The Aon Investment Update · 2013-08-25 · 4 The Aon Hewitt Investment Update The Bond Bubble Both...

July 2013

1

July 2013Aon Hewitt Investment Consulting

The AonInvestment Update

2

The Aon Hewitt Investment Update

Commentary 3-7

Discretionary Assets - Risk and Return 8

Discretionary Assets - Asset Allocation 9

Conservative, Balanced, Growth Risk Profiles 10

Overseas Equities (unhedged) 11

New Zealand Equities 12

Australasian Equities 13

New Zealand Bonds 14

Overseas Bonds 15

Cash 16

Alternatives 17

Property 18

Global Property & Income Funds 19

Explanatory Notes 20

About Aon Hewitt 21

Investment Forecasts 22

Economists’ Survey 23

Contact Details 24

In this issue

The ManagersAMPCI AMP Capital Investors (NZ)BROOK Brook Asset MgtBT BT Funds Management (NZ) LtdCFSGAM Colonial First State Global Asset ManagementEC Elevation Capital Mgt LtdHARBOUR Harbour Asset ManagementONEPATH OnePath (NZ) LimitedDEVON Devon Funds Mgt Ltd MAM Milford Asset ManagementMINT Mint Asset ManagementNZAM NZ Assets MgtRUSSELL Russell Investment GroupTAM Tower Asset MgtTYN Tyndall Investment MgtSALT Salt Funds Management

The IndicesNZ Equities NZX 50 (Gross)* NZX 50 Portfolio*Australasian NZX 50 (Gross)*Equities NZX 50 Portfolio*Overseas MSCI Gross in $NZ 0% & 100%Equities NZ Bonds ANZ Govt StockOverseas Citigroup Govt. World 100%Bonds Barclays Capital 100% Aggregate Cash ANZ 90 Day Bank Bill

*Includes imputation credits

Hedge


In this issue

NZ Equities NZX 50 (Gross)* NZX 50 Portfolio*Australasian NZX 50 (Gross)*Equities NZX 50 Portfolio*Overseas MSCI Gross in $NZ 0% & 100%Equities NZ Bonds ANZ Govt StockOverseas Citigroup Govt. World 100%Bonds Barclays Capital 100% Aggregate Cash ANZ 90 Day Bank Bill

*Includes imputation credits

July 2013

3

The June quarter delivered flat returns from the main investment sectors, though with renewed investment market volatility. The main feature was the material capital losses from bonds, which is discussed further below.

However, the returns for most periods ending June 2013 should have been strong for most investors.

The average returns achieved by wholesale managers operating in New Zealand over both the last year and the last 5 years (which includes the height of the global financial crisis) are provided below:

Bond Markets TurnInvestment Commentary June 2013

Manager Average Investment Returns to June 2013 (before tax and investment fees)

12 months%

5 years% pa

Cash 3.7 4.3

New Zealand Bonds 2.5 8.1

Overseas Bonds 6.9 9.7

Australasian Equities 28.4 8.7

New Zealand Equities 35.1 9.7

Overseas Equities 25.2 2.1

New Zealand Property 14.9 2.7

Alternatives 14.7 8.0

Discretionary Assets 14.6 6.3

Note: Overseas Bonds are fully hedged and Overseas Equities are unhedged.Discretionary Assets are ‘balanced’ fund mandates with the investment manager having discretion over asset allocation.

Striking is the big difference between returns from equities relative to bonds over the last year, though not over the longer period. Also noticeable is the stronger return from NZ equity only mandates compared to Australasian equity mandates.

4


The Bond BubbleBoth NZ and global bonds have delivered great returns over the last 10 years and longer. This has been an environment of falling interest rates, resulting in capital gains and, despite the global financial crisis amongst others, very few defaults of securities in the portfolios of wholesale investment managers.

