2024 Investment Insights with Pie KiwiSaver: A Look Ahead

Despite some dire predictions 12 months ago, 2023 turned out stronger in the end for most investors, despite several scares, including the collapse of several US Regional Banks, higher interest rates, a war in the Middle East and of course, ongoing inflation. On that last point, by November 2023, we had some encouraging signs that inflation will be back below 2% in most developed countries this year. And that set the market alight with a strong rally to finish the year.

Last year, the Pie KiwiSaver Growth Fund returned 16.4%. Those returns ranked 2nd out of 26 for funds similar to our Growth Fund, as noted in the latest report by independent KiwiSaver research provider Morningstar..

Not long ago, the Scheme turned 5 years old; the Pie KiwiSaver Growth Fund, again, was in the top quartile with a return of 8.8% over the last 5 years, despite challenging conditions throughout this time.

At the end of 2022, investors thought a recession was definite. The year before (2021), they thought big tech would be immune to rate increases. And a year before that (2020), they were convinced that paying high prices for stocks popular during COVID would make them rich. These were the consensus calls and they all failed.

So where is consensus now?

To start 2024 investors believe, again with absolute conviction, that the economy is heading for a soft landing with lower interest rates finally on the horizon. Maybe this time they will be right. In theory, this environment should be positive for markets, although it’s no surprise that after a multi-year bear market, nobody is that bullish or willing to stick their neck out.  The average forecast gain for 2024 by Wall Street strategists was essentially zero (the usual average is around 8-10%).

What do we think at Pie?

Here goes with the crystal ball………

• Healthcare – has underperformed due to the GLP-1 (weight loss drug) movement which we believe will fade.  It’s also a defensive sector, so handy to own if economic growth slows down more than expected.
• Small Caps – the herd is only just moving back into small caps, so we believe this trend has a long way to go. 
• Real Estate – despite a year end bounce, many listed property trusts are still trading at a steep discount to their Net Assets.
• Rates  - we expect all major Central Banks, including the RBNZ to cut rates this year. The question is just by how much. With a soft economic landing, it should be around 1%, but if there is a recession, rates could be cut by 2.5-3%. Either way, rates are coming down. 

Risks to watch out for?

• Oil price spike from Middle East war expanding.
• Disruption/tension around the US election and the results.
• Weather events such as droughts impact food prices and growth.
• Cyber attacks.

As we reflect on the investment landscape for 2024, it's clear that the past challenges, from pandemics to geopolitical tensions, have highlighted the importance of resilient and adaptable investment strategies. The Pie KiwiSaver Growth Fund's significant gain in 2023 exemplifies the potential of strategic, principle-driven investments. Looking ahead, we're cautiously optimistic, eyeing opportunities in sectors like healthcare, small caps, and real estate amidst uncertainties. Our Five Principles of long-term KiwiSaver growth guide us, offering a roadmap for navigating future investments. Discover how these principles inform our decisions for a prosperous 2024 and beyond. Find out more here.

Information is current as at 19 February 2024. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme and Pie KiwiSaver Scheme (the Schemes). Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary.