Kyoda.
Welcome to Shared Lunch, brought to you by Chase's. My name is Halen Madison. We're looking at two things today. The first is the new Chasy's US five hundred key we Save fund, and given that, what is the state of the US markets. I'll be joined by Christa Leiba, the head of Global and multi asset Investments at Harbor Asset Management, and by our very own Chaza's head of super and Funds, Matt McPherson. But before we get started, here's some important information.
Investing involves the 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 record.
Welcome Chris and welcome Matt to the program.
Thanks Hellen.
Chair Za's has just launched its own US five hundred fund, which is managed by Vanguard and tracks the famous S and P five hundred. Matt, that's been pretty popular. What is it about this fund that that is so popular?
Yeah, really popular with our investors. The single most popular option on Chersey's and I guess there's a few reasons that. The first is it's a great way of getting exposure to those large US companies without having to go through and pickstocks yourself. So it comes with diversification because it's
over five hundred companies in the index. I guess. The other point is that ETFs tend to be much lower cost than say a managed fund, So there's sort of combination of reasons that they are really really popular.
Chris, the US markets have been up and down, as we know, Tariffs are on, they're off, they're paused all over the show, and there's been a concern about the US economy investing in US stocks. Now, what would you say investors need to think about?
So far this year, it has been all about tariffs, but there are actually some other things that might be slipping under the radar a little bit for investors because the talk has been so dominated by tariffs. And something I draw out is that we're in the midst of
the US earning season. Currently, we've had ninety percent of companies report, We've had seventy seven percent of those companies beat consensus earnings expectations, So a lot of your viewers will be thinking that well from the early part of April. Actually markets have bounced back quite substantially. One of the key reasons for that has been the earning season, but it's it's also been the outlook statements from the companies
that we've seen. Outlook statements have actually been relatively strong, a lot of resilience shown in the face of what is quite an uncertain tariff environment. Coming in to the year, the US market was expected to grow quite substantially. We had the average price target the S and P five hundred b substantially in the double digits from most south side brokers. Obviously, what we've seen so far has been a little bit disappointing, and part of that is a
reflection of where the economic data is lay. So so far this year, the US has slowed down. In the first quarter, it looked to be slowing down quite markedly. So we have some real time measures of US GDP like the GDP now measure, and that came down quite substantially. Subsequently, though it's bounced back, So what we're seeing in the US is a slow down, but actually from a relatively high level. Now with tariffs, who knows is the real
comment there? We will see ebbs and flows, but what I can point out over the last month is that we've gone from a point we're thinking that this is going to be absolutely disastrous and we're going to have extremely high tariffs to the direction of travel being one that's quite incrementally positive. But it is President Trump, and we know that it can be unpredictable and that can unsettle markets a bit. But I just don't think it's
all about tariffs. Take into account that the US economy is slowing but not too bad, and earnings remain to be resilient, and for long term investors, share prices tend to follow earnings through time.
Matt.
When we look at the US five hundred fund that Cheesy's has launched, this is a key we saber fund. This is not just a fun that you can jump into on your Cheesys app if you like. That's a bit different pretty much to what has been out there. Now.
Can you tell us how significant that changes.
There are a few other key saber funds that allow you to invest into the SMP five hundred already. I guess what differentiates it from some of the other funds that we offer, though, is that it's one hundred percent invested into equities, so it comes it's classified as an aggressive option, it comes with a higher risk indicator, which means higher volatility people need to be comfortable with, and it comes with the potential of higher returns over the
long term. Now, before we launched this fund, we actually prioritize to feature that enables people to split their key saver across multiple base funds. And the reason we did that is because people said they wanted to invest more than five percent of their kivsaver into the S and P five hundred.
And that five percent is that because that's what the scheme.
Has been a self select option since we launched our scheme a couple of years ago. They won more than five but they don't necessarily want to invest one hundred percent of their kipsaver into a fund that only invests in US equities. And that's how we're seeing it used so far. People are generally adding some US five hundred to their investment plan rather than replacing their managed fund provider completely.
So is that how it works.
You actually need to be able to just you could go one hundred percent. You obviously can go more than five percent, which you can now with self select, but you can't actually with self select invest in the US can you?
Yet you can via some of the inside x ETFs that we offer.
Chris, what do you think the risks are for investors thinking about the US markets? You've said that things look pretty positive yues has been a bit of a slow down. Some of those companies are really well established, you know, big balance sheets, all of that sort of thing, compared to what's happening in Australasia. Anyway, there's still always risk and there's volatility. So I suppose it depends on someone's appetite. What would you say?
