September 2021 Investment Survey


Market commentary

As we write this, the direction of New Zealand’s response to Covid-19 appears to be changing. The elimination of the delta strain seems to be unachievable for the Auckland region, with case numbers steadily trending upwards since the end of September. It may only be a matter of time until the rest of New Zealand follows a similar trajectory. However, the vaccination uptake has been good, with two doses administered to 57% of the population (67% of the eligible population). The evidence is clear that vaccination materially reduces rates of hospitalisation and death, and therefore there is a growing light at the end of the tunnel. Many will be turning their gaze across the Tasman for clues as to what New Zealand’s eventual re-opening might look like.

This latest lockdown is expected to hit Gross Domestic Product (perhaps to the tune of -7.0% in the September quarter), however the New Zealand economy has otherwise been strong. GDP  increased 2.8% in the June quarter, smashing the Reserve Bank’s prediction of 0.7%. After backing away from its anticipated interest rate hike on the eve of the delta lockdown, the Bank raised the Official Cash Rate for the first time in seven years on 6 October. With prices rising 2.2% in the September quarter (4.9% for the twelve months), a pathway of “considered steps” upwards to an OCR of 1.5% to 2.0% looks likely over the next couple of years. Longer-term Government bond yields continue to trend upwards reflecting this.

Following a tepid June quarter the New Zealand equity market accelerated in September, returning over 5% in the three months. Mainfreight and Ryman, which are among the largest constituents of the S&P/NZX 50 Index, were up 26% and 15% respectively. Z Energy also had a good quarter, up

The local market was, therefore, well ahead of international equity markets which ended the quarter more or less where they began. Concerns over the US debt ceiling and accelerating inflation weighed on developed markets. Meanwhile emerging markets had a torrid quarter which began with the Chinese government’s crackdown on private education and technology companies, and ended with burgeoning concerns over Evergrande Group. These concerns particularly hurt Asian markets and those with exposure to materials. (The Australian share market was particularly weak due to its exposure to iron ore.)

Evergrande is China’s second largest property developer and has historically leveraged itself significantly. As a result of the Chinese government’s “three red lines” announcement in 2020 (limiting borrowing based on debt-to-cash, debt-to equity and debt-to-assets metrics), fears have been increasing over the company’s creditworthiness. Given its size, many fear a disorderly default could lead to a “Lehman Brothers moment” for global financial markets. So far, these fears have yet to materialise, although leverage across the world remains at high levels, portending a level of fragility.

Nevertheless, bulls are running rampant in various corners of the market. The number of initial public offerings (IPOs) in the first nine months of the calendar year is the highest since the dotcom bubble of 2000. More than 2,000 IPOs have raised US$421 billion in the year to date. This includes almost 500 special purpose acquisition companies (SPACs) which have together raised US$128 billion. SPACs are so-called “blank cheque” companies, since investors back (often well-known) portfolio managers to find and merge with a private company without knowing what the target is at the outset. The attraction to the target company is that it does not need to go through the same level of public disclosure as it would were it to list as an IPO itself.

Likewise, interest in cryptocurrency is again on the wax with our own Reserve Bank releasing a consultation on the “future of money” in September. The Bank is seeking input on areas such as digital currency at the same time as market interest in “crypto” is heating up again. Bitcoin recently passed US$62,000, doubling from its July level, albeit after halving from its all-time high reached in April. (Astute readers will note the flagship cryptocurrency is living up to its reputation for extreme volatility.)

Optimism abounds then. The International Monetary Fund released its World Economic Outlook in October, and this dramatically revised up its prediction for global growth in 2022 from 4.4% (in its previous April report) to 4.9%. As shown in the following chart, this has almost entirely come from a brightening outlook for developed economies. (The US, in particular, is now forecast to grow 5.2% next year.) The outlook for emerging economies, while better, is little changed.

Turning to bond markets, September was another meagre quarter. New Zealand fixed income indices again posted negative results in the wake of rising interest rates. This brings the twelve month return for the S&P/NZX New Zealand Government Bond Index to -7.2%, while the broader Bloomberg NZBond Composite Index returned -6.1%, its fall softened due to its lower level of duration and higher running yield.

Longer term figures for bond market indices now look more in line with the running yields. In prior years, the long-term figures incorporated substantial mark-to-market gains; returns were high despite relatively low yields. With these mark-to-market gains reversing, the medium-term returns now reflect a more modest return profile from fixed income of 2-3% per annum.

Global bond investors are yet to feel the same level of pain. The Bloomberg Barclays Global Aggregate was about flat for the quarter, although it too is now showing a negative result for the trailing twelve months.

As at the time of writing, the yield on 10 year government bonds had risen to 2.4% in New Zealand and 1.7% in the United States. While still undeniably low, some prospects for positive returns are returning to bond portfolios – especially after allowing for credit exposure and active management.

Therefore, we are left with an ebullient equity market and a dour fixed income market. It will be interesting to see whether this sentiment continues to dominate in coming months. However, it is at times like these that Warren Buffett’s quote comes to mind: “Be fearful when others are greedy, and greedy when others are fearful.”


