Members Only: Our Quarterly Update - May 2023 | Lighthouse Financial

Members Only: Our Quarterly Update – May 2023

Our quarterly update from the Lighthouse team

Quarterly Update

The first quarter of 2023 saw both share and bond markets show positive growth. This was due to the increasing signs that central banks are getting on top of inflationary pressures with domestic inflation slowing to 6.7%

The share market got off to a hot start in January on the back of reducing interest rate expectations, only to give back most of this gain in February and early March as the banking sector came under pressure with the failure of Silicon Valley Bank. Later in March, markets rose again as banking contagion risks receded, and macroeconomic data generally reported better than expected.

International shares performed strongly over the quarter, by around 9% in NZD terms and 7.2% in NZD hedged terms. Value stocks took a breather and returned only 2% over the quarter, but they still outperformed over 12 months, returning 5.6% in NZD terms. Small caps have fared worse, returning around 5.5% in the quarter but only 0.7% in the year to March 2023.

Emerging markets returned around 5% over the quarter, slightly stronger than the returns the NZ and Australian markets posted. However, over the year to March, all markets performed quite similarly, returning around -1%. NZ and international bonds returned around 2.5% in the quarter, reflecting a paring back of future rate rise expectations. Over the year to March, NZ bonds fell around 1%, while international Bonds fell around 5%. This difference in performance largely reflects that the RBNZ was generally quicker than offshore central banks to raise rates, and hence the marked-to-market capital losses were incurred earlier in our bond market than most offshore markets.

Property funds struggled in the quarter, increasing only 0.6% in NZD hedged terms. In contrast, global infrastructure performed well once again, returning a handy 2.6% for the quarter and 3% for the year to March 2023. Finally, gold performed well in response to the banking sector stress and increasing efforts being made by the Petroleum States and China to reduce their reliance on US dollars for trade settlements.

Bonds and their role in your portfolio

Bonds are an important part of almost all portfolios, excluding portfolios with maximum exposure to growth assets. Bonds are like IOUs that you give to the government or a company. In return, they give you a regular and predictable income. When things get tough in the stock market, bonds usually do well, which helps protect your portfolio from significant losses. The benefits of owning bonds are even greater now than a year ago because interest rates have increased to more normal levels.

Most bond funds in your portfolio should give you returns of around 5% or more per year, whether they are short-term or long-term investments. This is because bond yields are currently relatively high. The bonds in your portfolio are from companies and governments that are unlikely to default on their loans, so you can feel confident you’ll get your money back.

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James Blair
Wealth Director
+64 27 399 5175

The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.

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