Yeah? So one of the rests I draw out is when you're investing in the US market, you're inheriting US dollar exposure as well. So the US share market may go really really well, but investors have to be prepared for the potential outcome that currency, particularly over the shorter term, might move things around a bit. So you could have a scenario we are investing in the US market, US market's done ten percent, you might be thinking your key
we save has done quite well. However, it could be during a period where the US dollar is weakened and if the US dollars a weekends by ten percent by the time that is in New Zealand dollars, that that would be a flat sort of return. Look, that's not my base case by any means, but it's simply saying that there are two key levers in this investments, how the shares do, but also the currency on the US market overall. It's the world's biggest market for a reason.
There's the key global share indices that people use tend to have a sixty to sixty five percent allocation to the US. So I wouldn't look at its risk profile as being that different than say a global share fund. There are some geographical considerations you need to take into account. Obviously, the US market will have sensitivities more to US policy. There can also be events that hit the US harder
than other economies around the world. So those are just a few things to take into account when looking at a fund of that nature.
Even so, Matt, given what has been happening in the US and the level of volatility, there would be some viewers and listeners probably thinking is my key we say was safe if I start investing even a proportion of it in the US.
Of For sure, I think one thing that gives me a bit of confidence is there. There's a lot of uncertainty and change at the moment. We all appreciate that. I think if you go back in time, we would often say that same thing. At the moment, things feel very uncertain. And what we find is over time, those big, well run, successful American companies there's a lot of energy that comes from that and a lot of focus on
solving problems. So one of the reasons these companies have become successful is because they are really good at solving hard problems. And so I guess I take a little bit of confidence that we've got some focus and some very big brains working on how to solve whatever the problem of the day is. And at the moment, it feels like the problem of the day is maybe some
of the policies that's coming out of the States. But go back a couple of years ago, we also had at the time probably what felt like equally or even larger issues with things like the pandemic. And this is repeated over time.
Matt. It's quite interesting. I was talking to a US invest or the other and we're talking about this very thing, and he said to me, just imagine that you were sitting there in twenty nineteen and someone came up to you and said, over the next five years, you're going to have a global pandemic, so you're all going to be locked down for months on end. Then once we get out of it, you're going to have the worst
inflation that you've had in recorded history. Then we're going to increase interest rates by the most that we ever have in history, and the response to that will be a second bear market? And what sort of return would you expect over that time? And you kind of go, well, that's a lot to put into five years, And the
answer is returns have actually been above average over that time. So, I mean the lesson in that for me is that sometimes when you look at the headlines, you can go, look, this is really scary, But the reality is, is it more or less scared than a pandemic, two or three bear markets depending on the time, and the highest inflation and interest rates ever, that probably seems a little bit light or even on par relative to those particular events.
Yeah, I guess that's why understanding your investment horizon is probably the most important thing you can do before you're making any decisions, because in any one of those situations. If you were thinking short term, you probably would have been really upset, and if you're thinking long term, you probably would be you know, you're feeling confident that you've made the right decisions.
There are some fund managers in Europe and the Light though, who have been pulling back a bit, not pulling out of the US markets. They're still in there, but they have been just gradually pulling back because they've been feeling a bit skittish about the Trump administration and they are actually thinking that structurally their allocation will be somewhat different. And this may be a longer term thing because it will happen gradually over time.
Chris, just keen for your on that.
Yeah, so starting point matters in this discussion because coming into twenty twenty five, foreign ownership of US shares was at all time highs. And if we think about the narrative coming into twenty twenty five, it's that the US has got the best companies at the forefront of AI
economy is chugging away really, really well. And it's actually the reversal of some of those themes as opposed to Donald Trump himself that's actually driving and it's not in the figures I've seen is that they're certainly not leaving in their droves. I would more classify it as being they've gone from an overweight position and a very optimistic view of the market to probably nearer to longer term benchmarks. So, as I said, it's not all Trump. Deep seek was
a really big factor in this. So we had coming into the year this deep consensus that the U US is just going to completely own AI. China won't get a look in because the US cut off the fastest chips are to China. Now they're able to innovate. I don't know how, it doesn't really matter how. The fact is they're there. They're a player. It's not just Deep Secrets. It's Baidu, it's ten Cent, it's Ali Barber. So that has been one of the reasons why we've seen some
investor interest go away from the US. The other is what's happening in Europe at the moment. Now we're actually starting to see some fiscal impulse in Europe, so we've had some budget relaxation rules within the EU. It means that Germany has past a spending package that is going to pump a lot of stimulus into their economy. We're starting to see at the margin a little bit more stimulatory policy from France and Italy as well. So this is from economies that have been in austerity for the
past fifteen years. So that has been a fundamental change which has led people to reduce their overweight positions from the US. I think we've just gone from a point where investors thought that the US was probably just their only choice or their best choice, to one where people are looking at Europe saying, look, valuations are a bit more reasonable over there, and actually things perhaps weren't as bad as we thought overall.
Are we seeing those fund managers in Europe particularly okay, they might be investing in their own or they might be investing in, say, Asian markets.
What do you think of that?