Interest rates now have begun to rise, following comments by Bernanke on the likely ‘tapering’ of quantitative easing in the medium term. This has resulted in some material capital losses for both NZ bond and global bond mandates in recent months. This is illustrated in the table below:

The returns by managers of NZ bonds have been negative over the months of May and June, though April was strong. The returns over the first half of 2013 have been volatile, as illustrated below:

Gross returns over June 2013 Quarter

NZ Bonds Global Bonds

Index -2.2% -1.3%

Investment Managers

Average -1.3% -1.1%

Positive Returns 3 of 9 2 of 6

Indices are the ANZ Government stock index and the Barclays Capital Aggregate (100% hedged)-‐5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

-‐3.0%

-‐2.0%

-‐1.0%

0.0%

1.0%

2.0%

Jan-‐13 Feb-‐13 Mar-‐13 Apr-‐13 May-‐13 Jun-‐13

NZ bond returns

AMPCI BT Bond Fund BT Corporate Bond

Harbour NZ Core Harbour Corporate Bond OnePath

Fisher Funds Tyndall Tyndall Corporate Bond

NZ bond returns

Note that the three corporate bond funds performed relatively well over May and June. The other mandates also include corporate bonds together with government bonds and typically have an equal allocation between the two.

The first seven months of 2013 have seen substantial increases in the market yields on NZ government bonds, resulting in large reductions in the capital values of these securities. These changes reflect global bond markets, with some global managers reducing their exposure to NZ government debt. Changes in gross yields on NZ government stock are shown below:

July 2013

5

2.0

2.5

3.0

3.5

4.0

4.5

Jan-12 May-12 Sep-12 Jan-13 Jun-13

Gross Yields - NZ Government Stock

2 year 5 year 10 year

Gross Yields - NZ Government Stock

These changes in interest may appear innocuous. However, the impact on the capital value of bonds can be seen by considering changes in the market value of the NZ government bond maturing in April 2023 with a nominal interest rate of 5.5% pa. This bond was first issued during 2011. The market value of this bond, expressed per $100 of nominal bonds at month end over the last 2 years is shown overleaf.

6


NZ Equities have performedAs mentioned above, the other feature of the June returns has been the strong relative return of NZ equities against Australian equities.

It wasn’t that long ago that investors were after greater allocation to Australian equities, driven both by the higher returns from the then resources boom and a desire for greater diversification through a much deeper market.

Strong capital gains from mid-2011 to mid-2012 are clear, following by a period of stability and then the large capital losses over May and June. The bond is now back to its value in late 2011, though still has been a reasonable investment form those who purchased it earlier in 2011.

Some see the bond market as a bubble. If so, maybe it has burst. In any case, the expectation is for interest rates to be higher several years in the future, assuming that the global economy continues to sustain growth (albeit the rate may be slower than many would like). What we don’t know is how these increases will unfold. It would be nice if there was a gradual increase, but we expect there will be periods large increases and possibly others of falling rates. Volatility is likely to continue.

100

104

108

112

116

120

124

NZ Government Bond - 5.5% pa, matures April 2023NZ Government Bond - 5.5% pa, matures April 2023

July 2013

7

Gross returns over June 2013 Year

NZ Equities Australasian Equities Australian Equities

Index 32.3% N/A 22.8%

Investment Managers

Average 35.1% 28.4% 21.4%

Above NZ equity average 3 of 9 3 of 14 0 of 2

Changes to the surveyWe have made some changes in the classification of some investment products within the survey. This includes introducing an alternative section and splitting the Australasian equity table between index-aware and absolute return funds.

Given the on-going development of investment products and the relatively small number of wholesale investment managers in NZ, there will always be challenges in providing adequate groupings of investment products.

If you need any help with reviewing your fund’s strategic long term asset allocations please call your Aon Hewitt consultant.

Around 4 years ago, there was a trend away from domestic to global investments. This was seen as providing greater diversification and so reduced risk. Sentiment has changed over recent years, with a strong NZ economy making domestic investment attractive. For tax-paying investors, the ability to access imputation credits makes NZ equities even more attractive.

We have no doubt that Australian equity markets will perform again, and that investors should continue to pursue a diversified investment strategy.

Indicies are the NZX 50 gross (with imputation credits) and the ASX200 (AUD)

8


Discretionary Assets – Risk and Return

Returns (%) gross of tax and fees for

Funds the last the year ended 30 JuneManager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk 2013 2012 2011 2010 2009

AMPCI 43 -0.7 6 13.3 5 9.7 4 5.7 5 13.3 3.1 13.0 7.2 -6.9

MAM 34 1.8 2 20.9 1 11.7 2 20.9 5.8 9.0

NZAM 109 2.3 1 11.6 6 7.9 6 8.6 1 11.6 5.5 6.7 10.0 9.3

ONEPATH 364 1.0 4 18.4 2 12.6 1 8.4 2 18.4 4.4 15.4 13.5 -7.7

TAM 742 -0.7 5 13.4 4 8.6 5 6.2 4 13.4 2.8 9.9 11.7 -5.5

TYN 178 1.5 3 15.7 3 9.9 3 6.5 3 15.7 2.7 11.6 12.4 -7.9

Average 0.3 14.6 9.9 3.2 14.6 3.2 12.2 10.0 -6.9

Price inflation 0.2 0.7 2.3 2.1 0.7 1.0 5.3 1.7 1·9Wage inflation 0.8 2.5 3.2 3.6 2.5 3.4 3.9 2.8 5.3