This month we released our in-depth review of the KiwiSaver market. With a massive shakeup in default providers under way, this report examines the health of the industry in detail, delving into assets, membership, and fees.

While KiwiSaver remains dominated by several large providers, some smaller providers have shown that they are able to carve out success stories by focussing on particular niches, be it socially responsible investing, lower fees, member engagement/advice, or strong investment performance.

Our report uses market share metrics to examine the competitiveness of the KiwiSaver market. We find little evidence for an overly concentrated market; indeed, current trends point to a more diverse and competitive landscape within KiwiSaver in the near future.

The full paper KiwiSaver Market Review paper is available here.

– Ben Trollip


This Investment Survey is available as a PDF, click here to download a copy.

Join our mailing list


Wholesale Fund Returns (before fees and tax)

New Zealand & Australian Shares

Property & Infrastructure

Global shares

New Zealand bonds and cash

Global bonds



Return and risk

Asset allocation

Storm clouds gathering

ACC levies set to increase


This Topix looks at the proposed changes to levy rates for the three levied ACC accounts. There are small increases proposed for the Earners’ and Motor accounts and a reduction for the Work account. However, not all is what it seems…

Intro to ACC’s accounts

The ACC administers New Zealand’s no-fault accidental injury compensation scheme. The scheme provides financial compensation and support to all people who suffer personal injuries in New Zealand.

There are four main ACC accounts:

The motor vehicle levy is a fixed levy per vehicle and the earners’ levy is a fixed percentage of income (up to a limit).

The levies charged in respect of the Work account depend on the industry classification (and assessed risk) that the employees are assigned to. For example, the levy rate for construction workers will be different (and higher) than the levy rate for office workers.

The levies are determined by ACC on a regular basis. The most recent levy setting exercise has just completed its consultation period and the rates are due to take effect in the year beginning 1 April 2022.

Proposed levy rates

The changes noted above do not appear to be particularly noteworthy and the Work account change is a decrease. Good news, right?

The problem is that these changes include the funding position / policy that have offset much of the true cost of funding claims. The proposed levy rates are determined on the following lines:

  • Calculate the lifetime costs expected to arise from the coming year (the New Year Rate)
  • Determine the current funding position surplus / deficit of the account (assets / liabilities) i.e. how much under/overfunding remains from prior years?
  • Use any funding surplus or deficit to adjust levy rates to target a funding position of 100% over ten years.
  • Limit any increases in levies to 5% per year

The chart below shows the proposed levy rate for the three accounts in the 2022/23 year with the New Year Rate (i.e. before application of caps and funding positions).

In all three accounts there is a significant gap between the proposed 2022/23 levy rate and the unadjusted New Year rates. This gap is currently being bridged by the funding position of each account and the limitation on levy increases being 5% per year.

There is therefore a projected long term increase in the levy rates for each of these accounts. In respect of the Earner’s and Motor Vehicle accounts there is little that the individual can do to mitigate these increases. However, for Employers with moderate to large workforces, there are a number of avenues available. More on this later. But first, why the projected increases?

Claims experience

ACC’s performance across all accounts is deteriorating and has been for a while, caused primarily by the deteriorating experience of weekly compensation claims. These are the most significant type of ACC claim, potentially costing many hundreds of thousands of dollars. The following charts show the change in the severity and frequency of weekly compensation claims from 2011 to 2027 (projected). The 2011 cost figures have been adjusted for wage inflation.

In all three cases, there has been a large increase in the frequency of claims while the average cost has remained steady or slightly increasing. ACC has projected a stable move over the next six years but this will simply reflect ACC’s desire to halt the increasing costs. We will have to wait and see what actually occurs.

Actions to mitigate

Claims experience has been deteriorating and levies are projected to rise significantly over the medium term. What can be done by the individual or employer? In the case of the individual, levies are based on earnings and the number of motor vehicles owned / fuel consumed. While it is possible to reduce these two factors (earning less or owning fewer cars), this is probably not desirable. There is some benefit in owning an electric vehicle (paying no levies through fuel charges) although presumably ACC will need to consider how to incorporate these vehicles into its charging structure as the e-fleet grows.

Employers, on the other hand, do have some options available to them to mitigate ACC costs. That is, so long as you are not a small employer.

Standard levy experience rating

For employers with annual levies that are greater than $10,000, the standard levy may be adjusted based on the claims experience of the entity. The adjustment may be as much as -50% / +100% from 2022. That is, you may be able to halve the standard levy with sufficiently good claims experience but you could pay as much as double for poor experience. The experience rating factor depends upon:

  • the duration of weekly compensation claims,
  • the number of claims with medical costs over $500, and
  • the number of fatal claims during the experience period.

There is therefore scope to affect these by reducing the frequency of accidents and by effective management of staff back to work after an accident occurs. The management of staff getting back to work can effectively be addressed via dedicated claims management (refer Accredited Employers Programme below).

Accredited Employers programme (AEP)

For large employers, there is the option of joining the AEP which allows the employer to pay a reduced levy for the responsibility of managing and bearing the financial responsibility of workplace accidents. There are two plans within the AEP:

  • Partnership Discount Plan (PDP) – where the employer pays a reduced levy, manages and pays claims for a period of 1-2 years, and then passes responsibility to ACC.
  • Full Self Cover Plan (FSCP) – where the employer pays an administration fee only, manages claims for a period of 4-5 years but is financial liable for the lifetime of all claims.

