Jordah and welcome to Shed Lunch brought to you by Chase's. I'm Helen Madison, and today we look at what it's like to invest in times of conflict. The Israeli Iran US ceasefire is fragile at best, but it's been a new wrecking time for investors to find out what all this means. I'll be joined by Nicholas Bagnell, who is the founder of the global equities fund t Ahu Mairangi, and our own Chezi's Matt McPherson, who is the head
of Kbsaber. But before we get started, here's some important information.
Investing and involves a risk you might lose the money you start with. We recommend talking to a licensed financial advisor. We also recommend reading product disclosure documents before deciding to invest. Everything you're about to see and here is current at the time of recording.
Welcome Nicholas, and welcome Matt.
Thank you som the US.
Markets seem to have taken in their stride if you like the conflict that we've been seeing that's been playing out in the last fortnight or so. Nichourse, I wanted to start with you and to see what you thought about this business of riding back into positive territory when it is a time of conflict.
Yeah, I guess at one level, I am cautious about the level of equity markets, but I don't know that the conflict necessarily has wide negative implications for the share market.
It's there are very few Western companies that have much revenue from Iran or even from the Middle Eastern in total, which is different to say, the Ukraine Russian conflict, where you had quite a few Western companies that might have had two or three or four percent of their revenue coming from Russia before that conflict broke out, and that
essentially disappeared for them. So that the main main implication for companies that are operating in Europe and Asia and North America is what it does to the oil price.
Yes, oil has gone down up, and it seems like any gains that have retreated that didn't seem to happen from my memory with the Ukraine Russia situation so quickly. What is happening with the oil price? Is it? What are the reasons why it might have fallen again?
I'm no expert on it, but I think it's because Iran's done nothing as of yet to block the Straits of Humas, which takes oil in and out of the Persian Gulf, which I think is about twenty percent of the world's oil production moves through there, and that was the major concern that saw the oil price moving up as this conflicts was starting. I mean, it is still affecting oil supply because I gather that a lot of shipping companies aren't particularly keen to send to send ships
into the Persian Gulf. But you know, the world has been well supplied with a will in the last few months. Even when the oil price spiked up, it's i think still lower than it was a few months ago, so it's not at a level that's causing stress for many companies.
As you say, we're not quite sure where this will all go. I mean, the big question is where or what Russia may or may not do, And it may not be immediate, it may be a bit further down the track, and there has some commentators have suggested that they would want to kind of flex their muscle again in the Middle East, and that they might even help in some way to get Iran's nuclear capability back in some form. What's your view on the Russian situation.
I don't think the Russians want to be involved.
Again.
It looks to me like Putin is all about Russian self interest. He's not a man of principle and the you know, they were mates with Basha in Syria, but they didn't intervene when that regime falled, so fell. So I'm sure they'll use it to point to hypocrisy between the US and Israel breaching international law. While you know, they were condemned when they did it with Ukraine, but
they are fully occupied with Ukraine. They're struggling there. I don't think they want to divert any military resources to Iran.
What about our biggest trading partner, China.
They were happy to buy oil from Iran when the rest of the world was boycotting them. But I don't think that they have any interest in getting involved. So, yeah, we.
Shall see times ahead. I'll bring you in here speaking of conflict and times of conflict. We have launched today. She'sy's the self select for the key we Saver scheme that we run. And some would say, gosh, why would you be doing that when we've had a week like we have, So yeah, keen to get your thoughts on there.
Yeah, we launched about fifty five companies and ETFs from the US markets this morning. And I'm not going to say we weren't paying attention to what was going on, but I guess, you know, this US trading feature has been our most commonly requested feature from customers. We've been on this for several quarters. Our plans to bring this to life are phased over weeks. We have a lot of delivery and testing and things that we go through.
So I guess we just took our own advice, which is don't try and time the market, and so when we were ready, you know, we rolled out. That happened to be today. But yeah, nervous over the weekend about what was happening for our scheme. I guess also just nervous about what it could mean, you know, for the world, and or that people were in terrible situations as well in that part of the world.
Yeah, we must remember that too. So far, Chesse investors seemed to have not taken the fear too seriously with the conflict. There haven't been not of selling or panic or anything like that. Do you think there will be a bit more caution with something like this, though given the situation, who quite knows where it's going to end.
Yeah, I think so. I mean twenty twenty five has been pretty choppy, and we had Liberation Day in April, which was around the time that we launched another US themed fund. And I guess what we see more and more is a really mature who are kind of approach from investors around volatility. There has been a number of significant events we you know, I think people learned a lot from COVID about acting on emotion, certainly with respect to changing their their KIV saver kind of their funds.
And I think people, you know, you can be upset, you can be you can be concerned. But I think what people get, and I speak to a lot of customers about this, is they get that that the worst thing they can do is actually act in haste and try and you know, switch their settings off the base of sort of sentiment and things like that. So back to the basics. You know, understand your investment horizon, your your ability to be able to deal with volatility, and then you know, let time.
