% Wgtn Airport, 50% Retire Australia and 100% NZ Bus).



Infratil is growing on me and does seem like a really good buy

[Beagle]

Some good dialogue today, thanks to everyone for their thoughts so far.

Lets give this thread plenty of airtime as I think most of us realise the best case prognosis for the economy and the market is very low growth for the immediate future so this is a very pertinent thread for the times.

I think Infratil has some merit in terms of their grunt to get deals done on terms that otherwise are unobtainable to retail investors e.g. their recent Australian retirement acquisition on a modest (for the sector ) PE of 18. I suspect Z are up against it with their proposed acquisition of Caltex with serious concerns being aired by all and sundry regarding competition issues and their ROI on the bus investment isn't that flash but overall in the long term they've done pretty well and offer a diversification and fairly defensive type assets so there's some merit there I think.

Yes KW absolutely agree that at all times PE's should be a function of growth but to some extent are also inversely related to interest rates. My concern is that with a sluggish economy growth has a natural propensity to slow and previously enjoyed EPS growth with it. Factor in too that we've enjoyed considerable PE expansion in recent years and the recipe is almost perfectly baked for some general market PE compression.

[percy]

For the most part. Although there is a strong element of P/E expansion and compression by the market that is unrelated to earnings. This is driven by sentiment not results, and usually results in the boom/bust elements of the market. What you need to find is a company that can withstand both fundamental P/E reduction (eg. falling earnings due to recessionary environment/increasing debt costs/reduced revenues from lower consumer spending etc) as well as normal market P/E compression.

REITs were (prior to 2008) considered defensive - until they all got caught with high debt levels that they could not refinance. Again, they are currently expensive due to the low interest rate environment, and once interest rates start going up (or look like they are going up) their prices will fall as well. Ditto for all the dividend paying stocks - 6% may be considered good today, but tomorrow investors may be demanding 8%, which would be achieved by a corresponding reduction in the share price.

The trick is finding the companies that have the capacity [eps growth] to grow their dividend from the 6% to 8%..Then you can have your cake and eat it,! And growing a dividend,will drive the share price.

[percy]

Infratil is growing on me and does seem like a really good buy

Their compound growth since they listed has beaten Warren Buffett.
Not a lot of people know that.
No reason IFT can't keep performing.

[Joshuatree]

A sack of Basamati Rice
A kilo of Maggi STOCK
Trilogy shares make great candles for when the lights go out
Just Water for water. MOA as a backup
ZEL to fill up your gas cylinder
AIR to escape
Chorus to sing together as the pestilence overtakes
Comvita to heal your wounds
PGG for tools, spades,axes ,saws , hammers,nails Backup FBU for Palislade timber

All off thee are defense/survival stocks.Prob a few more out there?

[Harvey Specter]

Dont think for a second that property prices are immune to a downturn--.I dont. But if they dont sell it at a higher price this cycle, it will sell higher in 5-9 years when the next tenant 'moves' out. Remember they never 'sell' the property.

And the monthly fee is unlikely to go down due to a GFC situation.

[kiora]

A sack of Basamati Rice
A kilo of Maggi STOCK
Trilogy shares make great candles for when the lights go out
Just Water for water. MOA as a backup
ZEL to fill up your gas cylinder
AIR to escape
Chorus to sing together as the pestilence overtakes
Comvita to heal your wounds
PGG for tools, spades,axes ,saws , hammers,nails Backup FBU for Palislade timber

All off thee are defense/survival stocks.Prob a few more out there?





& CBL to insure your build :)

[Beagle]

Maybe we should club together and buy Lochinvar Station and set up a self sufficient commune :t_up:
ST ST would make a great logo and brand :D

I'm thinking you'd want to plant some vineyards and be chief wine taster :D

[stevevai1983]

My pick: REITs

[Beagle]

My pick: REITs

Yes I tend to think with cash and bond rates heading to the floor gross REIT yields at circa 8% make a very sound case for themselves especially when you consider many have WALT's longer than 5 years, a broadly diversified tenant mix, ratchet clauses in their leases that increase rent at not less than the rate of inflation. Investment is also liquid, (try getting out of a 2 year term deposit with a bank paying 4% and see what happens to the interest rate) and vastly superior to current corporate bond rates. If the unthinkable happens and the Reserve Bank are forced into a serious clipping of people's capital through their open bank resolution, those Mum's and Dad's who thought there was nothing safer than money on term deposit or at call with one of the major banks, will get a very rude shock whereas those in REIT's are clearly not subject to the same potential Reserve bank action.

Poor old Fontera so frequently in the news lately and can't catch a break. Recently signed up for a fancy new head office in the Viaduct precinct on a 15 year lease...no amount of head office pruning will save them from that obligation...and who is the beneficiary of this new lease ? Goodman Property Trust GMT.

[bull....]

if you get a global recession reits are no good, businesses go bust or business declines building values decline as vacancies rise.
reits were hit very hard in gfc
if it is just a slow down in growth yes reits could be ggreat for yield
recession or slow down million dollar question lol

[percy]

if you get a global recession reits are no good, businesses go bust or business declines building values decline as vacancies rise.
reits were hit very hard in gfc
if it is just a slow down in growth yes reits could be ggreat for yield
recession or slow down million dollar question lol

When I was last on The North Shore in Auckland,on the 4th August, I was surprised with the large number of empty warehouses with "to lease" signs on them.

