June 16, 2024 • 35 mins
Chris Di Leva from Harbour Asset Management joins the Weekend Collective to discuss the world of bond markets - and if they make for a safe investment.
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Speaker 1 (00:05):
You're listening to the Weekend Collective podcast from News Talks
EDB and welcome back to the Weekend Collective. I'm Ton Beverage.
This is for this our smart money. By the way,
if you've missed our previous hours, we had car MacDonald,
a fascinating discussion, action, some great cause, some text talking
about adult ADHD. So if you haven't missed that new
acurious please go and check out our podcast. It will
(00:26):
be loaded fairly shortly after we're finished broadcasting today. Go
look for the Weekend Collective and I suggest iHeartRadio as
your start and endpoint for that. And also quite a
fun fun politics are Is it a strange way to
describe the fun politics? I enjoyed it anyway. We had
a chat with Robert Patman from Attaga University just about
the summit in Switzerland and the pretend offer at peace
(00:48):
from Putin. I guess I could describe it as as
well as Brook van Velden who joined us to talk
about the overhaul and her upcoming road show of Health
and Safety, which sounds like, well, it sounds like a
bit of fun, doesn't it? Does it? Anyway? But right
now this is smart money and my guest is from
Harbor Asset Management. We say very good afternoon to Chris Deliver.
(01:08):
How are you going, Chris?
Speaker 2 (01:09):
I'm great, Tim, how are you?
Speaker 1 (01:11):
Ah, not too bad? So you are just to give
your job description your director to Harbor Asset Management, but
also head of this is it's a flash job title,
head of multi asset and Global investments. Sounds good.
Speaker 2 (01:24):
Yeah, yeah, you know we try and check it as many.
Speaker 1 (01:31):
Yeah. Okay, that's a good way to put it. Hey,
so we're gonna have a chat about bond markets as
an investor, and I thought, actually, to start it off,
I'll give you my honest thing. When I hear about
bonds as an investment, I sort of go because they
(01:52):
sound always so, I mean, I guess they're safe, low return.
I don't know a bonds. Is there more to bonds
that meets the what what? What do we expect? While
we why would we buy bonds?
Speaker 2 (02:06):
Good question? And I can see why you have the
impression of bonds that do because you know, over the
last decade or so, bonds have been a pretty average
place to be actually relative to equity markets. So you know,
call it, you know, three percent peranum from a bond
(02:28):
over the past ten years, when you've had about ten
percent out peranum out of equity markets, right, so bonds
have barely kept pace that actually haven't quite kept pace
with inflation over that time period. So, yeah, it is
a good question, and I suppose I'll answer it by
(02:49):
saying that we think bombs will probably be more relevant
this next decade than they were over the last decade.
So we've just been doing a lot of work at
Harbor looking at our long term expected returns markets, so
looking ten years forward and saying from this point today,
(03:11):
what we think share markets will do, bond markets also
a bunch of other markets around the world, for example,
how do we think global infrastructure would do, how do
we think real estate stocks will do? New Zealand stocks,
Australian stocks, And where we've kind of come out is
that over the next decade, we actually think the return
(03:33):
differential between bonds and equities will be a lot closer
than it was over the past ten years. And a
key reason for that is not going to be a
surprise to anyone listening in, because we've had this run
of inflation over the past few years that's left interst
rates quite substantially up, So as a bond investor, you're
(03:59):
actually getting a yield. And it shall quickly to get
even slightly more boring because there were some people listening
going bond what actually.
Speaker 1 (04:13):
Well, actually I was about to my first question I
should have got into. I said, what is a bond?
Because it sounds the word suggests you know, my word
is my bond. It sounds like something you can count on,
it's safe as houses, all that sort of thing. But
don't listen to me, people, Chris is going to tell
us what a bond is.
Speaker 2 (04:30):
It's a good way to put it. Your word is
your bond, because that is really so when you're buying
a bond, you're essentially lending money to a company or
the government. And let's say you put one thousand dollars
into a five year bond paying five percent. We'll keep
with the fives in our example. So if you bought
(04:53):
a bond, and that's actually roughly what to bond with
the New Zealand government, what that would kind of pay
you currently, So you would get fifty dollars a year
for the next five years, so fifty bucks each year,
and then after five years you will get your money back.
Speaker 1 (05:13):
Now, for every how much for every.
Speaker 2 (05:17):
So every thousand dollars chach, you get fifty bucks year
and then you'll get your thousand dollars back at the
end of time.
Speaker 1 (05:23):
Yearss too though subject to tax correct.
Speaker 2 (05:26):
Yeah, absolutely, So the coupon's income and with bonds you pay,
you pay tax on all of that income. So fifty
dollars will be taxed and so after five years you
get your money back. Now that's for a government bond, right,
And essentially when you're buying a bond off someone else,
(05:48):
they will give you a better interest rate based on
their risks. So you know, the New Zealand government five percent.
That's because in five years time, will the New Zealand
government be around to pay your one thousand dollars back? Jeez,
I hope so? Or a booth of us in a
big trouble what would suggest?
Speaker 3 (06:08):
So?
Speaker 2 (06:09):
Yeah, But as you go and look through, so you
look through the INSIDEX for example, there's lots of companies
there that pay bonds. For some of the companies, it's
harder to agin will they be here in five years time.
For most companies you'd say, you'd say yes. But there's
a lot of companies out there which are under pressure.
(06:31):
We're at a bit of a cyclical downturn in New Zealand,
and you know, sometimes it's actually not easy to see,
particularly in a world which there seems to be a
lot of disruption due to technology and also just things
that you can't foresee, like like COVID for example. So
(06:51):
essentially a company has given you to bring up to
what you said, a company has given you their bomb
that they will pay you back that thousand dollars in
five years time. The judgment you have to make is
will they be around and will they be solvent to
pay that money back to me?
Speaker 1 (07:08):
Well that's why, Yeah, that was the sort of question.
Who would In fact, I'd be curious to know for
anyone who's invested in bonds, give us a call if you, like,
I know one hundred and eighty ten eighty, have you
bought bonds and what attracted you to it? And you
know what sort of what sort of bond offerer would
you trust or not trust? Because what surety do you
(07:30):
have as a bond holder? So when you obviously if
you lend someone and you have to take a stake
out on their property like a mortgage, that's you that's
your surety. What's your that's the right word, sorry, Chris,
I'm not sure if it is. But what's your insurance?
What have you got a stake in?
Speaker 2 (07:49):
Yes, essentially your insurance is that something happened to the
company and they liquidated. The bond holders typically get paid
before the equity holders. If you had shares in a company,
you'll further down what we call the capital structure, and
you will get your money back only after the bond
(08:11):
holders are paid.
Speaker 1 (08:13):
What about debtas? What about a debta? So I've got
a bond and a big company, but do they have
to pay their debtors first if the company goes well?
Speaker 2 (08:21):
I think bonds are considered.
Speaker 1 (08:23):
Debtors unsecured debt Sorry, oh no, these technical because they're
all different, aren't they? Bond holders? Yeah?
Speaker 2 (08:33):
Yeah, yeah, yeah, that's right. So you can have so yep,
you can have secured bonds, you can have unsecured bonds.
