As we go to print, US President Donald Trump has contracted Covid-19 and is in hospital as a precaution. We would never wish ill on anyone, and hope he makes a speedy recovery – just stay off the bleach would be my advice. Despite the fact Trump regularly asserts himself as being the healthiest person he knows, odds are against him and this has markets spooked. Given we are so close to the election, and everyone knows how sick Prime Minister Boris Johnson was, not to mention Joe Biden at age 77 is also not well placed statistically, investors are jumpy. Uncertainty will reign for a while and markets hate uncertainty, so expect some market turbulence.

Pie will absolutely be looking for opportunities out of any volatility that might arise.

US tech stocks fall

September itself was a tricky month to navigate with US tech stocks falling into correction territory (the Nasdaq fell over 10% from its high intra month). This despite an ongoing positive backdrop from digitalisation of the global economy (working from home and the shift to online), which shows no signs of abating. As such, fund performance was a bit mixed, with Growth 2 giving up some recent gains. Pie Emerging, Global Growth, Growth UK&E and Conservative all posted modest monthly returns.

Keen on Conservative

While our Growth funds will always be appealing, we are seeing strong interest in our Conservative fund, given how low term-deposit rates are at present. For the first time ever, it’s currently the most popular product at Pie. It’s hard to see the low-rate environment getting better anytime soon. In fact, the Reserve Bank of New Zealand has asked financial services providers to start preparing for negative interest rates. If there is any further deterioration in economic conditions, I would expect the cash rate in NZ to go negative in early 2021. Under this scenario, almost all term-deposit rates would fall close to zero.

Driving factors remain

Despite the current uncertainty and doom and gloom about, I remain optimistic because the factors driving this market have not changed: low interest rates, fiscal and monetary stimulus, and digitalisation of the global economy. These aren’t the precursors for the bubble to burst or a collapse in asset prices. Overlaying all this (and almost in the background these days), I’m confident a commercial Covid-19 vaccine, by one of the big pharmaceutical companies, will be US Food and Drug Administration-approved by 31 March 2021. This is not based on guesswork. Some clinical trials are already in late development phases with results pending. Granted any successful vaccines might take another six months to be available to the community. But I would be surprised if by the end of 2021 a Covid-19 vaccine was not available in NZ. This is the wild card, when a vaccine is approved for use in the US, I would anticipate the market to look out to 2022 with confidence in a strong economic recovery. It could come as early as by year-end 2022. Whenever it comes, expect cyclical stocks, including travel and leisure, to run up well ahead of earnings. And while tech will still be a beneficiary, due to many of today’s current changes in lifestyle becoming permanent, the shine will come off a bit as active investors look to rotate into the most beaten-up sectors.

Goodbye Victoria and Paul

Victoria Harris has moved on from Pie and portfolio management of the Global Growth 2 Fund will now pass to the global team. We are in the process of hiring an international analyst to be based in our Auckland office. I’d like to thank Victoria for her contribution to Pie over the past three years, the benefits of which are showing as the international team has achieved good momentum, along with the business in general. Victoria has always been a warm and positive presence at Pie and we will miss her.

Next month we also say goodbye to our Chief Operating Officer Paul Gregory. Paul joined Pie three years ago from the Financial Markets Authority (FMA). During his three years at Pie, Paul’s focus has been on implementing best practice processes and procedures across our firm, with a focus on governance and compliance. While it is sad to see Paul go, he leaves the business in good shape. Paul is returning to the FMA and will be responsible for overseeing fund managers and KiwiSaver providers such as Pie and JUNO in his newly created role as Director of Investment Management.

As always, thank you for your support. If you have any questions please don’t hesitate to call me on (09) 486 1701, or email me, mike@piefunds.co.nz.

Mike Taylor, Founder and CEO

Past performance is not an indicator for future performance. This is not intended to be financial advice and does not take into account any particular person’s circumstances. Before relying on this information, please speak to an independent financial adviser.