Under the AEP the employer bears the financial risk of its employees work related accidents which can be significant. However, many large employers are already members of the AEP (currently there are over 140 such employers, representing 23% of the workforce). There are many benefits, even for moderate sized employers, including:

Return to work: Studies have shown that return-to-work rates are superior for employers that manage their own claims. Thus, the employee returns to work more quickly than if managed by ACC. This leads to lower ACC claims costs, lower staff replacement costs and better work outcomes for the employee.

Experience rating: ACC applies discounts and penalties to the standard levy depending on the claims experience of the employer. The maximum penalty is 100% from April 2022 (up from 75% in the current year) which means that a poor year of claims experience could result in the employer paying 200% of the standard levy in the following year. An Accredited Employer is exempt from experience rating.

Insurance options – High Cost Claims Cover: Under the AEP employers may purchase HCCC to limit their exposure to single events to as low as $250k. A single event could result in one claim or multiple claims.

Insurance options – Stop Loss: Employers may also purchase Stop Loss insurance which will limit their total costs from a cover year to as low as 141% of the standard levy – considerably lower than the 200% worst outcome under the standard levy.

Financial risk exposure: Under the AEP, poor claim experience affects that year of cover only. Under the standard levy, bad events or bad years may contribute to penalties being applied for the following three-year period.


ACC’s recent claims experience has been worse than expected and this is projected to increase levy rates across its three main accounts. Under the Work account, moderate to large sized employers have the ability to try and mitigate these projected cost increases.

There are a number of non-financial reasons why this may be beneficial to the company including the ability to manage staff back to work and as a commitment to staff welfare.

Any employer considering this should seek qualified professional advice to ensure that this will be an appropriate solution.

Further information

If you want to find out more information about this note or how MJW can help you with your participation in the AEP, then please contact either of the authors below.


Craig Lough

Jeremy Holmes


This Topix is available as a PDF, click here to download a copy.

Want to know more?


New Zealand Mortality

This year is on course to be one of the least deadly in recent history for New Zealand

2020 has been an interesting year

COVID-19 and the related lockdowns have put a huge strain financially and mentally on many. However, flying under the radar is a little-acknowledged fact: fewer New Zealanders are dying.

This chart shows the rolling annual number of deaths in New Zealand since 2012. Looking at a rolling annual figure is critical because it removes seasonality (many more people tend to die in the winter months).

As of 27 September 2020, fewer people had died over the preceding year than at any time since July 2017. If we stabilise at these levels, 2020 will see almost 2,000 fewer Kiwis die than would ordinarily have been expected.

Growth and rates

This is even more interesting when we consider that New Zealand’s population has been growing.

Thus, if we consider the rate of deaths per capita, the picture looks even clearer. The next chart shows that the mortality rate is at its lowest for as far back as we have collected data.


We obviously do not know for sure why fewer people are dying but a plausible hypothesis is that lockdown has led to fewer respiratory diseases, such as influenza and the common cold, circulating in the community.

Looking at the weekly data, we can see the effect of a much lighter flu season this year. The typical peak in deaths seen in the winter months is almost non-existent. (The bad 2017 flu season is also prominent.)

Along the same lines, there may have been a general improvement in health practices given the prominence of COVID-19 in the media. For example, greater numbers of people getting flu vaccinations.

(Another hypothesis is that there have been fewer car accidents. Whilst true, this is not a big driver of the reduction in deaths: as of 12 October, the 2020 road toll is only 20 lower than at the same time last year.)


Another way to look at the data is by overlaying each year. The following chart shows the weekly deaths for the past nine years in grey (darker lines for more recent years), the average, and how 2020 is tracking.

The trend of higher deaths in winter is again evident.

The mortality rate in 2020, which began in line with the average, has been relatively stable over the year, with no notable rise in the winter months.

(Also evident is the spike in deaths in February 2011 when the Canterbury earthquake struck.)

Analysis by age

We can dig into the data by breaking it down by age group. Note that the vertical axis differs greatly across the following charts.

These charts make several points. First, the mortality rate is significantly higher at the older age groups. Note, for example, the average mortality rate in the last chart runs between 8% and 12%, whereas the average mortality rate in the first chart is around 0.05%.

Second, the winter season most heavily impacts our oldest. There is very little change throughout the year in the first charts, but the final chart shows an obvious rise in the winter months.

Finally, the mortality rate in 2020 has been the most different for the older ages. The younger age groups are seeing a mortality rate around the same level as previous years. However, for the over 80 year olds in particular, there has been a distinctly lower mortality rate in 2020.


New Zealand’s mortality rate has been trending downwards for decades. By and large, this has come from improvements in healthcare. Even so, it is evident that lockdowns, social distancing, and improved hygiene practices (e.g. hand-washing and facial coverings) appear to be having an observable effect on mortality.


Ben Trollip

Jeremy Holmes

Data sources:


This Topix is available as a PDF, click here to download a copy.