But typically the ones that would be that the ones
that we'd be talking about and investing into, tend to
be investment grade bonds, so they tend to be in
quite reputable companies. I think another interesting thing just with
(08:55):
regards to bonds why you don't hear about them as much.
It's actually harder to access, right, So you know, if
you want to buy an equity, you know, we can
probably raddle off five places you can buy in equity, right.
You can go shares, E's Hatch, June Direct, you can
go through managed funds. You can go and invest now
(09:17):
or buy buy an ETF, whereas actually, you know, buying
a bond is a little bit harder, just for as
someone who's wanting to put one thousand dollars in kind
of the most accessible way to kind of do that
is actually through either a managed fund or buying an ETF,
(09:38):
because it is harder. There are less venues to get
access to bond markets. But look, yeah, I mean the
reason we talk about them today is that you're getting
a decent coupon on them. So you know, kind of
we see a lot of investment grade bonds at paying
about six percent is.
Speaker 1 (09:57):
Considered a pretty high return for a bond.
Speaker 2 (10:00):
Yeah, it is because you're and you'd say to you know,
the counter to the letters, you go by a bond
at six percent, I can get a term deposit for
one year at six percent, But with a bond you
can lock in that interest rate for longer as.
Speaker 1 (10:16):
A bond typically for what ten years or something.
Speaker 2 (10:19):
Well, it depends. Yeah, So companies tend to issue debt
over shorter time periods, but governments tend to issue debt
over longer time periods. So for example, with the New
Zealand government, there's a twenty fifty one bond out there
at the moments that's when that was issued. You know,
that was about thirty year bond. So you can lock
(10:42):
in these interest rates for quite a long period of time.
And I suppose the difference with that and a term
deposit is that you can sell a bond on the
secondary market. So if someone might look at going into
a SA five year term deposit and you look at
that and go, oh yeah, but you know, if I
break it, I'm going to miss out on a lot.
(11:05):
It's going to be big break freeze. With a bond,
you can sell it on the secondary market. So although
you're locking in for thirty years, there is a secondary
market out too.
Speaker 1 (11:17):
I mean, what's a bond worth though? If you're selling it?
I mean, say let's let's be let's go big and
say you've got a million dollars bond at six percent, Yeah,
isn't it. Are you pretty much just going to get
someone who say, well, I'll give you a million bucks
and take the bond over for you. And who's going
(11:38):
to play it? Who's going to play a premium for that?
Speaker 2 (11:40):
Well, it depends, right. So let's say you bought that
bond at six percent, and in two years time we
interst rates have fallen substantially in New Zealand. So say
interest rates on the market for a for a fresh
bond a four percent. People are going to pay more
than a million dollars for your bond, right because you've
(12:03):
got six percent. Cash flow is coming in every years.
You've got q pons of quickly doing the math, sixty
thousand coming in every year. So those cash flows are
worth more when the market interest rate is low. And now, conversely,
if interest rates went up and you could get a bond,
(12:24):
a fresh new bond at a higher yield, people wouldn't
actually pay a million dollars for their bond. They'd say, well, Tim,
I can get eight percent on the market at the moment,
your bond's only paying qpons at six percent. I'll actually
only pay you eight hundred thousand for your bond. And
that's something that's really key, right, because the reason people
(12:45):
don't like bonds as much at the moment is because
they might have bought them at a point where interest
rates were really low. So, for example, in twenty twenty,
a lot of bonds were yielding around like one two percent. Now,
if you bought that bond yielding one or two percent, right,
(13:06):
you've lost value because of what I mentioned earlier, right,
because you know today no one's going to value a
bond at one or two percent. You can go get
a term deposit at five or six percent, or another
longer term bond at six percent. So something people have
learned over the past few years is you can lose
(13:27):
money on bonds, but you know, we think they're a
lot more attractive at the moment because starting at these
higher yields, which are compensating us for that time that risk.
Speaker 1 (13:42):
Hey hmm, so who's do you have a sense of
a profile of the sort of investor who buys bonds?
Speaker 2 (13:52):
So bonds should be well, bonds will be and you know,
if people are out there, they're in a key. We
save balance funds that'll typically have six percent and shares
or other growth assets and forty percent in fixed interest
or bonds as they're otherwise called, and cash, so lots
(14:14):
of investors out there will will have them in their portfolios.
One of the benefits of them is that typically when
we have a large growth shock in the global economy,
so you know, let's talk something like the global financial crisis,
as share markets during that period tended to fall, but
(14:38):
actually bond yields foul, which means that their prices increased,
so they provide some offset to equities. So that's quite
an attractive characteristic. The whole premise of diversification is based
on having different things in your portfolio that perform differently
(15:02):
at different times. So form investors out there at the
moment who are fully invested in equity markets, they might
have had a really really strong run because markets have
just been so strong. I mean, I was just looking
year to date UI s, equity market s and P
five hundreds up fourteen percent. At the moment, equities are
(15:25):
quite fully valued, so you know, we think it's a
really good time to start looking at holding a little
bit more bonds. In an apple, I've.
Speaker 1 (15:36):
Got a text here that said it sounds like bonds
are for gutless investors. Is it a bit harsh timid investors?
Speaker 2 (15:43):
Shall we say timid is nicer.
Speaker 4 (15:49):
People.
Speaker 1 (15:49):
It's basically people are like, I do not want to
lose this money. I'm happy to settle for some security,
mind you. I mean if it's a company bond, I'd
be suspicious anyway, government bond. I mean they're two different things, really,
but are they? Are they the gutless investors? Let's just
let's just timid timid timid.
Speaker 2 (16:04):
That's oh, look, having a full portfolio. So let's go
back a bit. You know, what is the reason that
you invest for the long term? The reason you invest
is to create real wealth. Okay, So and by real wealth,
I don't mean fake or real, I mean after inflation.
(16:25):
So once we've taken the impact of inflation off your return,
you've still got more than you began with. And that's why,
you know, investors who have a really long time horizon
and can shoulder that volatility should have a lot of
equities in investment portfolios, right, And that's why a growth fund,
(16:45):
which is targeted at younger investors or investors with longer
time horizons, that's why they tend to have more equities. Now,
equities or shares, and I've got data. I'll get real
geeky here, Tim, there's a yearbook by some people called Dimson,
(17:06):
Marti and Staunton. It's published by UBS. Listeners will be
able to access a summary version of it online. It
shows since nineteen hundred you have gotten a real return
after inflation out of equities of about six and a
half percent perannum. Okay, so six and a half percent parandum,
(17:28):
you know that's that's pretty good, and close to ten
percent in nominal terms. For bonds, the real return has
been two point four percent, So equities have done about
four percentage points better Paranna.
Speaker 1 (17:42):
So if you just had a across the sort of
spectrum equity investment portfolio, that's that would outperform. That has
outperformed the.
Speaker 2 (17:52):
Bonds absolutely absolutely. And you know, if people have two
to three decades to invest, a higher waight to equities
does result in a higher expected return. But the reason
I talk about bonds today is because equities have done
so well, and at these times we can become quite complacent.