AMPCI

MAM ONEPATH

TAM NZAM

TYN

0.01.02.03.04.05.06.07.08.09.0

10.011.012.013.014.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

Retu

rn (%

pa)

Risk

3 Year Risk/Return

AMPCIBalanced

July 2013

9

NZ OS Cash Aust OS Abs PropBonds Bonds Eq Eq Ret

-5 1 8 -2 1 -3

0 0 -2 0 2 0 0

2 -4 -7 8

-2 0 -2 1 3 0

0 -1 0 0 0 0

0 -1 0 0 1 0 0

Allocation at end of quarter Changes since last quarter (%)

AMPCI

ONEPATH

MAM

NZAM

TAM

TYN

0% 20% 40% 60% 80% 100%

NZ Bonds

Overseas Bonds

Cash

Australasian Equities

Overseas Equities

Absolute Return

Property

13 12 12 16 41 7

10 13 8 19 38 1 11

25 11 39 24

14 21 8 20 24 13

16 12 18 32 17 5

29 11 2 18 40

Discretionary Assets – Asset Allocation

10


Conservative, Balanced And Growth Risk Profiles

Returns (%) gross of tax and fees forFunds the last the year ended 30 June

Manager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk 2013 2012 2011 2010 2009

ConservativeAMPCI 14 -1.0 6.8 7.0 6.6 6.8 5.5 8.7 7.1 5.1

BalancedAMPCI 43 -0.7 8 13.3 7 9.7 6 5.7 5 13.3 3.1 13.0 7.2 -6.9AMPCI RIL 21 0.4 6 16.0 4 10.8 3 16.0 3.1 13.8MAM 34 1.8 3 20.9 1 11.7 2 20.9 5.8 9.0NZAM 109 2.3 2 11.6 8 7.9 8 8.6 1 11.6 5.5 6.7 10.0 9.3ONEPATH 364 1.0 5 18.4 2 12.6 1 8.4 2 18.4 4.4 15.4 13.5 -7.7TAM 742 -0.7 7 13.4 6 8.6 7 6.2 4 13.4 2.8 9.9 11.7 -5.5TYN 178 1.5 4 15.7 5 9.9 4 6.5 3 15.7 2.7 11.6 12.4 -7.9TYN SRI 10 2.6 1 17.2 3 9.8 5 17.2 2.3 10.5 8.5

GrowthAMPCI 5 -1.4 17.5 11.0 3.5 17.5 -0.6 17.2 7.1 -18.7

AMPCI

MAM ONEPATH

TAM NZAM

TYN

0.01.02.03.04.05.06.07.08.09.0

10.011.012.013.014.0

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

Retu

rn (%

pa)

Risk

3 Year Risk/Return

AMPCIBalanced

July 2013

11

Overseas Equities (unhedged)



AMPCI 330 10.4 1 25.4 5 10.0 2 1.5 5 25.4 -3.0 9.4 4.7 -22.7

EC Global Value 9 9.3 4 23.9 6 23.9 -0.8

EC Value 12 7.9 9 22.4 7 9.6 5 22.4 -3.6 11.6 8.3

ONEPATH 1,533 8.9 6 27.4 1 11.5 1 5.8 1 27.4 -1.8 10.7 9.3 -12.6

RUSSELL 77 10.0 3 26.7 3 8.8 6 3.4 2 26.7 -7.6 10.1 8.1 -15.2

TAM 544 8.2 7 20.5 9 6.2 8 2.1 4 20.5 -7.1 7.1 8.1 -14.5

TYN 50 9.2 5 26.9 2 10.0 3 2.7 3 26.9 -2.8 7.9 3.4 -16.9

TYN Multi-Manager 231 8.1 8 21.0 8 9.8 4 21.0 0.8 8.4 6.2

TYN SRI 10 10.2 2 26.6 4 8.6 7 26.6 -3.6 5.0 4.8

Average 8.9 25.2 9.3 2.1 25.2 -3.9 8.7 6.0 -20.0

Index (MSCI Unhedged) 9.2 23.4 9.4 2.4 23.4 -2.4 8.7 3.8 -17.2Index (MSCI 100% Hedged) 2.2 23.7 14.7 4.4 23.7 -1.9 24.3 13.0 -27.0

