20 January 2020

    Goodbye to a wonderful year for investors

    Welcome to 2020

    2019 was a wonderful year for investors. Markets were up strongly, and we were able to generate returns healthily above the market for most of our strategies.

    Active management, trying to beat the market, is at the core of what we do at Fisher Funds. It is the sole focus of our investment team.

    We believe that the extra return from active management is going to be even more important in the coming years than it has been in the recent past. I wanted to reflect on the debate around active management and why I have confidence Fisher Funds will continue to flourish and deliver extra returns to our clients.

    Active management, beating the Average and Awards

    Active management, done right, enhances long-term client wealth. In 2020, that has almost become a controversial statement. Deep into a prolonged bull market the perceived wisdom is increasingly that active managers can’t add value. I agree. They can’t. In aggregate. But with the right team, the right process and a culture committed to  excellence, the rules of the aggregate, the average, don’t have to apply.

    Over our 21-year history, Fisher Funds has added significant value to clients over and above the market. We are committed to continue doing this.

    The fallacy of the averageThe passive versus active debate management is flawed. It is simple maths that active managers, in aggregate, can’t beat the market. In the absence of an obvious losing market participant, active management is a zero sum game. For every active manager owning more of a stock that beats the market, someone must own less. They will lag the market.

    The right question isn’t, does active management add value? The right question is can a specialist investment manager be a consistent winner? We believe they can. Over our 21-year history we have proven this.

    We have done it 

    Our longest standing fund is the New Zealand Growth Fund – a concentrated portfolio of our favourite Kiwi companies.

    This fund has been managed with a core set of principles from day one. Take a long-term approach. Invest in quality businesses with clear competitive advantages. Look for a long runway of growth enabling thefirm to compound earnings over time. And partner with visionary leadership, whose interests are aligned with shareholders. Simple. Not easy, but simple!

    The process has worked. Over its 21-year history, the New Zealand Growth Fund has delivered a return of 12.4% which is comfortably ahead of the market over the same time. To put it another way $100,000 invested in 1998 is worth over $1.2m today, after all taxes and fees. That is materially better than the market. Over the same timeframe, market returns would have grown that $100,000 to $880,000. Active management put an extra $320,000 in the back pocket of our clients.

    Active Management is more important than everWhile active management has been able to enhance returns for clients over the past couple of decades, we think it’s going to be even more important in the next decade. Interest rates are low. Global economic growth has been anaemic. Valuations are not cheap. This points to lower future market returns. This, in our view, means that the return from active management goes from being the cream on the cake to being the whole cake.

    With that view, we are more focussed than ever on generating attractive active returns.

    Pond - People – Process – Passion

    • Winning the active management game requires deliberate effort. In my view, it requires clarity in four areas:

    • Pond – being very clear where the opportunities are, fishing for them in the right pond, is critical. Get this wrong and you waste a lot of energy for little return. We look for uneven games where our insight and patience will pay off, and then put all of our attention there.

    • People – a smart insightful team is the bedrock that success rests on. I am very proud of the Fisher Funds team. Yes they are smart, experienced investors but most importantly they are curious, hungry to

    • learn and not afraid to do the hard work that it takes to become even better.

    • Process – having a clear approach to identifying opportunities, building portfolios and managing risk is important. Our process has stood the test of time and been successful in different market environments. But it never

    • Passion – is not something investment managers typically talk about. I do. It is passion for excellence that drives an analyst to dig deeper, ask more questions, and not rest until they have the answers. It is passion that means honestly reflecting on what went well and not so well, so that we learn lessons and get better. And frankly it’s passion that makes coming into work each day fun and rewarding stands still. We are always learning and enhancing our process. We can always get better.

    Do these things well and I believe we will keep beating the market.

    AwardsIf we add value it is sometimes recognised. Most importantly we hope that it is valued by our clients, but sometimes we do get industry recognition. We were grateful to have been awarded Fund Manager of the Year in the Good Returns powered by Research IP awards in November. We also won two sector awards. Our fixed team, headed by David McLeish, won the award for Australasian fixed income fund of the year. And Sam Dickie’s New Zealand equity strategy, was successful in taking out the advisor’s choice equity strategy award. 

    In addition to this our KiwiSaver schemes have been awarded Platinum Ratings for 2020

    It was a great way to end the year and hopefully points to a successful 2020.

    If you do have any questions or observations please give me a call, you can reach me on 021 398 886, or email [email protected].Best wishes for the New Year.