(18:18):
At times when valuations are relatively high and we've had
such a strong, strong run in investment markets, people can
often throw caution to the wind and go why do
I need a bond? So I want to be the
voice of reason and say, actually, today, if I'm a
bond with a view to the next ten years, we
(18:40):
think we think the return gap will where the equities
will do a little bit better, but probably not six
percent better peranum.
Speaker 1 (18:50):
Okay, okay, right, Well, we're taking your calls as well.
One and eighty ten eight if you've got any questions
about bonds or investing in a ship portfolio or investment portfolio.
Christ de levers here. He is director in head of
multi asset and Global Investments at Harbor Asset Management. We'll
be back in just a moment. Right, we're chatting with
Chris Deliver from Harbor Asset Management. As it were, talking
(19:10):
about bonds and your questions. We've got some calls here
for you, Chris, so shall we get into them. Let's
do it all right, okay? Alice?
Speaker 5 (19:16):
Hello, Hello, It's one week until I turned sixty five,
so I'm really looking forward to that. I've got one
hundred and one, one hundred and twenty six thousand dollars
invested in Keewy saver YEP. I want to know what
(19:39):
I should do with that I think I should just
put it into term deposits in the bank.
Speaker 1 (19:47):
Okay, by the way, just before Chris gets into it,
it's not personalized advice you'll be getting here. But we
can have a bit of a chat about that, can't we.
Speaker 2 (19:53):
Chris, Yeah, for sure, congratulations Allis and yeah, look with
Kiwi Savor, one of the things you are able to
do is keep it invested posts sixty five. I think
just generally, what I see a lot of people doing
at sixty five is not taking a dalkout just how
(20:16):
long their time frame is. And what I mean by
that is, you know, a sixty five year old today
and you'll be happy to hear this. Allus is still
considered very very young because life expectancy, especially for women,
which is as longer than men as we know, could
(20:38):
be into your nineties, so you could be retired for
quite a long time. So term deposits, yep, giving a
really good yield today, but whether term deposits can continue
yielding what they do it is probably questionable over the
long term because we'd expect the OCR to be cut
(21:03):
in subsequent years. I'd say Ellis's most cable providers at
sixty five are able to give able to give some advice.
It's a really good time to consider if you're in
the right fund at the very least. But yeah, I
would consider KEYI Saver as well as term deposits as
(21:24):
kind of a as potential solutions. But yeah, I wouldn't
rush to, you know, get down the risk strum. It
could be after talking to an advisor with your key
we saber provider that that key we saver is a
realistic a realistic option.
Speaker 1 (21:47):
Are you going to retire? Are you going to retire? Alex? Sorry,
I'm not Alice. Sorry, I didn't catch what you're whether
you're working now or not.
Speaker 5 (21:54):
I am working full time. I've been at the same
company for twenty nine years, and I'll work one more
year and then I'm going to go and live in
the Hawk Bay.
Speaker 1 (22:04):
Good on you good with that? Well, there's no hurry
to take your money out, I think, which is the
what we what we have also learned there and we
christ don't rush to take it out.
Speaker 2 (22:14):
Yeah, I mean the other thing, Eli elis if I
can just add, the other thing to be really wary
of is making sure as you retire that you update
your p I R rate because as your income reduces
and retirement, you might be eligible for a lower tax rate.
So that's just a bit more food for thoughts.
Speaker 1 (22:35):
Sorry, So say that again. What as you so your
p i R rate?
Speaker 2 (22:41):
Your tax rate is based off your last two years income.
A lot of retirees, it's so easy to forget right.
As you retire, you forget to reduce your p i
R rate, so you get taxed at that higher level
that you don't that you shouldn't necessarily be taxed at.
(23:02):
So there's really good questionnaires on what is the right
pr rate and it's easy to get in touch with
your provider and get them to change that if you
do get it wrong.
Speaker 1 (23:12):
Right, So, if you've got it dropped but you end
up earning a lot of personal income because you keep working,
you can still end up having to pay the up
you know you might find a shortfall. Is that possible
or not? Well, speak to your tax advisor.
Speaker 2 (23:25):
Yeah no, I mean, you know, we're trying to give
people good, good kind of rules of un to live by.
I mean it's easy to fill out the questionnaire, right,
I think it's two or three questions and you get
to the tax rate that you should be on. I
think the key thing for people to remember is that
if you're on the wrong pr rate for ten years,
(23:45):
you can't go back and say, oh, sorry, I've been
taxed at a higher rate. I've got to claw it back.
It's simply tough luck. So, you know, putting your future
in your own hands and making sure you've got the
right raids is really important.
Speaker 1 (23:59):
Hey, thanks Chris. Right, let's take another call Richard.
Speaker 4 (24:01):
Hello, Hello, Look, what I was inted just a couple
of points.
Speaker 3 (24:08):
Really.
Speaker 4 (24:08):
One was you were discussing the different returns on bonds
first sequities, and you were quite correctly say or stating
that bonds are around about two and a half percent
real and equities about six and a half. What I
really wanted to comment on was that those those differences
are not linear. It's not that equities are three times
(24:30):
better than bonds, because of course, when you compound returns
over a long period, those returns become exponentially different. So
to give you an idea, if you had ten thousand
dollars today and put it in bonds for forty years,
you'd have around about twenty seven thousand back at the
end of your forty years. That's in real return. But if
(24:52):
you put that same ten thousand into equities, you would
you would end up with one hundred and twenty four
thousand more or less one hundred thousand dollars more. So
that was my main point, was it. The difference between
equities and bonds is not linear. It's exponentially different. And
mind you, if you've got anything more than about ten
(25:14):
years before you need to spend your money, you're absolutely
mad not being in equity.
Speaker 1 (25:19):
What do you reckon any comment on that? Chris?
Speaker 2 (25:22):
I think Albert Einstein called compounding interests the ninth wonder
of the world. Yeah, I mean, that's absolutely right. So
another rule of thumb for people to have is if
you can get a ten percent return paranum and you
can invest for seven to seven and a half years,
you're roughly doubling your money every seven seven and a
half years. So yeah, look, compounding's really interesting. The other
(25:47):
thing is the other thing about linear returns too, is
that you hear an average return of roughly ten percent
paranum and you go, that's fantastic, get me in. Very
rarely will the return be exactly ten percent. So a
lot of the times, you know it could be positive
(26:07):
twenty or zero in one year. So there's this huge
behavioral element in investing as well, and investing in share
markets for long term wealth generation. It's pretty proven that
it's a good place to be, but there can be
periods of one years, two years, five years, and even
ten years where you can have a really tough time.
(26:31):
So yeah, look we say ten years or more. I
thought Richard had some really good points to bring a
life for the example, So good stuff. Thanks for that, Richard.
Speaker 1 (26:40):
Yeah, excellent, Thanks Richard. Right, we'll take a moment. We'll
be back in just to take It's twenty two minutes
to six News Talks. You've got a lot of calls
on hold this. We'll try and get through as soon
as we can. Back in a moment. This is news talk,
said b Yes, right, I'm with Chris Deliver from Hardbaurresic
Management talking about bonds and other things. We've got a
bunch of calls to crack on with. Just quickly, Chris,
(27:00):
I sort of I did a what would Warren Buffett do?