Work for you. Nicholas, You've been investing professionally for more than thirty five years. You've seen conflicts come and go. I'm conscious to see, and a lot of that was actually with ACC, wasn't it. I mean probably the majority of that time was with ACC. And you you're picking stocks for wholesale and retail investors. I'm keen to see what your views are on how to protect the assets of investors, particularly in times of conflict. I mean you will have seen a few, would you say to that.
Yeah, we follow a sort of a lower risk approach, So we emphasize investing in load to average risk companies and avoiding volatile companies where we don't have good visibility about future earnings. And that that does mean that we you know that the fund that we manage it tends to fall a lot less during market decline. So you know, certain types of companies, cyclical companies, the ones that are trading on high valueations, are more vulnerable in times of uncertainty.
So rather than relying on on making timely decisions when conflict breaks out, we at all times tend to hold companies with a relatively certain future that won't be too affected by you know, a spike in the oil price or something like that. I mean, you can you can still get caught out when when Russia invaded Ukraine. We had some companies that did have a little bit of earnings from Russia and that hurt us in a very
small way. But it's so it's partly about diversification, but it's it's also about not investing too heavily in companies that heavily dependent on economic conditions and over the long run, even though investors have done well from taking risk when they move from bonds into equities, within the equity market, there's been no better return from the highest risk companies than they are from the lowest risk. So there's no reward for risk within the equity market. There is from
moving from fixed interest into equities. So we prefer to invest in low risk companies within the equity market because.
You still think you can get the returns or history has shown and you can get the returns as opposed to sticking with the high risk which jumps into and has FAUMO and all of that. Yeah, okay, And that said, though, you need to be able to research those companies. For the poor old retail investor who's kind of looking around and seeing what their friends are doing and everybody else, that might be a bit more difficult, mightn't it.
Yeah, though generally I would say it's easier to research less risky companies than it is ones at the more volatile end, because if you're buying a Tesla or an Nvidia, you're you're really guessing about what they will look like in a future that looks vastly different from today. If you're buying a regulated utility or a company that's selling something like laundry powder, you know that that market's not going to be that much different in a decade time
than it is now. And if market shares shift, they shift slowly. So yeah, we as a general rule, we find companies where you can be relatively certain about the future, also the least risky ones.
Right, Okay, Matt. If we look at the self select key we saver launch that we've got, that's that's as you said before, fifty plus stocks. Are there any defense related stocks.
In that Yeah, I wouldn't say there are any that are specialist defense companies in that list. There are a number of companies that are classified as defense of aerospace set within say, within the index, within the s P five hundred, the companies like Boeing and Lockheed Martin and names like that, they are categorized. Those are not companies we offer individually, but they are components of several of the major indices.
So through ETFs, I could be investing in those, is what you're saying, that's correct.
And then there are other companies that have defense contracts. So companies Pounteers are pretty well known company that has defense contracts, even though it's not segmented as being a defense or aerospace company itself.
I suppose it's defining what defenses, isn't it. Whether whether we're talking manufacturer weapons, But there's many, many aspects. It's quite a general term.
Yeah, it's a challenging area, I guess because you know, companies probably like coke and pepsi and things probably supply to the defense force and so, but I wouldn't say that the defense orientated.
Companies interesting, isn't it? Yeah, Nicholas. If we look at the US dollar, that always has a bearing, particularly given it sort of like the global currency, if you like. I do know though that it went up and it went down a little bit like the old price. I suppose it does seem to be though that its popularity is less than perhaps during other conflicts I mean, we've seen a lot of sovereign funds, some central banks considering
their reserves being and other things besides the greenback. I'm just keen for your perspective on the US dollar and whether we think that has a bearing on So you're investing in the US, I think forty seven percent of the funders in the US. Yeah, So how does currency correlate with investing offshore? Particularly the US currency?
What's I mean? It is an essential part of your portfolio everists. I mean generally, if you're investing in companies that that operate globally, there's there's a there tends to be a partial offset between local currency, share price movements and currency movements. So if you're buying you know, the likes of Microsoft or Apple that is selling around the world, if the US dollar goes down, then the value of their non US revenues goes up, so you get a
partial offset. The I mean, I I don't have any strong views on the US dollar and certainly how it should be affected by the outbreak of the conflict that has tended at the very much at the margin to be a sort of a bit of a flight to safety sometimes and and and during you know, currencies like the end have tended to be more have have had a stronger tendency to outform during market weakness, but they don't necessarily when it's to do with strong oil prices
because they are neting boards over well. But I mean, the US economy has a lot of issues with big fiscal and trade death sits and and and certainly the what Trump is talking about doing in terms of the sort of revenge taxes could turn a lot of people off investing. And you know what is already that the world's most expensive share markets, so you know there are risks to holding that much exposure to the US dollar.
