Kiwisaver investors are being urged not to panic after international markets have been rocked by new US tariff announcements, including on imports from New Zealand. Photo:
US President Donald Trump's introduction of wide-ranging tariffs is "unprecedented" in modern investors' lifetimes, and some fund managers say they are making adjustments to their investments in response.
Markets around the world tumbled in the wake of the news on Thursday (NZ time) that tariffs of at least 10 percent were going on all US imports.
The Dow fell 1679 points, or 3.98 percent, CNN reported. The broader S&P 500 was down by 4.84 percent and the Nasdaq plunged 5.97 percent. All three major indexes posted their biggest single-day drop since 2020.
At just after 11am on Friday, the NZX50 was down 1.28 percent.
"Clearly the market didn't expect this," Pie Funds founder and chief investment officer Mike Taylor said.
"The challenge is Trump is unpredictable. He could reverse some of these [tariffs] tomorrow. The longer they last, the more damage will be done. But eventually, everyone will reset to the new normal."
He said sell-offs created opportunities for active managers.
KiwiSaver managers are either active (which means that portfolio managers make choices about which assets to invest in to try to maximise investor returns) or passive (where they track a market index).
Taylor said that could mean active managers were rotating their portfolios, holding more cash, or looking at different regions.
"Whilst this sell-off has a different catalyst, it's really no different to any other. Be that Covid, the GFC or the 2022 inflation scare. There are winners and losers and the markets will recover."
Pathfinder Asset Management founder John Berry said during periods when markets were volatile managers could "down-weight" the allocation to high-growth assets in their growth funds and take on more stable growth assets.
"You've got to leave emotion out of it and be rational in what you do, first trying to anticipate what the moves could be and take a position in anticipation."
But he said in the same way that growth investors were encouraged to ride out the volatility and not react out of fear, managers also needed to stay the course.
He said not all stocks were down by the same amount, and there were opportunities. Managers were moving some of their investments away from US markets towards Europe.
"There has been a drift globally by fund managers towards reducing slightly their investments in the US and investing more in Europe. It's reflected in the fact that European markets have fallen less than US markets have."
Berry said the position investors were facing was "completely unprecedented in our lifetime, in terms of the level of tariffs, the extent to which President Trump has introduced tariffs and the speed of introduction, the broad nature of it, it's completely unprecedented."
He said there was still a lot of uncertainty about how other countries would react and what reciprocal tariffs could be imposed, and whether the US would negotiate and wind back its position.
"This can't be good for the growth of the US economy or the global economy if uncertainty stays and tariffs stay in place. But I'm not seeing this as catastrophic in the way that the global financial crisis was in 2008 or the tech bubble in 1999, we don't have the crazy overvaluation of stocks, we don't have the economy heading directly for the rocks."
Murray Harris, Milford's head of KiwiSaver, said because it had been expected that tariffs would have an impact, Milford had been reducing US exposure altogether, reducing equity exposure and investing more in bonds and more conservative sectors such as utilities and consumer staples.
"We're able to pull those levers really hard when we expect these bumps to come along. If I look at companies we have exposure to, some are actually up 4 percent, 5 percent or 6 percent."
Harris said people who were in the right KiwiSaver fund should ride it out. "If you feel like you're not in the right fund, get some advice."
He said it was also important to "zoom out".
"People get very focused on what's happening right now. But if you go back and look at the GFC, look at Covid, look at inflation and other issues in the market in 2022, in a period of weeks, or months or even a year, markets can look like they've dropped a lot. They do, they've dropped 20 percent or 30 percent. But when you zoom out and look at the long-term return, it's a small blip.
"The worst thing to do would be to switch to cash or conservative funds, wait for markets to recover and then switch back."
Morningstar data director Greg Bunkall said some active managers could be expected to outperform during the current downturn but others would be in the middle of the pack and some would lag.
"It all hinges on whether they nail their calls. Active managers have the freedom to either soar past the market or stumble, while passive managers are riding whatever waves the market sends their way."
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