Which is interesting because on the bonds front, he's been
quite outspoken against them, but lately he's seems that his
portfolio Berkshire. Hathaway has got a significant amount of short
term bonds despite him saying that I can't imagine anyone
having bonds in their portfolio when they can own equities.
Speaker 2 (27:23):
Interesting, that's yeah, I mean just on that, it just
speaks to where we are in the cycle. And what
I mean by that is one of the best determinants
of returns over the next ten years for an equity
market is the starting valuation, and valuations today are really
(27:43):
quite stretched. So that has got explanatory factors when we're
looking at future returns. And that's why Buffett's holding these
higher positions. He's a valuation based investor and he's obviously
struggling to find value in the market.
Speaker 1 (28:02):
Yeah, fascinating, It's really fascinating.
Speaker 6 (28:04):
Right.
Speaker 1 (28:04):
A bunch of calls lined up, so we'll try and
rip through.
Speaker 6 (28:08):
John Hello, well hello, yes, My question, Now, if an
institution I could credit Union as a junk rating like
double B that has been going for sixty years and
has gone through the It's gone through the strength the
(28:30):
nineteen sixty eight crisis, global financial crisis, and it's gone
through the nineteen eighty seven gem market crash.
Speaker 1 (28:40):
Is that a Moody Is that a Moody's double B rating?
Is it?
Speaker 6 (28:44):
Well, you can have Moody's Fitch Standard Port Okay, it's not.
I don't think it'd be Moody. I think it'd be Fitch.
Speaker 1 (28:51):
Okay, Okay, what does it mean? Good question, Chris?
Speaker 2 (28:57):
Sorry, the credit rating? I mean, the credit rating is
just an assessment by the raiding agency on how clear
it is that you'll get your principal back at the
end of a term. But I think, John, what were
you going to ask? What we're going to ask? Something else?
Speaker 6 (29:15):
There? It's not like question like question is that is
a junk rating? The question is is it safe to
pot money? And an institution was a junk rating if
it's been going for sixty years and got through the
global financial crisis, in the share market, et cetera.
Speaker 1 (29:34):
I get you. So you're saying it's got a track record,
but it's got a double B rating. What does it
all mean?
Speaker 6 (29:41):
Yeah?
Speaker 2 (29:42):
And look, there is an element of survivorship bias here.
And what I mean by that is, you know that
is you know, that's an example of a company that
has got through all these hurdles and is still around today.
But I'd also say that we've seen a lot over
(30:02):
the past couple of decades, but they as well, you know,
we had you know, finance companies that some of them
actually had decent ratings, some of them didn't. So we
have seen a lot by the dust. I think with
any bond, you know, particularly one that has a credit
rating below investment grade, divestification becomes really really imporant because
(30:27):
you know, putting it all with one entity really does
put a lot of faith in that particular company. So
having some divestification I think is pretty important as well.
So yep, I acknowledge that a good track record is key,
but that's not systematic of all. Double b Raided.
Speaker 1 (30:51):
Reminds me of that disclaimer we hear sometimes that past
performance is no guarantee of future performance as well. So
I'd say, pay attention to it. But that's just me,
but it's not specialized financial advice from me or from
Chris John anyway, Well, let's take some more calls. Was
that a fair comment for me by the way there, Chris.
Speaker 2 (31:10):
Yeah, no, absolutely, And it can give you a false
sense of security sometimes because you know, the world does change.
Speaker 1 (31:17):
Yep, good stuff. Richard, Hello, hi there, I've.
Speaker 3 (31:20):
Got a pretty substantial. Key we save a shareholding which
includes quite a decent clank in Video shares, which is
very nice.
Speaker 1 (31:30):
Oh, well done, well done. Well it was my key.
Speaker 3 (31:35):
We save the managers that fix them. But my question
is I saw in a news item the other day
that in Video is proposing to issue nine bonus shares
for every one share that somebody holds. And what I
want to know is who gets those nine shares?
Speaker 2 (31:56):
Yes, so, Richard, that is a better way these things
get worded, really funny. I mean, the best way to
think about is it's a stock split. So essentially, companies
in the US, when their share prices get really high,
that makes it unaffordable to just buy a single share.
(32:17):
So what they do is they just split it. So
when they're splitting it, you'll go from owning one share
at a Videos share price whatever it is today, to
owning ten shares, but they will be at a tenth
of the price, so essentially nothing changes for you.
Speaker 3 (32:36):
Yeah, that's okay, because I thought, you know, if it
was going to go like I think, dividens go to
the manager the company managing the shares, and if I
thought of fir as nine shares went and then the
share price went down as a result, I could actually
lose some value in my account in my portfolio.
Speaker 2 (32:55):
Yeah, no, that's definitely not the case in this case.
And also so the way your investment manager is paid
is not through the dividends. It will be through an
annual management fair will be anywhere for a key we
save a fund between say point three of one percent,
(33:17):
So if you have one thousand dollars invested, that'll be
roughly thirty dollars.
Speaker 6 (33:23):
Through to.
Speaker 2 (33:26):
You know, maybe one one and a half to two percent,
So that that'll be the fee, and that all has
to be really clearly articulated to your FMA is pretty
prescriptive on how that's done.
Speaker 1 (33:38):
Okay, thanks for com mate, and a quick one from
you Tony today.
Speaker 7 (33:43):
Yeah, good evening, Christ and Tim. A quick question. I've
heard the term equities during your conversation. Would you have
to clarify exactly what you mean when you say if
you're investing in the equities market, what you're actually what
you're actually investing in, What is the type of product?
What is it?
Speaker 2 (34:00):
Oh, no problem, it all so equities and shares terms
that can be used interchangeably, and I apologize for that. Shares.
The is the parlance that I normally use, but sometimes
I inequities creeps in here and there.
Speaker 3 (34:19):
Okay.
Speaker 7 (34:19):
With regard to bonds, can you get bonds that you
paid every month or return?
Speaker 2 (34:28):
You can definitely get funds which hold bonds which will
pay a monthly distribution, but typically the coupons are paid
six monthly. Yeah, which is just a custom I suppose,
just to reduce paperwork. But there are definitely funds that
hold bonds which pay more regular distributions, because it's quite
(34:51):
nice to have it staggered monthly. Isn't it just for
budgeting and income purposes?
Speaker 1 (34:58):
Okay? Hey, thanks so much for your court Tony. Gosh,
we've it's been a busy old hour. We've we still
we could have. I didn't realize we could have talked
for bonds. Probably another a whole nother.
Speaker 2 (35:07):
Hour, couldn't we, Chris, every day, don't you? I'm anyway?
Speaker 1 (35:14):
Hey, I thanks so much for your time. And if
people want to check out the work of harbor Asset Management,
the let you give. The website address is harbor.
Speaker 2 (35:21):
As set dot dot co dot m Z.
Speaker 1 (35:25):
Excellent. Hey, Chris, thanks so much for your time. Really
appreciate it.
Speaker 2 (35:28):
Mate, Go cheers, Tom Good talks at you again.
