Kiwisaver: (lack of) investment results explained

From the Gareth Morgan kiwisaver.com site:

What’s going on with your money?
IRD is holding all contributions made between 1 July 2007 and 1 October 2007. On 1 October 2007, they will transfer the following to KiwiSaver provider schemes:

  • Your contributions
  • Interest on your contributions (at the Commissioner’s rate, currently 6.6% gross)
  • $1,000 kick-start
  • $20 fee subsidy (this represents half of the annual fee subsidy. We are not 100% sure when the second half will be paid.)

From October, the investment strategy team will begin investing the KiwiSaver scheme money and continue to manage the investments.That will explain the lack of investment results then…. It’s a strange way to do things, but rather fortuitous for the IRD in the light of recent market events.

Kiwisaver progress and the market dip

Lot of recent press about Kiwisaver, but I’m missing the real juice – how were those first month results?

Well – 92,000 people have signed up to Kiwisaver, which seems a tiny number (4.6%) compared to the working population of 2m or so. However Finance Minister Cullen is happy, figuring that the numbers will grow gradually as people start new jobs. After reflection I tend to agree with is growth sentiments, but I’d be disappointed with that launch myself.

Sadly there is no sign yet of first month Kiwisaver results. Whenever they do emerge expect to see some interesting results after the recent wacko volatile dollar and market movements.

The “news” that has been shaking the markets is that giving no deposit mortgages to people with no income during an overheated housing market was, well, bad. Really bad. $100 Billion bad (and that’s Fed Chairman Ben Bernanke talking)

But wait – NZX is being touted as a safe haven for investors by, err, NZX:

Mark Weldon, CEO of the NZX, is promoting the relatively stable Kiwi exchange as a haven for worried new KiwiSaver investors.

The New Zealand market tends to be a lot more stable than the rest of the world,” says Weldon.

Yes a safe haven. Why the NZX50 only dropped 4.1% in the last month, or 6.1% from its peak in the last month. Compare that to the S&P500 which dropped 6.4% and the ASX200 which dropped 5.8% in the same (about) period. Actually – aren’t those numbers kinda similar?

But hang on. Meanwhile the NZ dollar went from 79 USD cents back to 72.8 cents, so in reality (i.e. in  US dollar terms) the NZX50 dropped by 11.6% for the month, or 13.5% from its peak.

Put it another way – if you’d invested in the S&P500 and the NZX, and you think in NZ Dollars, then over the last month you would have lost 4 to 6% on your NZ investments, and gained 1.56% on your US investments.

So what would the smart investor have done? How do you pick which market and dollar will rise and fall in the future?

Any half-decent investor will tell you – diversify. Buy in both NZ and US markets, and include Australia, UK and get some real diversification into Europe, Japan and the rest of Asia while you are at it. Spread your money according to where the wealth in the world is – which means invest as much as you can overseas.

So diversify. But stay away from insurance companies and other shonky financial advisers:

Excessive commissions, free holidays and biased deals are plaguing financial advice in New Zealand

The incentives are so generous that commissions in New Zealand are among the highest in the developed world, adding as much as 30% to the cost of some insurance products.

It’s a great article, and needs more investigations. This is a particularly sad quote:

AIA does not offer volume-based commissions, a policy introduced in 2006 after its American parent company AIG was found to be rigging the quotes advisers offered US clients, and that it had been paying “contingency” commissions – essentially volume-based commissions – that were being kept secret from clients.
Since then many brokers had turned their back on AIA because its commissions were seen as too skinny.

And one last thing: Kudos to ASB’s PR folk, who managed to bamboozle at least NZPA and Stuff into the wonderfully misleading headline:

ASB has lowest Kiwisaver fees

NZPA

ASB Bank charged the lowest management fees for its balanced fund among the six default KiwiSaver providers…..

which ignores all of the other (some cheaper) Kiwisaver accounts.

So don’t forget the Kiwisaver fees, and let’s watch for the first returns. We shall see which funds really did have a balanced portfolio…

Why I am not excited about Vodafone’s free broadband..

1: 1 GB data cap, though you can sign up to other plans, with the largest 60GB and $2 per extra GB.

2: You need to spend $20 on tolls on your home line. Who uses these anymore?

3: I’m in Perth right now.

