A challenging time for investors

This year, if you’ve been invested in one of our funds, it’s likely you’ll have experienced negative returns for the first time in a while. And, if you’re invested in one of our more conservative funds, such as our Conservative or Conservative Balanced funds, or our fixed interest funds, then you’re probably also wondering why your investments have fallen at a time when these funds would typically hold up a bit better.

Here, we explain some of the challenges investors have faced.

Financial markets have had a particularly tough time this year. Investors have been worrying about high inflation and rising interest rates, and the prospect that a slowdown in global growth could tip the world’s economies into recession. Investors don’t like uncertainty, and this has resulted in some big falls in financial markets and is contributing to the ongoing volatility that we’re seeing.

While all of our funds have been impacted, investors in our more conservative funds have been particularly hard hit. It may be that you’re invested in one of these funds because you have a low tolerance for risk, or a shorter investment timeframe. For example, you may not like the ups and downs that typically comes with investing in growth assets (such as shares), or you may be saving for a short term goal – such as a deposit for a first home or because you are approaching retirement.

It’s not just ANZ Investments’ funds that have been affected this year. Investors in similar funds with other providers are likely to have seen their investments go down as well.

Our Conservative, Conservative Balanced and fixed interest funds have been caught up in this volatility, and it’s likely their returns are worse than you might have expected as a more conservative investor.

That’s because these funds have a high weighting to fixed interest, or bond investments. In the past, bonds have offered more steady and less volatile investment returns. You could think of bonds as being the insurance policy of your diversified investment portfolio; typically, they have offered investors a ‘safe haven’ when everything else is falling.

However, this year, bonds have had a tough time because they are particularly sensitive to rising interest rates. Interest rates have been heading higher all around the world as authorities have lifted them in an effort to get on top of inflation – as countries try to get to grips with the cost of living crisis that is unfolding.

Given how quickly interest rates have risen this year, bonds have fallen in value. In fact, bond markets have had one of the worst years on record, with bond investments experiencing similar volatility to that of share markets.

At the same time, growth investments such as shares, which make up the remainder of our multi-asset-class funds, or which are likely to be included as part of your diversified portfolio, have also faced into these headwinds, compounding the losses for investors.

No one likes seeing the value of their investments going backwards, but as hard as it is, market falls are part and parcel of investing. However, we would remind you of just how well investment markets have performed of late; returns were strong in 2021, and have been for most of the last 10 years.

Markets move in cycles and, this year, they have struggled with the idea of higher interest rates. But markets are also forward-looking, and bond markets have now priced-in much of the expected rise in interest rates. Because of this, the future return prospects for bond markets now look better than they have in years, and we are confident that bonds should start to work again as intended – offering a cushion for your broader investment portfolio in what looks likely to remain a volatile environment.

As with any investment, it pays to have a plan – and now is not the time to deviate away from it.

While it can be hard seeing your investments fall in value, investing is for the long term, and market falls can provide good opportunities for the team at ANZ Investments. 

We urge you to focus on your individual situation, including your tolerance for risk, investment time-frame and your investment goals, and avoid making short-term decisions.

If you’re concerned about your investments or your ability to achieve your investment goals, or if you want help putting a plan in place, please talk to your financial adviser. If you don’t have one, we have a team of qualified ANZ Investment Advisers available to provide expert advice. To talk to one of our team at ANZ, call us on 0800 736 034. It’s easy and it’s free.

You can also visit our online resources at anz.co.nz/investing101, where you’ll find tips on how to deal with the ups and downs in markets, and some of the other ways we are looking out for your investments.