Speaker 1 (35:31):
Bye bye. It is now coming up to ten minutes
to Sex News Talk sead B for more from the
weekend collective. Listen live to News Talk said B weekends
from three pm, or follow the podcast on iHeartRadio
You're listening to the Weekend Collective podcast from News Talks
EDB and welcome back to the Weekend Collective. I'm Ton Beverage.
This is for this our smart money. By the way,
if you've missed our previous hours, we had car MacDonald,
a fascinating discussion, action, some great cause, some text talking
about adult ADHD. So if you haven't missed that new
acurious please go and check out our podcast. It will
(00:26):
be loaded fairly shortly after we're finished broadcasting today. Go
look for the Weekend Collective and I suggest iHeartRadio as
your start and endpoint for that. And also quite a
fun fun politics are Is it a strange way to
describe the fun politics? I enjoyed it anyway. We had
a chat with Robert Patman from Attaga University just about
the summit in Switzerland and the pretend offer at peace
(00:48):
from Putin. I guess I could describe it as as
well as Brook van Velden who joined us to talk
about the overhaul and her upcoming road show of Health
and Safety, which sounds like, well, it sounds like a
bit of fun, doesn't it? Does it? Anyway? But right
now this is smart money and my guest is from
Harbor Asset Management. We say very good afternoon to Chris Deliver.
(01:08):
How are you going, Chris?
Speaker 2 (01:09):
I'm great, Tim, how are you?
Speaker 1 (01:11):
Ah, not too bad? So you are just to give
your job description your director to Harbor Asset Management, but
also head of this is it's a flash job title,
head of multi asset and Global investments. Sounds good.
Speaker 2 (01:24):
Yeah, yeah, you know we try and check it as many.
Speaker 1 (01:31):
Yeah. Okay, that's a good way to put it. Hey,
so we're gonna have a chat about bond markets as
an investor, and I thought, actually, to start it off,
I'll give you my honest thing. When I hear about
bonds as an investment, I sort of go because they
(01:52):
sound always so, I mean, I guess they're safe, low return.
I don't know a bonds. Is there more to bonds
that meets the what what? What do we expect? While
we why would we buy bonds?
Speaker 2 (02:06):
Good question? And I can see why you have the
impression of bonds that do because you know, over the
last decade or so, bonds have been a pretty average
place to be actually relative to equity markets. So you know,
call it, you know, three percent peranum from a bond
(02:28):
over the past ten years, when you've had about ten
percent out peranum out of equity markets, right, so bonds
have barely kept pace that actually haven't quite kept pace
with inflation over that time period. So, yeah, it is
a good question, and I suppose I'll answer it by
(02:49):
saying that we think bombs will probably be more relevant
this next decade than they were over the last decade.
So we've just been doing a lot of work at
Harbor looking at our long term expected returns markets, so
looking ten years forward and saying from this point today,
(03:11):
what we think share markets will do, bond markets also
a bunch of other markets around the world, for example,
how do we think global infrastructure would do, how do
we think real estate stocks will do? New Zealand stocks,
Australian stocks, And where we've kind of come out is
that over the next decade, we actually think the return
(03:33):
differential between bonds and equities will be a lot closer
than it was over the past ten years. And a
key reason for that is not going to be a
surprise to anyone listening in, because we've had this run
of inflation over the past few years that's left interst
rates quite substantially up, So as a bond investor, you're
(03:59):
actually getting a yield. And it shall quickly to get
even slightly more boring because there were some people listening
going bond what actually.
Speaker 1 (04:13):
Well, actually I was about to my first question I
should have got into. I said, what is a bond?
Because it sounds the word suggests you know, my word
is my bond. It sounds like something you can count on,
it's safe as houses, all that sort of thing. But
don't listen to me, people, Chris is going to tell
us what a bond is.
Speaker 2 (04:30):
It's a good way to put it. Your word is
your bond, because that is really so when you're buying
a bond, you're essentially lending money to a company or
the government. And let's say you put one thousand dollars
into a five year bond paying five percent. We'll keep
with the fives in our example. So if you bought
(04:53):
a bond, and that's actually roughly what to bond with
the New Zealand government, what that would kind of pay
you currently, So you would get fifty dollars a year
for the next five years, so fifty bucks each year,
and then after five years you will get your money back.
Speaker 1 (05:13):
Now, for every how much for every.
Speaker 2 (05:17):
So every thousand dollars chach, you get fifty bucks year
and then you'll get your thousand dollars back at the
end of time.
Speaker 1 (05:23):
Yearss too though subject to tax correct.
Speaker 2 (05:26):
Yeah, absolutely, So the coupon's income and with bonds you pay,
you pay tax on all of that income. So fifty
dollars will be taxed and so after five years you
get your money back. Now that's for a government bond, right,
And essentially when you're buying a bond off someone else,
(05:48):
they will give you a better interest rate based on
their risks. So you know, the New Zealand government five percent.
That's because in five years time, will the New Zealand
government be around to pay your one thousand dollars back? Jeez,
I hope so? Or a booth of us in a
big trouble what would suggest?
Speaker 3 (06:08):
So?
Speaker 2 (06:09):
Yeah, But as you go and look through, so you
look through the INSIDEX for example, there's lots of companies
there that pay bonds. For some of the companies, it's
harder to agin will they be here in five years time.
For most companies you'd say, you'd say yes. But there's
a lot of companies out there which are under pressure.
(06:31):
We're at a bit of a cyclical downturn in New Zealand,
and you know, sometimes it's actually not easy to see,
particularly in a world which there seems to be a
lot of disruption due to technology and also just things
that you can't foresee, like like COVID for example. So
(06:51):
essentially a company has given you to bring up to
what you said, a company has given you their bomb
that they will pay you back that thousand dollars in
five years time. The judgment you have to make is
will they be around and will they be solvent to
pay that money back to me?
Speaker 1 (07:08):
Well that's why, Yeah, that was the sort of question.
Who would In fact, I'd be curious to know for
anyone who's invested in bonds, give us a call if you, like,
I know one hundred and eighty ten eighty, have you
bought bonds and what attracted you to it? And you
know what sort of what sort of bond offerer would
you trust or not trust? Because what surety do you
(07:30):
have as a bond holder? So when you obviously if
you lend someone and you have to take a stake
out on their property like a mortgage, that's you that's
your surety. What's your that's the right word, sorry, Chris,
I'm not sure if it is. But what's your insurance?
What have you got a stake in?
Speaker 2 (07:49):
Yes, essentially your insurance is that something happened to the
company and they liquidated. The bond holders typically get paid
before the equity holders. If you had shares in a company,
you'll further down what we call the capital structure, and
you will get your money back only after the bond
(08:11):
holders are paid.
Speaker 1 (08:13):
What about debtas? What about a debta? So I've got
a bond and a big company, but do they have
to pay their debtors first if the company goes well?
Speaker 2 (08:21):
I think bonds are considered.
Speaker 1 (08:23):
Debtors unsecured debt Sorry, oh no, these technical because they're
all different, aren't they? Bond holders? Yeah?
Speaker 2 (08:33):
Yeah, yeah, yeah, that's right. So you can have so yep,
you can have secured bonds, you can have unsecured bonds.