Actually, to be fair, all and every price decrease for mobile and domestic boradband is good. What I don’t understand is why Vodafone didn’t include mobile services, and especially mobile broadband in this deal. They are still charging $500 per GB when you go over your limit there, and a magnificently crazy $10-30,000 per overseas roaming GB.

<edit – fixed the spelling of Vodafone>

Mongrel Mob win HSEC award

This is pretty special – the Kawerau Mongrel Mob chapter won, through a trust, a contract for rigging and scaffolding at a power plant project, and have been performng very well.

Scaffolding is an integral part of safety on a site – you need to to make sure that people working on equipment cannot fall. That mean that the scaffolding itself need to be safe (we check ours for integrity each week or two), and it needs to be erected on time.

Actually building the scaffolding is tough to do safely, and so kudos the the Mob or getting it right, and to the head contractor for taking them on. The more of this legitimate work the NZ gangs can get and perform well the better it is for all of us.

so when should you buy XRO and BFW?

Xero and Burger Fuel both closed at 80 cents on Friday. That a huge drop from the IPO prices of $1, and even further from XRO’s listing price of $1.10.

XRO

nzx

BFW

nzx

So – after a 20-28% drop, is it time to buy?

Let’s deal with Burger Fuel first.

No. Not at all. (That’s a “Sell”)
Shareholders are absolute minority investors behind the founders, and the IPO deal was never even close to being a good one for investors.  Meanwhile BFW needs more cash at some stage, and existing investors will be squeezed down. Overall I would not touch it from a valuation or control point of view.

Now Xero.

I’m saying Not Yet. (That’s a “Hold”)

While most of the company is held by the founders, the quality of the board members gives  me a much better feeling about control issues. However there is still the distinct chance that existing shareholders will be squeezed down by another financing round.

Xero’s numbers were always difficult to justify to me – not backed up by tangible evidence that they would deliver. The product is out now, but is still pretty basic. The question is now how fast they can roll out the improvements so that Xero is clearly superior to, say, MYOB.

The team assembled is a very strong one, and I’m impressed with the idea of the well attended, it seems,  roadshows to accountancy firms.

So I’m waiting – and looking hard at the speed of feature development and, more importantly, the speed of adoption. Once that sort of data comes in, then I’ll use it to generate a at least partially fact based forecast and create a valuation.

Xero – the product

I’ve been playing with Xero’s demo, which is well worth looking at.

You land on the dashboard, which has a nice summary of what is going on. What is particularly pleasing though, in true Don’t Make Me Think style, is that you are not just looking at information, but you are being asked to do stuff.

xero

For example, in the top left corner ther eis a summary of onbank account:

xero

Xero is showing you that there are 12 unreconciled items, and is guiding you to reconcile the bank account numbers (which are downloaded automatically each night) with accounts payable or receivable.

Some quibbles with the demo:

xero

Xero doesn’t run in Safari. Not even the new version of Safari. Actually maybe it does, but I was not given the option. Score minus one point to start – I’m annoyed.

Your password does not meet the minimum password requirements. Passwords should contain 8 or more characters, one of which should be a number

Score another minus point – surely my password shouldn’t be an issue when signing up for a #$%#$% demo.

I can’t deliberately overpay an invoice (something I like to do), but accountants may not like me doing that.

Internet banking isn’t yet properly integrated – you still have to make payments through manual internet banking, which requires rekeying. Xero will import the resulting transaction details from your NZ bank accounts each night though.

The contact page shows just 12 people at a time – with no option to extend the number visible, and no <more> indication at the bottom of the list (there is at the top.)

OK -enough quibbles – they are working hard on the product.

There are some very nice UI tweaks such as the Google Finance-like charts with extendable periods:

xero

Xero’s communications to (potential) customers has to be rated highly – they do it via different channels, including the roadshows mentioned above, a blog, forum and excellent contextual help in the product. You can see that contextual help in the screenshot above – the brown ‘What’s this’.

Reporting is well enough implemented, and the excel export of reports seemed to work very well, with no bizzare formatting and strange column setups. However there does not seem to be an MYOB or other export feature, but I’m sure that is coming (or I just didn’t see it).

Here are the latest features, added in early August. As you can see (well you would if you followed that link) the new features are not exactly out there, but are basic essentials including a new sign up process, some tweaks to reports, and a landing page for those with multiple companies. So some work to do.