AMPCI EC Value

ONEPATH

RUSSELL

TAM

TYN Multi-Manager

0.0

2.0

4.0

6.0

8.0

10.0

12.0

6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0

Ret

urn

(% p

a)

Risk

3 Year Risk/Return

12


New Zealand Equities



DEVON NZ Core 89 1.7 2 30.9 4 14.6 3 12.3 2 30.9 -0.9 16.0 14.0 4.2MAM 367 3.8 1 38.9 1 21.5 1 15.2 1 38.9 8.1 19.4 11.1 1.7ONEPATH 94 1.6 3 33.8 2 17.4 2 10.9 3 33.8 2.2 18.5 10.3 -6.0SALT 78 -1.2 5 28.5 5 13.5 5 9.2 4 28.5 -3.6 18.1 14.1 -7.0TYN Core 73 -0.5 4 31.3 3 14.2 4 8.7 5 31.3 -0.8 14.5 9.5 -6.9

Average 2.3 35.1 17.2 9.7 35.1 2.7 16.2 8.5 -9.2

Index (NZX 50 Gross) incl I/C 0.5 32.3 15.9 8.3 32.3 0.0 17.5 7.5 -11.1Index (NZX 50 Portfolio) incl I/C 1.1 34.0 15.8 8.8 34.0 -0.4 16.1 10.4 -11.2

DEVON NZ Core

MAM

ONEPATH

TYN Core

SALT

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

8.0 8.5 9.0 9.5 10.0 10.5 11.0

Retu

rn (%

pa)