But typically the ones that would be that the ones
that we'd be talking about and investing into, tend to
be investment grade bonds, so they tend to be in
quite reputable companies. I think another interesting thing just with
(08:55):
regards to bonds why you don't hear about them as much.
It's actually harder to access, right, So you know, if
you want to buy an equity, you know, we can
probably raddle off five places you can buy in equity, right.
You can go shares, E's Hatch, June Direct, you can
go through managed funds. You can go and invest now
(09:17):
or buy buy an ETF, whereas actually, you know, buying
a bond is a little bit harder, just for as
someone who's wanting to put one thousand dollars in kind
of the most accessible way to kind of do that
is actually through either a managed fund or buying an ETF,
(09:38):
because it is harder. There are less venues to get
access to bond markets. But look, yeah, I mean the
reason we talk about them today is that you're getting
a decent coupon on them. So you know, kind of
we see a lot of investment grade bonds at paying
about six percent is.
Speaker 1 (09:57):
Considered a pretty high return for a bond.
Speaker 2 (10:00):
Yeah, it is because you're and you'd say to you know,
the counter to the letters, you go by a bond
at six percent, I can get a term deposit for
one year at six percent, But with a bond you
can lock in that interest rate for longer as.
Speaker 1 (10:16):
A bond typically for what ten years or something.
Speaker 2 (10:19):
Well, it depends. Yeah, So companies tend to issue debt
over shorter time periods, but governments tend to issue debt
over longer time periods. So for example, with the New
Zealand government, there's a twenty fifty one bond out there
at the moments that's when that was issued. You know,
that was about thirty year bond. So you can lock
(10:42):
in these interest rates for quite a long period of time.
And I suppose the difference with that and a term
deposit is that you can sell a bond on the
secondary market. So if someone might look at going into
a SA five year term deposit and you look at
that and go, oh yeah, but you know, if I
break it, I'm going to miss out on a lot.
(11:05):
It's going to be big break freeze. With a bond,
you can sell it on the secondary market. So although
you're locking in for thirty years, there is a secondary
market out too.
Speaker 1 (11:17):
I mean, what's a bond worth though? If you're selling it?
I mean, say let's let's be let's go big and
say you've got a million dollars bond at six percent, Yeah,
isn't it. Are you pretty much just going to get
someone who say, well, I'll give you a million bucks
and take the bond over for you. And who's going
(11:38):
to play it? Who's going to play a premium for that?
Speaker 2 (11:40):
Well, it depends, right. So let's say you bought that
bond at six percent, and in two years time we
interst rates have fallen substantially in New Zealand. So say
interest rates on the market for a for a fresh
bond a four percent. People are going to pay more
than a million dollars for your bond, right because you've
(12:03):
got six percent. Cash flow is coming in every years.
You've got q pons of quickly doing the math, sixty
thousand coming in every year. So those cash flows are
worth more when the market interest rate is low. And now, conversely,
if interest rates went up and you could get a bond,
(12:24):
a fresh new bond at a higher yield, people wouldn't
actually pay a million dollars for their bond. They'd say, well, Tim,
I can get eight percent on the market at the moment,
your bond's only paying qpons at six percent. I'll actually
only pay you eight hundred thousand for your bond. And
that's something that's really key, right, because the reason people
(12:45):
don't like bonds as much at the moment is because
they might have bought them at a point where interest
rates were really low. So, for example, in twenty twenty,
a lot of bonds were yielding around like one two percent. Now,
if you bought that bond yielding one or two percent, right,
(13:06):
you've lost value because of what I mentioned earlier, right,
because you know today no one's going to value a
bond at one or two percent. You can go get
a term deposit at five or six percent, or another
longer term bond at six percent. So something people have
learned over the past few years is you can lose
(13:27):
money on bonds, but you know, we think they're a
lot more attractive at the moment because starting at these
higher yields, which are compensating us for that time that risk.
Speaker 1 (13:42):
Hey hmm, so who's do you have a sense of
a profile of the sort of investor who buys bonds?
Speaker 2 (13:52):
So bonds should be well, bonds will be and you know,
if people are out there, they're in a key. We
save balance funds that'll typically have six percent and shares
or other growth assets and forty percent in fixed interest
or bonds as they're otherwise called, and cash, so lots
(14:14):
of investors out there will will have them in their portfolios.
One of the benefits of them is that typically when
we have a large growth shock in the global economy,
so you know, let's talk something like the global financial crisis,
as share markets during that period tended to fall, but
(14:38):
actually bond yields foul, which means that their prices increased,
so they provide some offset to equities. So that's quite
an attractive characteristic. The whole premise of diversification is based
on having different things in your portfolio that perform differently
(15:02):
at different times. So form investors out there at the
moment who are fully invested in equity markets, they might
have had a really really strong run because markets have
just been so strong. I mean, I was just looking
year to date UI s, equity market s and P
five hundreds up fourteen percent. At the moment, equities are
(15:25):
quite fully valued, so you know, we think it's a
really good time to start looking at holding a little
bit more bonds. In an apple, I've.
Speaker 1 (15:36):
Got a text here that said it sounds like bonds
are for gutless investors. Is it a bit harsh timid investors?
Speaker 2 (15:43):
Shall we say timid is nicer.
Speaker 4 (15:49):
People.
Speaker 1 (15:49):
It's basically people are like, I do not want to
lose this money. I'm happy to settle for some security,
mind you. I mean if it's a company bond, I'd
be suspicious anyway, government bond. I mean they're two different things, really,
but are they? Are they the gutless investors? Let's just
let's just timid timid timid.
Speaker 2 (16:04):
That's oh, look, having a full portfolio. So let's go
back a bit. You know, what is the reason that
you invest for the long term? The reason you invest
is to create real wealth. Okay, So and by real wealth,
I don't mean fake or real, I mean after inflation.
(16:25):
So once we've taken the impact of inflation off your return,
you've still got more than you began with. And that's why,
you know, investors who have a really long time horizon
and can shoulder that volatility should have a lot of
equities in investment portfolios, right, And that's why a growth fund,
(16:45):
which is targeted at younger investors or investors with longer
time horizons, that's why they tend to have more equities. Now,
equities or shares, and I've got data. I'll get real
geeky here, Tim, there's a yearbook by some people called Dimson,
(17:06):
Marti and Staunton. It's published by UBS. Listeners will be
able to access a summary version of it online. It
shows since nineteen hundred you have gotten a real return
after inflation out of equities of about six and a
half percent perannum. Okay, so six and a half percent parandum,
(17:28):
you know that's that's pretty good, and close to ten
percent in nominal terms. For bonds, the real return has
been two point four percent, So equities have done about
four percentage points better Paranna.
Speaker 1 (17:42):
So if you just had a across the sort of
spectrum equity investment portfolio, that's that would outperform. That has
outperformed the.
Speaker 2 (17:52):
Bonds absolutely absolutely. And you know, if people have two
to three decades to invest, a higher waight to equities
does result in a higher expected return. But the reason
I talk about bonds today is because equities have done
so well, and at these times we can become quite complacent.