Indeed overall it all seems a bit spartan. There are plenty of gaps to fill, and I really don’t yet see any reason to start using Xero versus, say, MYOB.

As time goes by though we should expect to see the feature set improve, and I am looking to see seamless import/export to a range of programs, ability to work offline, ability to automatically pay invoices and fantastic handling of local tax conditions. and more. a lot more. I hope that Xero’s features will surprise and delight.

<update – check out Bwooce’s mini review of Xero and other accounting/invoicing products>

xtra mail customers are going to Yahoo! mail

The big mail transfer is finally coming… and not before time.  Telecom’s somewhat clueless (and expensive) marketers have managed to mangle thing though, for a start using the name “Yahoo!Xtra Bubble” for the new service.

Xtra subscribers will get moved to Yahoo Mail (the Beta is great), and will also get Flickr Pro, a 1 Gb Flickr “briefcase” and, interestingly, Norton Anti Virus. That NAV is a smart move for an ISP – maybe it will help prevent their customers computers being taken over by bots.

You have to marvel at Telecom sometimes – It seems to (a rather exceedingly cynical) me that the only reason to call this “Yahoo!xtra Bubble” was to create a new reason for throwing away marketing dollars. Have a look at the promo website, called, appropriately, yourbubble.co.nz.

Some quotes, one from each of the tabs:

Simply take a few minutes to complete the registration process (coming soon!) ….

i.e another premature marketing ejaculation, which reminds us all of some other Telecom site..

Create your own unique personal homepage that lets you customise the page to display the news, entertainment and information you want to see from a choice of over 300,000 content sources.

you mean like I already do on Google? and, well, Yahoo?? Why restrict this to paying subscribers?

With Yahoo!Xtra Messenger, you can exchange messages in real time over the web with your Xtra email address. No need to sign up for other services with hard-to-remember options and passwords.

That will be interesting – can Yahoo! messenger take on MSN in NZ? But what is with that gratuitous swipe on the second line?

Flickr Pro has loads of photo storage and you can upload lots of photos in high resolution.

Not exactly specific there. For the record, the Flickr pro upgrade costs $25US (included free here – it is owned by Yahoo!) and gives you unlimited storage, uploads, bandwidth and permanent archiving. Now what is so hard about saying that? or is this NZ-style Flickr Pro Crippled Version?

Coming soon…
Better Online Security for your computer.
Yahoo!Xtra Online Protection helps guards you and your computer against spyware, hackers, viruses and more.

I guess this is the Norton Anti Virus mentioned in the press release. Once again the marketing demons are too quick for reality.

So overall good news for Xtra customers  – Yahoo!Mail has to be far better than Xtra’s antiquated model, and  it locks in the Yahoo! part of the deal. The Yahoo!xtra website should benefit from cleaner integration with the mail client, and NZ will finally see penetration from one of the giants of the internet. I’m a big Yahoo fan – I’ve had an email address there since 1996 and use several of their services. Partnering with Xtra was always going to be a trying experience for them, so I for one am sticking to my US subscriptions.

Economy class sleeping – emerging reality?

They’ve mentioned this before about this before… and now it looks like AirNZ is going to try it.

Economy class bunks. From 2010.

“One concept showed berths stacked three-high in a herringbone layout along the sides, and another row stacked down the middle of the cabin. 

This is something that will allow tourism to NZ to accelerate beyond belief. I’ve been harping on about this for years. Bring it on.

Apple Numbers….

I’m playing with Apple’s new OSX spreadsheet – numbers.

numbers

It is lovely to look at – you can put multiple sheets on a page, and so you  can really drive to a good looking layout without worrying about the column sizes in the first table affecting how you lay out a table below.

Let’s try an import from excel (the above is an included template)

numbers

First up, there are some errors on importing, as Numbers does not support all excel features.  Errors I’ve seen include change tracking, outlines, some sorting criteria, and some conditional formatting. You can review the errors after the import.

After importing an excel spreadsheet, you can just grab the top left corner and start moving it around on the page. cool.

I can’t figure out how to get the equivalent of ‘freeze panes’ to work though. Not so cool.

A little menu arrow appears when you hover over a row or column tile (e.g. “A”). Click this and you can sort, insert a column before OR after or hide.

