Forum Archive Index - January 2001

["Grant Keymer" <grant@jenlogix.co.nz>]

John,

 

I know exactly where you're coming from regarding these Investment Trust funds.

I have some shares in Anglo & Overseas Investment Trust (ANG) which is a UK-domiciled trust like most of those you have mentioned.

 

The reason I bought the shares was that at the time, our dollar was continuing to plummet, and I thought it wise to at least make a start on getting some funds offshore.

 

If I had to sell my ANG shares tomorrow, I would be down about 8.5%, but I don't plan on selling them because they are the beginnings of my long-term holdings outside NZ.

 

My advice for what it's worth is to hold on to most of your shares in the overseas trusts that you already have, but don't buy any more until the NZ$ looks to have levelled out a bit.  Because the NZ$ and GBP exhibit some degree of coupling (unlike the NZ$:US$ rate), it isn't likely that the NZ$:GBP exchange rate will improve much more than another 10% within the next few months.  So your downside is limited, and if Global stockmarkets have somewhat of a rally this year, you could even make on the deal.

 

My plan is to keep the ANG holdings that I have as a safe haven, but because any likely gains will be offset by the rising NZ$, I will wait until the NZ$:GBP exchange rate reaches 0.32 - 0.35 before buying any more shares in UK-listed trusts.  I still think these are a great place to have your money long-term, but for the next few months it will pay to be long in NZ$, at least until the NZ$ stops rising at such a rapid pace.  Even then, the best advice is to invest offshore in a series of transactions, spaced over a few months or years.  That way you reduce the risk of moving all your cash at the one (possibly worst) time.

 

Two of the trusts you have mentioned presumably hold mostly American stocks, so in that case, it may be wise to look at selling before the NZ$ moves any higher.  If you have any holdings in the Japanese Investments mentioned, I would also sell those, as Japan's economy is going nowhere and in fact the Yen dropped 2% last night after Japanese Authorities decided to leave more cash in the banking system (effectively a devaluation).

 

I should also reaffirm that what your broker has told you is absolutely right -- you should diversify around the world, but perhaps he didn't qualify that statement with the following piece of advice:

 

==> Make sure you are investing money that you don't need in the short-term.

 

Because global stockmarkets are very cyclical as you have suggested.  It can be as much as 7 years before you make a return.

 

Here is a case-in-point from my own experience:

 

In 1994, I made my first foray into long-term investment, naively accepting the advice of a financial planner, hook / line and sinker...  Put some money into Unit Trusts specialising in Asian Tiger markets, and Emerging Markets he said.  A classic case of investing in the best performers from last year (1993 was a bumper year for all of the above).  I didn't know any better, so I agreed to switch the proceeds of a life-insurance policy (which had been a total dog of an investment), into the above-mentioned Unit Trusts.  He agreed to do this with no entry fee (due to the bad recommendation on the life-insurance policy), but what I didn't know, was that he was collecting trail commissions from each Unit Trust paid out for every year I stayed in the fund.

 

From 1994 until 1998, all of the Unit Prices went South in a big way.  Then in mid-98 they started to recover until in early 99 they were back at entry price, or in some cases just below.  So I opted to sell out, thinking that at least I got most of my money back, and I'd better do it quick before the Unit Prices fell again.  Also, we were about to leave on a 4-month trip to Europe, and the money came in handy.

 

But when we returned in late 99, it pained me to discover that I could have made quite sizeable profits had I stayed in the fund for one more year!

 

Like I say, a classic case of not being patient enough...

Five years were a total disaster, the sixth year we got back to break-even, and the seventh year I would have really raked in the profits!

 

Fortunately the amounts involved were much smaller than what I am dealing with now, but at the time it was a painful lesson...

 

I hope this rather lengthy post has been of some help to you.

 

Cheers

 

Grant Keymer
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