(18:18):
At times when valuations are relatively high and we've had
such a strong, strong run in investment markets, people can
often throw caution to the wind and go why do
I need a bond? So I want to be the
voice of reason and say, actually, today, if I'm a
bond with a view to the next ten years, we
(18:40):
think we think the return gap will where the equities
will do a little bit better, but probably not six
percent better peranum.
Speaker 1 (18:50):
Okay, okay, right, Well, we're taking your calls as well.
One and eighty ten eight if you've got any questions
about bonds or investing in a ship portfolio or investment portfolio.
Christ de levers here. He is director in head of
multi asset and Global Investments at Harbor Asset Management. We'll
be back in just a moment. Right, we're chatting with
Chris Deliver from Harbor Asset Management. As it were, talking
(19:10):
about bonds and your questions. We've got some calls here
for you, Chris, so shall we get into them. Let's
do it all right, okay? Alice?
Speaker 5 (19:16):
Hello, Hello, It's one week until I turned sixty five,
so I'm really looking forward to that. I've got one
hundred and one, one hundred and twenty six thousand dollars
invested in Keewy saver YEP. I want to know what
(19:39):
I should do with that I think I should just
put it into term deposits in the bank.
Speaker 1 (19:47):
Okay, by the way, just before Chris gets into it,
it's not personalized advice you'll be getting here. But we
can have a bit of a chat about that, can't we.
Speaker 2 (19:53):
Chris, Yeah, for sure, congratulations Allis and yeah, look with
Kiwi Savor, one of the things you are able to
do is keep it invested posts sixty five. I think
just generally, what I see a lot of people doing
at sixty five is not taking a dalkout just how
(20:16):
long their time frame is. And what I mean by
that is, you know, a sixty five year old today
and you'll be happy to hear this. Allus is still
considered very very young because life expectancy, especially for women,
which is as longer than men as we know, could
(20:38):
be into your nineties, so you could be retired for
quite a long time. So term deposits, yep, giving a
really good yield today, but whether term deposits can continue
yielding what they do it is probably questionable over the
long term because we'd expect the OCR to be cut
(21:03):
in subsequent years. I'd say Ellis's most cable providers at
sixty five are able to give able to give some advice.
It's a really good time to consider if you're in
the right fund at the very least. But yeah, I
would consider KEYI Saver as well as term deposits as
(21:24):
kind of a as potential solutions. But yeah, I wouldn't
rush to, you know, get down the risk strum. It
could be after talking to an advisor with your key
we saber provider that that key we saver is a
realistic a realistic option.
Speaker 1 (21:47):
Are you going to retire? Are you going to retire? Alex? Sorry,
I'm not Alice. Sorry, I didn't catch what you're whether
you're working now or not.
Speaker 5 (21:54):
I am working full time. I've been at the same
company for twenty nine years, and I'll work one more
year and then I'm going to go and live in
the Hawk Bay.
Speaker 1 (22:04):
Good on you good with that? Well, there's no hurry
to take your money out, I think, which is the
what we what we have also learned there and we
christ don't rush to take it out.
Speaker 2 (22:14):
Yeah, I mean the other thing, Eli elis if I
can just add, the other thing to be really wary
of is making sure as you retire that you update
your p I R rate because as your income reduces
and retirement, you might be eligible for a lower tax rate.
So that's just a bit more food for thoughts.
Speaker 1 (22:35):
Sorry, So say that again. What as you so your
p i R rate?
Speaker 2 (22:41):
Your tax rate is based off your last two years income.
A lot of retirees, it's so easy to forget right.
As you retire, you forget to reduce your p i
R rate, so you get taxed at that higher level
that you don't that you shouldn't necessarily be taxed at.
(23:02):
So there's really good questionnaires on what is the right
pr rate and it's easy to get in touch with
your provider and get them to change that if you
do get it wrong.
Speaker 1 (23:12):
Right, So, if you've got it dropped but you end
up earning a lot of personal income because you keep working,
you can still end up having to pay the up
you know you might find a shortfall. Is that possible
or not? Well, speak to your tax advisor.
Speaker 2 (23:25):
Yeah no, I mean, you know, we're trying to give
people good, good kind of rules of un to live by.
I mean it's easy to fill out the questionnaire, right,
I think it's two or three questions and you get
to the tax rate that you should be on. I
think the key thing for people to remember is that
if you're on the wrong pr rate for ten years,
(23:45):
you can't go back and say, oh, sorry, I've been
taxed at a higher rate. I've got to claw it back.
It's simply tough luck. So, you know, putting your future
in your own hands and making sure you've got the
right raids is really important.
Speaker 1 (23:59):
Hey, thanks Chris. Right, let's take another call Richard.
Speaker 4 (24:01):
Hello, Hello, Look, what I was inted just a couple
of points.
Speaker 3 (24:08):
Really.
Speaker 4 (24:08):
One was you were discussing the different returns on bonds
first sequities, and you were quite correctly say or stating
that bonds are around about two and a half percent
real and equities about six and a half. What I
really wanted to comment on was that those those differences
are not linear. It's not that equities are three times
(24:30):
better than bonds, because of course, when you compound returns
over a long period, those returns become exponentially different. So
to give you an idea, if you had ten thousand
dollars today and put it in bonds for forty years,
you'd have around about twenty seven thousand back at the
end of your forty years. That's in real return. But if
(24:52):
you put that same ten thousand into equities, you would
you would end up with one hundred and twenty four
thousand more or less one hundred thousand dollars more. So
that was my main point, was it. The difference between
equities and bonds is not linear. It's exponentially different. And
mind you, if you've got anything more than about ten
(25:14):
years before you need to spend your money, you're absolutely
mad not being in equity.
Speaker 1 (25:19):
What do you reckon any comment on that? Chris?
Speaker 2 (25:22):
I think Albert Einstein called compounding interests the ninth wonder
of the world. Yeah, I mean, that's absolutely right. So
another rule of thumb for people to have is if
you can get a ten percent return paranum and you
can invest for seven to seven and a half years,
you're roughly doubling your money every seven seven and a
half years. So yeah, look, compounding's really interesting. The other
(25:47):
thing is the other thing about linear returns too, is
that you hear an average return of roughly ten percent
paranum and you go, that's fantastic, get me in. Very
rarely will the return be exactly ten percent. So a
lot of the times, you know it could be positive
(26:07):
twenty or zero in one year. So there's this huge
behavioral element in investing as well, and investing in share
markets for long term wealth generation. It's pretty proven that
it's a good place to be, but there can be
periods of one years, two years, five years, and even
ten years where you can have a really tough time.
(26:31):
So yeah, look we say ten years or more. I
thought Richard had some really good points to bring a
life for the example, So good stuff. Thanks for that, Richard.
Speaker 1 (26:40):
Yeah, excellent, Thanks Richard. Right, we'll take a moment. We'll
be back in just to take It's twenty two minutes
to six News Talks. You've got a lot of calls
on hold this. We'll try and get through as soon
as we can. Back in a moment. This is news talk,
said b Yes, right, I'm with Chris Deliver from Hardbaurresic
Management talking about bonds and other things. We've got a
bunch of calls to crack on with. Just quickly, Chris,
(27:00):
I sort of I did a what would Warren Buffett do?