Interestingly, the import does not bring in the empty cells, and displays the charts that ou had on a sheet on the page. This is cool, as you are already in page layout mode and thinking about look and feel.

numbers

You would want to use Numbers when you have an excel spreadhseet that needs to look great. Charts get detuned on import, but you are then confronted with some very powerful beautification options. Numbers does not support secondary axes or mixed charts (e.g. bars with lines. Perhaps this is an Apple anti-complexity move.)

Overall it feels like Keynote versus Powerpoint. You can do more in Powerpoint, but it is much easier to make beautiful and effective presentations in Keynote. I’m going to invest the money to buy this and yje rest of iWork. The price is right at $99 Aussie or $109 NZ.

smh redesign

Looks like smh.com.au has had a brush over, as has The Age.

I like it.  It is much clearer than before, and the front page is really long. Interestingly enough the top left placement is a photo, which is not standard, and I expected a huge story, but it’s something I really don’t care about.

smh is also keeing the amount of text per article light – most often just displaying the headline, and just one line of text in the above the fold articles. I’m not so keen on this as it gives me less to grab on to, and the headlines just end up being lost in the crowd.

But still, the look is fresher and there is so much to potentially grab my attention.

smh

famous….in KR

Turns out Mod has plastered my photo all over his nice Brass Monkey article in the latest edition of KiwiRider. Gave me quite the shock when I was reading the mag on the flight back to Perth. It was an awesome Brass though.

Direct Broking versus eTrade – Fees

Fees for trading in NZ stocks seem to be still based on ancient premises – percentage takes and high rates. Here are ASB’s fees – they charge you the same $30 for a $500 or $10,000 transaction.

asb

Ditto with Direct Broking, who have a slightly lower ticket clipping rate, but still set the baseline at $30 per trade, and thus will charge you the same for a $500 trade and a $15,000 trade.

directbroking

In the USA it is all flat rate, and a much lower rate at that. Most normal investors would pay the $10 fee, which is almost a third as cheap as the NZ and Australian fees. A $30,000 trade in the US would cost $10, versus $90 on ASB and $60 on Direct Broking.

I daresay the execution on eTrade would be an order of magnitude better as well.

Even options are cheap to buy on eTrade:

etrade

eTrade.com manage to avoid those rising commissions for their global fees:

etrade

eTrade Australia also charges high fees and clips the ticket on larger transactions. They reward heavy traders with lower fees, but these pale in comparison with eTrade USA’s $10 trades.

etrade au

So either the market for retail broking is not efficient in Australia and NZ (another cosy NZ duopoly?), or the transactions are inefficiently managed resulting in higher costs, or the exchanges are charging higher fees….

…or all of the above, which is my uninformed pick.

On shorting stocks in NZ

Fisrt – a picture on why shorting sticks can be a good thing for your portfolio – here is the return on my US portfolio this calendar YTD (the green line) versus the S&P500 (in blue). When the market turned sour in the last weeks my portfolio has stayed up because of the somewhat balanced mix of long and short positions.

my us portfolio return this year

I’ve been scathing in the past of the inability to short on the NZX, but I read on Thursday, in the AFR of all places [no link because the AFR site is unlinkable], that apparently this restriction was lifted three months ago.

I’ve been searching the NZX site without much joy, but I do note that they have “sell short” as a term in their dictionary.

I also note this blog entry from John Dierckx last year which states:

“There are no limits on which companies you can short sell on the NZX. All you need to do is finding an institution willing to lend them for that purpose. “

However, John goes on to explain that:

“Many stockbrokers offer short selling as part of their range of products along with warrants and margin investing. It is usually an additional service provided by broking firms who will arrange the lending part of this themselves. This is not something offered to private investors usually, unless we are dealing with larger sophisticated investment client parties that understand and accept the risks involved. “

So no joy there either.

I’ve also been looking at Direct Broking and ASB Securities, and neither of them appear to offer short selling to retail investors. I’ll therefore take that it is still a no go area for Kiwis.

Of course you can always buy contracts for difference, but to me they look like the bucketshops of the 1920s, and they were one of the drivers of the 1929 crash. For background on that debacle I highly recommend reading Once in Golconda and Reminiscences of a Stock Operator.

I must say the CFD’s are tempting though – I would have loved to have been able to put my money where my mouth is and been short Burger Fuel and Xero in recent times.

Then again, being able to short as a retail investor would have been a much safer approach.