[skid]

Ive been involved in residential real estate and have friends with commercial.
There are different advantages and disadvantages to both,but the biggest disadvantage to commercial is that they can sit vacant for a long time when things are slow--I believe that would rule them out of the good defensive stocks category--(when things are great they are wonderful as the tenant does all the improvements so they are less worry,but if they go bust they never put the place back to its original state--sometimes they dont even bother taking their sign down.

[bull....]

rbd good I think, cheaper to eat takaways than real food so if money gets tight takaways should do good

[blackcap]

rbd good I think, cheaper to eat takaways than real food so if money gets tight takaways should do good

Your not wrong there... KFC same store sales up again second quarter....

[skid]

Takeaways are certainly easier--but are they cheaper? In my case the real food (good way to put it) is cheaper-(unless you add in the labor)---but I get your point on the profits----(the ethics is best left to another thread,although I cant resist mentioning that in the years Ive been going to Thailand,Ive (quite suddenly to me)noticed fat Thais,now that they have 7-11s and Tescos.You never saw that before

[Bjauck]

... those Mum's and Dad's who thought there was nothing safer than money on term deposit or at call with one of the major banks, will get a very rude shock whereas those in REIT's are clearly not subject to the same potential Reserve bank action.... I do not know how the next major crisis may play out. I have not looked at other listed REITs, however last time, KIP unit price went from $1.65 (31 mar 2007) to 0.96 (31 mar 2009) - a drop of about 40%. During the same period the NZX went from 4107 to 2575 - a drop of about 35%. KIP more or less tracked the market down. Perhaps in the doomsday scenario, if OBR had to be used with a severe haircut of 40% then there would be massive panic in all financial markets and depositors with fresh buzz and crew-cuts would be able to pick up REITs trading at even greater discounts to the haircuts they had been subjected to?

[Joshuatree]

At the moment my energy stocks ZEL and NZR are more than defensive ; both at or on new highs!! Who would have foreseen that!

[Beagle]

I do not know how the next major crisis may play out. I have not looked at other listed REITs, however last time, KIP unit price went from $1.65 (31 mar 2007) to 0.96 (31 mar 2009) - a drop of about 40%. During the same period the NZX went from 4107 to 2575 - a drop of about 35%. KIP more or less tracked the market down. Perhaps in the doomsday scenario, if OBR had to be used with a severe haircut of 40% then there would be massive panic in all financial markets and depositors with fresh buzz and crew-cuts would be able to pick up REITs trading at even greater discounts to the haircuts they had been subjected to?

Thanks. I'd have to concede you make a fair point. GMT got smacked pretty hard along with the market in the GFC as did RYM and many other pseudo property companies.

[Beagle]

At the moment my energy stocks ZEL and NZR are more than defensive ; both at or on new highs!! Who would have foreseen that!

Goes to prove beyond a shadow of any doubt that demand for fuel is very inelastic regardless of economic conditions. I don't like ZEL's chances with the takeover though so you might yet have your defensive returns tested on that front.

[troyvdh]

Being somewhat old fashioned and all...when inflation somewhat limp(ing)...therefore % rates low and lowering...I always thought that one should go boring...utilities etc...essentials ...like industrial buildings....PFI go you good thing....

Ramping...absolutely

Hold over 30k...always...cheers

[nextbigthing]

Interesting to see TGH, SCL and ATM up today (as it currently stands) amongst a sea of red.

[blackcap]

Interesting to see TGH, SCL and ATM up today (as it currently stands) amongst a sea of red.

Don't know about a sea of red. The NZ market is up 10 points as I type. The NZ market has clawed back its initial 1% loss and is now in positive territory. Australia is up too and maybe just maybe we are seeing the end of the worst.

[Grunter]

Don't know about a sea of red. The NZ market is up 10 points as I type. The NZ market has clawed back its initial 1% loss and is now in positive territory. Australia is up too and maybe just maybe we are seeing the end of the worst.

Short sellers closing out their positions? Traders taking a punt that the damage has been done and buying cheap?

[Joshuatree]

Goes to prove beyond a shadow of any doubt that demand for fuel is very inelastic regardless of economic conditions. I don't like ZEL's chances with the takeover though so you might yet have your defensive returns tested on that front.

Takeover was cleared and completed a while back:t_up:. US and euro futures are telling us to keep our raincoats on though so a test of just how waterproof those coats are is still there.

[Beagle]

Just goes to show how toothless our regulatory authorities are. ACCC wouldn't have had a bar of that. My confidence in Com Com and FMA at an all time low for a range of reasons including complete lack of action in regard to AIR management selling immediately before a price sensitive so called investor day. AIR management didn't know the investor day material would have a negative impact on the SP...yeah right... takeover of Z won't diminish price competition between petrol stations...yeah right... someone please hand me a Tui or three.

[Lewylewylewy]

The single best defensive stock IMO is VHP because of the average lease time, which is something like 16 years... 16 years should be looking enough to eek out a downturn, whilst getting a good div throughout.

Some may argue OGC for the gold price.