Risk

3 Year Risk/Return

July 2013

13

Australasian Equities

Returns (%) gross of tax and fees for

Funds the last the year ended 30 June


Index Aware

AMPCI 454 -2.5 11 28.1 11 15.1 7 8.8 8 28.1 0.7 18.3 6.8 -6.6

AMPCI SEGF 420 -2.5 12 28.6 10 13.9 9 8.5 9 28.6 -0.2 15.2 8.7 -6.3

BROOK Premium Share 3 4.0 2 36.7 2 17.1 3 11.1 3 36.7 1.4 15.8 9.2 -3.3

BROOK Tasman 9 2.2 4 32.3 6 13.2 10 10.0 5 32.3 -2.7 12.6 10.8 0.4

CFSGAM Core 639 -5.7 15 14.9 16 14.9

DEVON Australian 35 -2.0 10 19.9 15 19.9 -7.3

DEVON Trans-Tasman 67 2.3 3 28.9 9 11.8 12 6.7 12 28.9 -4.4 13.3 13.9 -13.0

HARBOUR 412 0.4 6 36.7 3 15.7 6 36.7 -4.6 18.9

MAM Trans-Tasman 139 -0.3 7 30.7 7 18.3 2 14.6 1 30.7 8.1 17.2 12.7 6.0

MINT 19 4.4 1 37.1 1 21.4 1 13.9 2 37.1 6.4 22.7 14.9 -6.7

ONEPATH 543 1.0 5 32.4 5 16.4 4 9.8 7 32.4 0.3 18.9 10.0 -8.3

ONEPATH Australian 382 -2.0 9 22.8 14 9.9 14 5.3 13 22.8 -8.6 18.2 12.7 -13.3

SALT Focus Share 52 -4.0 14 28.9 8 14.0 8 10.9 4 28.9 -5.6 21.7 10.4 2.7

SALT NZ Plus Share 294 -2.8 13 27.3 13 13.0 11 7.4 11 27.3 -5.3 19.8 8.0 -8.3

TAM 411 -1.3 8 33.3 4 15.8 5 9.9 6 33.3 1.6 14.7 13.7 -9.1

TYN Small Companies 21 -6.5 16 27.8 12 11.4 13 8.2 10 27.8 -6.8 16.0 19.4 -10.2

Absolute Return

BROOK Alpha 15 3.2 2 25.4 5 8.5 5 7.8 4 25.4 -5.0 7.3 10.8 2.5

DEVON Alpha 41 7.2 1 33.3 1 10.9 3 33.3 -1.7 4.0

MAM Active Growth 623 3.0 3 30.5 2 17.7 1 15.8 1 30.5 12.7 10.9 14.1 11.8

ONEPATH ESF 91 1.3 4 26.8 4 15.3 2 9.7 2 26.8 2.8 17.5 11.6 -7.0

TYN Aggressive 125 -2.8 5 28.3 3 9.9 4 9.5 3 28.3 -5.9 10.0 16.3 1.9

Average -1.2 28.4 13.8 8.7 28.4 -1.0 15.9 10.6 -7.1

Index (NZX 50 Gross) incl I/C 0.5 32.3 15.9 8.3 32.3 0.0 17.5 7.5 -11.1

Index (NZX 50 Portfolio) incl I/C 1.1 34.0 15.8 8.8 34.0 -0.4 16.1 10.4 -11.2

AMPCI

BROOK P-S HARBOUR

MAM T-T

MINT

ONEPATH

SALT P-S

TAM

TYN Small Companies

BROOK Alpha

DEVON T-T

ONEPATH ESF

DEVON Alpha TYN Agg

MAM A-G

4.05.06.07.08.09.0

10.011.012.013.014.015.016.017.018.019.020.021.022.0

4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 20.0

Retu

rn (%

pa)

Risk

3 Year Risk/Return

ING

ING ESF

Index aware

Absolute return

14


New Zealand Bonds



AMPCI 1,584 -1.5 7 2.2 7 6.9 5 9.1 1 2.2 11.3 7.2 9.4 15.8BT 353 -1.6 8 1.5 9 6.1 8 7.6 4 1.5 9.7 7.5 8.7 10.9BT Corporate Bond 285 0.4 3 6.3 2 7.0 4 7.6 5 6.3 7.2 7.6 9.3 7.6HARBOUR 71 -0.5 5 4.0 5 4.0HARBOUR Corporate Bond

110 0.5 1 5.5 3 6.3 7 5.5 6.0 7.3 10.2

ONEPATH 1,002 -1.9 9 1.8 8 7.1 3 7.0 6 1.8 11.3 8.5 11.0 3.1TAM 900 -1.3 6 2.2 6 6.4 6 8.0 3 2.2 9.3 7.9 9.3 11.7TYN 153 -0.5 4 4.7 4 7.6 2 8.2 2 4.7 10.1 7.9 10.7 7.8TYN Corporate Bond 95 0.4 2 6.6 1 7.9 1 6.6 8.3 8.8

Average -1.3 2.5 6.8 8.1 2.5 10.3 7.6 10.3 9.9

Index (Govt Stock) -2.2 0.0 5.8 7.1 0.0 11.0 6.8 8.2 9.8

AMPCI

BT Bond Fund HARBOUR

Corporate Bond

ONEPATH

TAM

TYN

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

10.5

1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0 3.2 3.4 3.6

Retu

rn (%

pa)

Risk

3 Year Risk/Return

July 2013

15

Overseas Bonds



AMPCI 190 0.2 2 5.7 3 6.3 4 8.8 3 5.7 6.5 6.8 20.3 5.2CFSGAM 1,806 0.6 1 9.5 1 9.5ONEPATH 942 -1.7 5 3.3 6 5.7 5 7.7 5 3.3 9.6 4.2 8.9 12.9RUSSELL 1,143 -1.4 4 7.5 2 8.8 2 10.6 1 7.5 12.3 6.6 17.3 9.4TAM 1,295 -3.0 6 5.3 4 8.9 1 9.7 2 5.3 13.9 7.5 20.4 2.1TYN 156 -1.3 3 3.8 5 6.3 3 7.8 4 3.8 9.7 5.7 12.3 8.0

Average -1.1 6.9 8.3 9.7 6.9 11.8 6.4 15.9 8.0

Index (Citigroup) -1.0 4.0 5.7 7.5 4.0 9.8 3.5 8.1 12.4Index (Barclays) -1.3 4.0 6.1 8.0 4.0 9.5 5.0 10.4 11.2

AMPCI

RUSSELL TAM

TYN

ONEPATH

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

2.4 2.6 2.8 3.0 3.2 3.4 3.6 3.8 4.0 4.2 4.4

Retu

rn (%

pa)