I think where the tide has rarely turned, as in China and Hong Kong stocks. You'll remember the narrative around just the past couple of years actually, of many people questioning whether these stocks are investable or not. The latest starter we're seeing is that investors are starting to go back over there. Why well, we're starting to see a
little bit of stimulus come out of China. They know that Trump's tariffs are going to be a big challenge on their economy, so they're meaningfully pumping the accelerator when it comes to stimulus in their economy. And actually the other thing too is the stocks there are cheap. Now, if we are to draw one criticism of the US market, it is that the valuations in the market are relatively high.
So investors might look at some of the companies in Asia and go, well, actually, relative valuation wise, although there's risks, I'm happy to step in.
Now.
If we get back to the US five hundred fund that she has launched. You said it was the most popular feature that we've been asked for for key we Saver, But are people putting me their money where their mouths? Are they actually investing and deciding that will use this for Keysaber.
Yeah, we launched about a week ago. We've seen quite a good response on people switching to our scheme. We've also seen a lot of our members add the US five hundred fund to their investment plans or rebalance their portfolios to include more of it. And the third group we've seen is around ten percent of the people who have signed up in that last week haven't been in
key SABER before. And that's really interesting because I think through a combination of great experience and access to a wide range of product, we're managing to engage people who for whatever reason, have not been part of KISABER in the past. And what we see is that a lot of these people are self employed.
Of course, just thinking about other SCA classes, we've focused on shares predominantly in this conversation, What about bonds?
What about gold that's having another resurgence.
Are you seeing with global investors and investors here at home even thinking about other asset classes beyond equities?
Yeah, so bond yeards been attractive for some time. We saw as the market was really worried about tariffs, we saw bond yields fall quite substantially, so they got down to around three point eight percent for the US ten year yield, So that provided a bit of a cushion as shares were falling quite substantially over that time. Since then, we've actually seen a bounce back up, and part of that is just around the worry that the market has around the amount of debt that the US might need
to raise and the more supply of bonds. Obviously that puts pressure on bond yields, So the returns there have been okay. I still think on a go forward basis they look relatively attractive. Gold has been an interesting one, and I suspect part of the resurgence that we've seen in gold is there has been an uptick in the US and inflation expectations. So there's a University of Michigan measure where they go out and survey people and go, you know, what do you think inflation will be over
particular timeframes. Now that measure for the five to ten year inflation is at the highest level since the mid nineties, So inflation expectations out there are quite high. So people are looking at what are the inflation hedges that I convest in, and gold through time has proven to be quite a solid inflation hedge for people. I think the other aspect, too, is there is some talk around about the US continuing to be the world's global reserve currency.
I think that's been over egged a little bit. I think the US has a very solid position as continuing to be the world's reserve currency. But at these times where you talk about tariffs, you can sometimes get these narratives taking on a life of their own. So I think that has led people to say, okay, well, let's diversify our holdings a bit. We'll have some holdings in US dollars, holdings in euro, holdings in Japanese yen, which is a popular safe haven currency, but let's also have
an allocation to gold as well. And that really skyrip, isn't it?
Just thinking about more modern asset classes.
If you like crypto, do you see a time when people be able to put their key we save it into crypto in the same way that we're offering the share options.
Yeah, I mean right at the moment, we're looking at us self select, which is the next chapter after the US five hundred fund for us with our product, and you know, we're trying to work out what to include. We start with a principle that we want to provide as much access as we can and let our members decide on where to put their own money. And so the crypto ETFs that have launched, they are widely held,
there is a lot of liquidity. Some of them have actually considerably lower volatility than some of the big name companies, say at the top of the S and P five hundred list. So I think it's a really good argument to say, maybe via an ETF, that crypto should be
something that people can allocate. Again, with our guardrails kind of process built into our product, that may be up to five percent of your portfolio with exposure to crypto is something that someone can make a choice about rather than us making that choice.
For Matt, what's interesting with cryptocurrency is the trends that we're seeing come out of the US with regards to this. So you mention ETFs, well, what that has enabled is for people to have a really safe way to get exposure to cryptocurrency. That's actually helped enable better institutional participation in the cryptocurrency market. So it's interesting in the US, You've got the likes of Yale Harvard who have said
that they have exposure to cryptocurrencies. You're also starting to see kind of state pension funds and even some sovereign wealth funds participate. To be honest, i'm surprised, you know, back in many years ago, I kind of looked at it and didn't quite get it. But it really has come a long way in terms of just who can participate, accessibility, but also institutional support for the sector as well.
Matt, So how long before we might see self select stocks individual stocks in the US being available for people in their key we say a scheme.
Well, the good thing is, in order to launch the US five hundred fund, a lot of the hard work, I suppose the infrastructure is in place for us. So that is our next priority that we've started actively working on now, as you self select won't put absolute time on it because it's really important that we go through our testing and validation steps and get this right before we release it. Current best estimate is I think middle of the year.
