Friday 29th of April 2011

The NZ Superannuation Fund’s results for the 12 months to March 31 were truly impressive I thought and also an interesting lesson in investing. While some media reports focused on the month of March (a return of 0.41%), the real story was the 23.04% return for the year. It also brought up the question of whether the government should be contributing to the fund or not at the moment. Radio NZ asked me the question and I said that they should still continue to contribute, maybe not at the rate used previously, but they should continue to do so. Part of my argument was that if the government is expecting individuals to save for their retirement, despite the tough economic times, then it should lead by example and continue to save. There are bigger arguments around this idea. Of course they are economic. The main argument is that any contributions would be borrowings. The government already borrows too much at the moment and its interest bill is too large. I guess one could be pedantic and say borrowings are only part of the government’s finances and that money is used for other purposes. Things like plastic whaka, America’s Cup funding, BMWs etc and that contributions to the fund come from other government revenue. However on a bit more serious note if we considered the contributions as borrowed money is that really a bad thing with this sort of performance? I haven’t done the maths but a bit of leverage in the fund, especially when the markets are rising (and interest rates are low) could be beneficial. It is important to put the borrowing into perspective. Overall it would only be a small portion of the $19 billion fund and when you have performance like the past year then it would be a positive investment outcome. I thought it was useful too looking through the fund’s major holdings. While it has been acquiring long term assets it also appears to have a focus on infrastructure and income producing assets too. While there can be a discussion around the contribution question, the fund is also useful to illustrate to investors the importance of a diversified portfolio, the need for equities and how being in the markets, especially after a big downturn, can provide good returns.