Risk

3 Year Risk/Return

16


Cash

Returns (%) gross of tax and fees forFunds the last the year ended 31 March


AMPCI 3,232 0.9 5 3.6 5 3.8 2 4.5 2 3.6 3.5 4.3 4.0 7.0BT 675 0.9 4 3.5 6 3.6 5 4.2 5 3.5 3.2 4.0 6.4 3.7CFSGAM 748 0.9 6 3.9 4 3.9HARBOUR 14 1.0 3 4.2 2 4.2ONEPATH 1,355 0.8 7 3.5 7 3.6 4 4.2 4 3.5 3.5 4.0 3.9 6.2TAM 728 1.0 2 4.7 1 3.8 3 4.3 3 4.7 2.8 3.8 3.4 6.7TYN 308 1.0 1 4.1 3 4.2 1 4.9 1 4.1 4.0 4.4 4.2 7.6

Average 0.9 3.7 3.7 4.3 3.7 3.4 4.0 4.1 6.2

Index 0.6 2.7 2.9 3.5 2.7 2.8 3.1 2.9 6.2

AMPCI

BT ONEPATH

TAM

TYN

3.0

3.5

4.0

4.5

5.0

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0

Retu

rn (%

pa)

Risk

3 Year Risk/Return

July 2013

17

Alternatives



MAM 38 1.9 4NZAM 777 7.0 1 15.9 1 7.4 2 7.6 2 15.9 1.6 5.1 7.4 8.5NZAM Alpha 4 3.2 2TYN 48 2.7 3 15.4 2 11.0 1 6.7 3 15.4 2.9 15.1 15.2 -12.1TYN Bond Option 138 -2.8 5 8.8 3 6.9 3 7.8 1 8.8 -8.4 22.6 20.9 -1.3

Average 5.2 14.7 7.7 8.0 14.7 1.1 7.8 9.1 7.9

TYN

NZAM

0.0

2.0

4.0

6.0

8.0

10.0

12.0

3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0

Retu

rn (%

pa)

Risk

3 Year Risk/Return

18


Property



AMPCI 232 2.5 1 10.6 8 6.3 7 -5.6 5 10.6 8.9 -0.3 -21.5 -20.5AMPCI Listed 22 0.4 5 18.9 3 17.9 4 4.2 5 18.9 14.2 20.5 11.0

CFSGAM 73 -1.7 8 16.4 5 16.4

MINT 64 0.6 4 19.9 2 18.1 3 8.5 3 19.9 12.4 22.2 10.5 -17.5ONEPATH 95 0.8 3 20.7 1 19.0 1 8.9 1 20.7 12.8 23.9 12.5 -19.4SALT 216 -0.2 7 17.5 4 18.4 2 8.7 2 17.5 12.7 25.3 12.6 -18.9TAM 276 2.2 2 13.0 7 7.8 6 3.8 4 13.0 3.9 6.7 4.2 -7.5

TYN 38 -0.1 6 15.9 6 17.4 5 15.9 13.0 23.4

Average 1.1 14.9 11.9 2.7 14.9 9.2 11.8 0.0 -18.4

AMPCI

MINT ONEPATH

TYN

TAM

SALT

-6.0-4.0-2.00.02.04.06.08.0

10.012.014.016.018.020.022.0

2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0

Retu

rn (%

pa)

Risk

3 Year Risk/Return

July 2013

19

Global Property

Income FundsReturns (%) gross of tax and fees for

Funds the last the year ended 30 JuneManager ($m) 1 qtr Rk 1 yr Rk 3 yrs Rk 5 yrs Rk 2013 2012 2011 2010 2009

BROOK 3 2.2 2 11.0 5 11.0DEVON 30 2.3 1 24.1 2 24.1HARBOUR 40 0.5 5 30.2 1 30.2MAM 427 2.1 3 20.9 4 14.8 2 20.9 10.9 13.0TYN 4 -0.7 6 6.6 6 8.3 3 8.9 2 6.6 3.8 14.9 13.6 5.8

Average 1.9 21.3 15.0 21.3 10.5 13.4



AMPCI 175 -2.9 3 16.0 1 19.3 1 6.7 1 16.0 5.3 39.1 42.5 -43.0ONEPATH 236 -2.1 1 15.7 3 17.8 3 4.9 3 15.7 4.6 35.0 37.6 -43.6

Average -2.4 15.9 18.0 5.2 15.9 4.7 35.4 36.4 -42.5

20


Explanatory Notes

Other investment consulting services include:

• Establishing investment objectives for both our clients and investment managers;

• Determining long-term investment strategies, in the form of benchmark portfolios and sector ranges, consistent with the investment objectives;

• Determining the efficient frontier and risk/return profiles;

• Performance monitoring, against both investment objectives and competitors;

• Reviewing contractual agreements and legal documentation;

1. Returns are before management fees and tax and are generally per annum, except for quarterly returns which are per quarter.