What about things like private equity, because it's pretty popular infrastructure, that kind of thing.
Yeah, private equity has been really topical in twenty twenty five, and for good reason. If we look at Ossie, which we always do because they had a fifteen year head start on us with superannuation, their super funds have a much higher exposure to private assets. They're super funds are investing in anything from large infrastructure projects to small startup companies.
We tend to be a little bit less adventurous in New Zealand at this stage, but there's a lot of talk about it, and I think there's actually a lot of will we need to overcome some of the challenges with regard to valuations and liquidity because that's tough for private companies. But yeah, I'm confident. I think as kwisaver continues to mature, that'll happen. We're at that kind of tipping point at the moment where these things start becoming really viable for super funds.
We've got the budget coming up. There is if you like, rumors that the government might cut its contribution, which is five hundred plus dollars a year. Chris, do you think that's going to have any effect at all.
I'm not sure it will on Kiwi saber participation because key We Saber fulfills a few key functions.
You know.
One, it's really well regulated and people get accessed to a wide range of investments, right, some lower cost and more passive and some high cost and more active. So I think it's working really well in Most people I talk to are really positive about key We Saver. Second, obviously you still get your employer contribution, which as meaningful might not be quite as high as Australia, but it's still meaningful for people. So I think overall it would
be a shame. Don't get me wrong to see changes, because I think what makes schemes popular is actually when they're largely left alone by politicians so people can invest with confidence.
Might take almost sorry, Chris, I must take the opposite here. I think we're overdue for a policy review KEYSAB. We're only a tiny little scheme, but I think we've tried to be as vocal as we can. I'll come back to agreeing with Chris now. With the government contribution is that it's not targeted anyway, and what I'd like to see actually is targeted and targeted at the people that are being left behind. And I mentioned self employed before,
and you mentioned the kickstart and children. The fact that the government contribution is not available to anyone under eighteen seems contrary to good sense, which would be to get people involved in QPSAB as early as possible and incentivize that, and incentivize people who are self employed because they are not receiving having if they receive an employer contributions coming out of their own pocket twice and so you know, there's I think let's have a look at the policy settings.
But I do take your point that the more that you that you kind of mess around with it, So any changes need to be really well signaled.
Oh look, and I'm more thinking about messing with it in a negative way, and if want to mess with it in a positive way around higher contributions.
We've actually looked at that ourselves, haven't We met.
What we heard when we got involved in kvsaver is industry saying that contributions need arise, and we heard the Retirement Commission say largely the same thing. But the voice that was kind of missing from that was the people who were going to have to make the higher contributions, and that's you and me, that's the members. So we went out and asked a bunch of our investors, not our necessarily our KIV saver members, but just people on
the Cheesies platform. It was overwhelming how many people said, I get it. I'd prefer to have a little bit less in my take home this week in order to have more retirement. It was seventy eight percent who supported that idea, which is phenomenal because it's counter to everything that we assumed people would think, Like at the height almost of the cost of living crisis.
Chaps, we probably need to wrap it up there, just wondering what would you like to see with key We savor on terms of innovation in the near turn, not so much the long term the near term.
So I think the private asset discussions really interesting. It's one where I think we need a little bit of a mindset shift around fees. For example, is one of them right? You know, these are more expensive assets to get your hands on, but they can come with a higher reward as well. I think the other part of that, too, is that there is a global trend of companies staying private for longer, and we see companies realizing more of their value in the private markets in many cases than
they do in the public markets. I also saw a stat the other day, and I won't get the percentage completely right, but the amount of companies valued over one hundred million dollars in the uses that are private versus public is something like three or four to one. So when we look at our investments, why do we have all of it in the area that has less exposure. We've got companies out of New Zealand like Crimson Education, Black Halter. We've got companies that are really starting to
be relevant on the global stage. We've seen a few of them even acquired this year, so that's global investors going I want to slice of that company. So I'd love to see that development further, and hopefully as an industry, we can get together, navigate the challenges, and just make it happen.
I guess as an innovator, we're asked all the time who we're competing against, who do we see as our biggest threat, And the answer is consistently just apathy. It's just that whole thing that people don't think about their kipisaver. They'll put more time into thinking about what they're can have for tonight, then they will about where their retirement is invested, and no matter who it's invested, I just want people to just to try and give that a
little bit more time. I guess the innovation is important because it comes along from time to time and maybe it helps people to consider. So I don't not really, I don't have a strong place on where the innovation comes from. I just want to see it continue so that people will continue to engage a little bit more with their retirement savings.
Yep, I think everyone would like to see that.
Thanks both of you for being with us today and thanks to you for joining us You can watch shed Lunch on YouTube or listen on your favorite podcast app. Leave us a rating and tell us what you'd like to hear next. Ma Tawa