I guess what we see talking to customers is the big brands coming out of the states that are global that people buy from often the ones that people also want to own part of. And I guess that's why we have so many people asking us, you know, when we're going to include some US companies in our KIP saver.
People feel quite strongly about some of these brands, and they've been lifelong customers of them, So I think it's probably comes at it for US as more of a consumer kind of lead demand rather than the pure technicalities of investing.
I think.
Nicholas just thinking about New Zealand and whether or not this conflict and with an investor lens, whether that has any bearing for people here or our economy. Inflation, for example, there has been talked with that if oil prices do rise again, it'll be inflationary. Just ye, ken on your perspective.
Certainly, if oil prices rose a lot further than we've seen so far, they could have a bearing on inflation. And the New Zealand dollar is also can have a bigger influence. It's New Zealand dollars off obviously off, it's it's it's lows, which is deflationary.
But that's right, yeah, Matt. In terms of the keep we Saber funds, if oil prices were to rise and it was inflationary, what would there be an effect there? Can you explain what perhaps could?
I mean? The classic scenario is that if oil prices go up, businesses costs go up, they passed them on to consumers, which is inflationary, and then central banks around the world will want to step in and try and curb that by increasing interest rates. And you know, increased borrowing costs is generally not good for businesses, and so yeah, oil prices increasing, I think translates to a headwind for
business like globally. Now that's kind of the theory. I don't know what's going to happen in this situation where you know, but but yeah, I mean, rising oil prices translates to a lot of pain for a lot of people right throughout the system.
I think maybe a question for you, Nicholas, I mean rising oil prices, as oil as powerful as it used to be, as we decarbonize, isn't it eventually a sunset industry?
It is, And certainly oil consumption as a proportional GDP has come down over time, so it's less important than once was. And certainly I mean in terms of dollars, when when you're talking about whether it's six or seventy dollars, that's that is less significant for companies and and for inflation than when you were talking about one twenty or one forty. It's sort of so yeah, it's certainly what we've seen so far in the conflict is not really
moving the need all that much. And as I said before, you know, I think if you look back at the start of the year, we probably had oil prices but higher than they are today.
So yeah, yeah, that's right. Yeah, Matt, just getting back to something that you said before about investors and getting more use to volatility. What about if you don't have a lot of time, or that you're thinking you might like to get a deposit for a house. What can people be thinking about? What can investors be considering given that there could be more volatility? Or it's about writing it out.
Yeah, I think I'll just repeat like a really well tried in line here, which is, understand your investment horizon. If you are looking at investing in equities, have a ten year horizon. If you need your money back in less time than that, then think about are a more conservative allocation?
Mm hmm, as in you're thinking, yeah, look at it.
All depends on that time. I mean, you know, within a couple of years, you'd be looking at a conservative be certainly looking hard at conservative funds, you know, two to five balanced funds. We've seen a lot of people over time end up in situations where they were trying to take their money out at exactly the wrong time, and with hindsight, those people that they should have understood your investment horizon.
Now I want to ask you both before we finish, what should investors be thinking about when there is conflict in the world, given that a lot of our investors, particularly are invested offshore.
Nicholas, I mean, I would caution against making changes to your portfolio because of the outbreak of conflict. And you know, good investment is about choosing a portfolio. We shouldn't have to change it where you don't suddenly realize you've got a risk when conflict breaks out. So yeah, I would. I mean, sometimes market reactions or lack of reaction can create an opportunity, but there's there's no It's going to
be different each time. So you shouldn't think that there's some simple rule that you should buy something or sell something when conflict breaks out. You know, we're all always looking at companies trying to fore cars what future cash flows we think they can deliver to shareholders and see is that a good return and is it better than we can earn elsewhere, So we can repeating that in
analysis whether we've got conflict or not. But it's not. Yeah, there's no simple rule that you should buy A and sell B when conflict breaks out.
Matt, what's your perspective because I mean, a lot of key we saver investors probably you know, listen to the news or watch it and you know on social media, and we have a lot more coming at us now and it might be harder to resist fear or whatever might be happening at the time. So, yeah, what's your perspective. Yeah?
Interesting. On the weekend I saw a number of professional professionals and commentators advising people not to look at their KIPI savers again, and like, it's good advice, don't get me wrong, but it's also not the advice that those professionals follow themselves, you know, And so you know, if it's really good advice, then it should be for everyone.
I think just contrary to that, I think confident investors are comfortable with volatility and portfolio is they realize that that's an element of a healthy market and reflects that they've got risk in their portfolio, which over the long term, you know, risk equals well translates into into returns to something which type of risk. Yeah, I seen, But I guess the point is I'm not a believer in ignoring it. I think I think to become confident, I don't think
you should always put your head in the sand. I think the only way to get to get comfortable with it is through some experience.
Thanks Nicholas and Matt, and thank you for joining us. You can watch Shared Lunch on YouTube or follow us on your favorite podcast s app leave us a rating and tell us what you'd like to hear next. Ma Towa