2. Discretionary Assets are those for which the manager considers they have full discretion over stock selection and asset allocation.

3. Australasian Equities

AMPCI’s returns are those of their actively managed portfolios only.

4. Overseas Sectors

The returns are in $NZ and exclude the effects of currency hedging on Equities and include the effects of currency hedging on Bonds, Global Property and Absolute Return Funds.

5. Overseas Equities

AMPCI’s returns are those of their actively managed portfolios only.

Aon Hewitt InvestmentConsulting Service

6. Property

The returns in this table are influenced by the allocation to direct investment and holdings in listed vehicles. In the case of direct investment, the valuation approach and timing adopted by the manager will influence the returns.

7. In the compilation of the risk/return plots, risk is measured by the standard deviations of monthly returns over the period. The 3 Year Risk/Return “snail trail” charts show the change in 3 Year Risk/Return from the previous year to the current one.

8. Average return is the asset-weighted average return.

9. Rankings on returns are calculated using more than 1 decimal place. Where managers have the same return rounded to 1 decimal place but different rankings, the rankings reflect the returns to more than 1 decimal place.

10. Index data was provided by AMP Capital.

• Assisting in the appointment of investment managers, by:

- Establishing the selection criteria;

- Identifying suitable investment managers;

- Analysing investment managers’ capabilities against the criteria; and

- Carrying out qualitative reviews.

• Communication of investment objectives and strategies to investors; and

• Asset/liability modelling.

This quarterly survey is produced by Aon Hewitt New Zealand.

July 2013

21

About Aon Hewitt New Zealand July 2013

Part of Aon plc, Aon Hewitt is theworld’s leading HR consulting andoutsourcing firm. We empowerorganisations by advising anddelivering integrated HR solutionsthat help employers achieve businessresults and create better outcomesfor employees.

At Aon Hewitt, we know that everyorganisation is only as great as itspeople. That’s why we work withclients to make sure their people arepositive, productive and secure intheir future. Only then can theyachieve remarkable results fortheir organisation.

We also recognise the importanceof safeguarding individuals’ financialwellbeing as well as their physicalwellbeing. Our Wealth Managementbusiness helps individuals to meettheir wealth creation, protectionand retirement planning needs.

In New Zealand, Aon Hewittprovides consulting services andsolutions to clients in the areas of:• Aon KiwiSaver Scheme• Aon Master Trust• KiwiSaver and superannuation administration• actuarial and investment consulting• engagement and leadership• remuneration surveys and analytics

• performance and rewards consulting• health and benefits• global benefits.

With more than 30,000 professionalsin 120 countries, Aon Hewitt makesthe world a better place to work forclients and their employees.

About AonAon plc is the leading global providerof risk management, insurance andreinsurance brokerage, and humanresources solutions and outsourcingservices. Through its more than65,000 colleagues worldwide, Aonunites to empower results for clientsin over 120 countries via innovativeand effective risk and people solutionsand through industry-leading globalresources and technical expertise.Aon has been named repeatedlyas the world’s best broker, bestinsurance intermediary, reinsuranceintermediary, captives manager andbest employee benefits consultingfirm by multiple industry sources.Visit aon.com for more information onAon and aon.com/manchesterunitedto learn about Aon’s globalpartnership and shirt sponsorshipwith Manchester United

22


The Aon Hewitt Investment ForecastsConducted during July 2013

Investment SectorOver the current year

1 Jul 2013 - 30 Jun 2014Over the next five years 1 Jul 2013 - 30 Jun 2018

Average Dispersion Average Dispersion

NZ Cash3.0% (0.1%) 3.9% (0.5%)

2.8% (0.2%) 3.6% (0.4%)

NZ Fixed Interest3.0% (2.5%) 4.3% (1.6%)

2.7% (2.7%) 3.8% (1.5%)

NZ Property6.1% (1.5%) 7.0% (2.0%)

5.3% (1.0%) 6.8% (1.9%)

NZ Equities7.5% (3.9%) 8.3% (2.0%)