Which is interesting because on the bonds front, he's been
quite outspoken against them, but lately he's seems that his
portfolio Berkshire. Hathaway has got a significant amount of short
term bonds despite him saying that I can't imagine anyone
having bonds in their portfolio when they can own equities.
Speaker 2 (27:23):
Interesting, that's yeah, I mean just on that, it just
speaks to where we are in the cycle. And what
I mean by that is one of the best determinants
of returns over the next ten years for an equity
market is the starting valuation, and valuations today are really
(27:43):
quite stretched. So that has got explanatory factors when we're
looking at future returns. And that's why Buffett's holding these
higher positions. He's a valuation based investor and he's obviously
struggling to find value in the market.
Speaker 1 (28:02):
Yeah, fascinating, It's really fascinating.
Speaker 6 (28:04):
Right.
Speaker 1 (28:04):
A bunch of calls lined up, so we'll try and
rip through.
Speaker 6 (28:08):
John Hello, well hello, yes, My question, Now, if an
institution I could credit Union as a junk rating like
double B that has been going for sixty years and
has gone through the It's gone through the strength the
(28:30):
nineteen sixty eight crisis, global financial crisis, and it's gone
through the nineteen eighty seven gem market crash.
Speaker 1 (28:40):
Is that a Moody Is that a Moody's double B rating?
Is it?
Speaker 6 (28:44):
Well, you can have Moody's Fitch Standard Port Okay, it's not.
I don't think it'd be Moody. I think it'd be Fitch.
Speaker 1 (28:51):
Okay, Okay, what does it mean? Good question, Chris?
Speaker 2 (28:57):
Sorry, the credit rating? I mean, the credit rating is
just an assessment by the raiding agency on how clear
it is that you'll get your principal back at the
end of a term. But I think, John, what were
you going to ask? What we're going to ask? Something else?
Speaker 6 (29:15):
There? It's not like question like question is that is
a junk rating? The question is is it safe to
pot money? And an institution was a junk rating if
it's been going for sixty years and got through the
global financial crisis, in the share market, et cetera.
Speaker 1 (29:34):
I get you. So you're saying it's got a track record,
but it's got a double B rating. What does it
all mean?
Speaker 6 (29:41):
Yeah?
Speaker 2 (29:42):
And look, there is an element of survivorship bias here.
And what I mean by that is, you know that
is you know, that's an example of a company that
has got through all these hurdles and is still around today.
But I'd also say that we've seen a lot over
(30:02):
the past couple of decades, but they as well, you know,
we had you know, finance companies that some of them
actually had decent ratings, some of them didn't. So we
have seen a lot by the dust. I think with
any bond, you know, particularly one that has a credit
rating below investment grade, divestification becomes really really imporant because
(30:27):
you know, putting it all with one entity really does
put a lot of faith in that particular company. So
having some divestification I think is pretty important as well.
So yep, I acknowledge that a good track record is key,
but that's not systematic of all. Double b Raided.
Speaker 1 (30:51):
Reminds me of that disclaimer we hear sometimes that past
performance is no guarantee of future performance as well. So
I'd say, pay attention to it. But that's just me,
but it's not specialized financial advice from me or from
Chris John anyway, Well, let's take some more calls. Was
that a fair comment for me by the way there, Chris.
Speaker 2 (31:10):
Yeah, no, absolutely, And it can give you a false
sense of security sometimes because you know, the world does change.
Speaker 1 (31:17):
Yep, good stuff. Richard, Hello, hi there, I've.
Speaker 3 (31:20):
Got a pretty substantial. Key we save a shareholding which
includes quite a decent clank in Video shares, which is
very nice.
Speaker 1 (31:30):
Oh, well done, well done. Well it was my key.
Speaker 3 (31:35):
We save the managers that fix them. But my question
is I saw in a news item the other day
that in Video is proposing to issue nine bonus shares
for every one share that somebody holds. And what I
want to know is who gets those nine shares?
Speaker 2 (31:56):
Yes, so, Richard, that is a better way these things
get worded, really funny. I mean, the best way to
think about is it's a stock split. So essentially, companies
in the US, when their share prices get really high,
that makes it unaffordable to just buy a single share.
(32:17):
So what they do is they just split it. So
when they're splitting it, you'll go from owning one share
at a Videos share price whatever it is today, to
owning ten shares, but they will be at a tenth
of the price, so essentially nothing changes for you.
Speaker 3 (32:36):
Yeah, that's okay, because I thought, you know, if it
was going to go like I think, dividens go to
the manager the company managing the shares, and if I
thought of fir as nine shares went and then the
share price went down as a result, I could actually
lose some value in my account in my portfolio.
Speaker 2 (32:55):
Yeah, no, that's definitely not the case in this case.
And also so the way your investment manager is paid
is not through the dividends. It will be through an
annual management fair will be anywhere for a key we
save a fund between say point three of one percent,
(33:17):
So if you have one thousand dollars invested, that'll be
roughly thirty dollars.
Speaker 6 (33:23):
Through to.
Speaker 2 (33:26):
You know, maybe one one and a half to two percent,
So that that'll be the fee, and that all has
to be really clearly articulated to your FMA is pretty
prescriptive on how that's done.
Speaker 1 (33:38):
Okay, thanks for com mate, and a quick one from
you Tony today.
Speaker 7 (33:43):
Yeah, good evening, Christ and Tim. A quick question. I've
heard the term equities during your conversation. Would you have
to clarify exactly what you mean when you say if
you're investing in the equities market, what you're actually what
you're actually investing in, What is the type of product?
What is it?
Speaker 2 (34:00):
Oh, no problem, it all so equities and shares terms
that can be used interchangeably, and I apologize for that. Shares.
The is the parlance that I normally use, but sometimes
I inequities creeps in here and there.
Speaker 3 (34:19):
Okay.
Speaker 7 (34:19):
With regard to bonds, can you get bonds that you
paid every month or return?
Speaker 2 (34:28):
You can definitely get funds which hold bonds which will
pay a monthly distribution, but typically the coupons are paid
six monthly. Yeah, which is just a custom I suppose,
just to reduce paperwork. But there are definitely funds that
hold bonds which pay more regular distributions, because it's quite
(34:51):
nice to have it staggered monthly. Isn't it just for
budgeting and income purposes?
Speaker 1 (34:58):
Okay? Hey, thanks so much for your court Tony. Gosh,
we've it's been a busy old hour. We've we still
we could have. I didn't realize we could have talked
for bonds. Probably another a whole nother.
Speaker 2 (35:07):
Hour, couldn't we, Chris, every day, don't you? I'm anyway?
Speaker 1 (35:14):
Hey, I thanks so much for your time. And if
people want to check out the work of harbor Asset Management,
the let you give. The website address is harbor.
Speaker 2 (35:21):
As set dot dot co dot m Z.
Speaker 1 (35:25):
Excellent. Hey, Chris, thanks so much for your time. Really
appreciate it.
Speaker 2 (35:28):
Mate, Go cheers, Tom Good talks at you again.
Speaker 1 (35:31):
Bye bye. It is now coming up to ten minutes
to Sex News Talk sead B for more from the
weekend collective. Listen live to News Talk said B weekends
from three pm, or follow the podcast on iHeartRadio
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