6.3% (3.5%) 9.0% (1.5%)

International Fixed Interest2.7% (2.5%) 3.9% (2.0%)

2.2% (3.7%) 3.4% (1.2%)

International Equities4.8% (9.0%) 7.1% (2.9%)

6.0% (0.7%) 7.6% (1.0%)

Inflation Rate1.9% (0.5%) 2.4% (0.5%)

1.8% (0.4%) 2.5% (1.0%)

1. Participants were asked for their estimate of the annual rate of investment return before tax and expenses for a New Zealand dollar investor. The figures shown are the average of all responses received. Figures in brackets give a mea-sure of the dispersion of responses, and are equal to the second highest response less the second lowest.

2. The figures in italics are the results of our (April 2013 survey.)

3. These results may be reprinted in whole or in part, but attribution to Aon Hewitt would be appreciated.

4. The information contained in this report is provided for general information purposes only. It is given without knowledge of your individual circumstances and should not be used as a substitute for you seeking your own inde-pendent professional advice. No liability will be accepted for loss resulting from reliance on information contained in this report which proves to be inaccurate and/or incomplete.

Notes:

Contributors to the survey were:

BT Funds Management (NZ) LimitedDevon Funds ManagementFirst NZ Capital

Fisher FundsHarbour Asset Management LimitedOnePath (NZ) Limited

In 1 year’s time In 4 years’ time In 7 years’ time

Average Dispersion Average Dispersion Average Dispersion

Inflation rate as measured by CPI

2.0% (0.1%) 2.3% (0.2%) 2.3% (0.1%)

1.8% (0.4%) 2.3% (0.3%) 2.4% (0.3%)

Rate of increase of Average Weekly Wage

2.6% (0.9%) 3.1% (0.5%) 2.9% (0.3%)

2.5% (0.7%) 3.0% (0.3%) 3.0% (0.3%)

Real interest rate (i.e., yield on 10 year Govt stock, in excess of inflation)

2.3% (0.2%) 2.8% (0.2%) 3.1% (0.2%)

2.5% (0.5%) 2.9% (0.0%) 3.2% (0.2%)

Rate of growth of real GDP

3.1% (0.4%) 2.3% (0.4%) 2.4% (0.5%)

2.8% (0.5%) 2.2% (0.4%) 2.5% (0.2%)

Trade Weighted Exchange Rate (TWI)

74.1 (2.7) 67.8 (2.9) 65.5 (5.1)

75.9 (1.2) 66.4 (6.0) 65.6 (5.1)

July 2013

23

The Aon Hewitt Economists’ SurveyConducted during July 2013

1. The figures shown are the average of all responses received. Figures in brackets give a measure of the dispersion of responses, and are equal to the second highest response less the second lowest.

2. The figures in italics are the results of our (April 2013 survey.)

3. These results may be reprinted in whole or in part, but attribution to Aon Hewitt would be appreciated.

4. The information contained in this report is provided for general information purposes only. It is given without knowledge of your individual circumstances and should not be used as a substitute for you seeking your own independent profes-sional advice. No liability will be accepted for loss resulting from reliance on information contained in this report which proves to be inaccurate and/or incomplete.

Contributors to the survey were:

ANZ Bank (NZ) LimitedBNZDeutsche Bank (NZ) Limited

First NZ CapitalNZIERUBS NZ Limited

Notes:

24


Christchurch388 Blenheim Road, ChristchurchPO Box 2058, Christchurch 8140Tel: 64 3 367 2800Fax: 64 3 367 2899Email: [email protected]

Visit our website at www.aonhewitt.co.nz

AucklandLevel 2, AMP Centre, 29 Customs Street WestPO Box 3167, Shortland StreetAuckland 1140Tel: 64 9 362 9000Fax: 64 9 362 9821Email: [email protected]

WellingtonLevel 2, State Insurance Building,1 Willis St, WellingtonPO Box 2764, Wellington 6140 Tel: 64 4 819 4000Fax: 64 4 472 0100Email: [email protected]

Aon Hewitt New ZealandConsultants and Actuaries

The information used to compile this survey has been provided by the investment managers or is from publicly available sources.

The information contained in this report is provided for general information purposes only. It is given without knowledge of your individual circumstances and should not be used as a substitute for you seeking your own independent professional advice. No liability will be accepted for loss resulting from reliance on information contained in this report which proves to be inaccurate and/or incomplete.

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