Market & Portfolio Update - May 2022
Volatility in global share markets continued in May as investors focused on inflation and rising interest rates. Despite the volatility, global share markets rebounded to end the month flat, with the energy sector leading the way (up 13.5%). The energy sector includes oil producers which benefitted from oil prices rising to $123/barrel. The European Union agreed to a partial ban on Russian oil. The ban is expected to cover 90% of Europe’s Russian oil imports by the end of this year.
As expected by markets, the US Federal Reserve raised interest rates by 0.5% in May. This was the largest interest rate hike since 2000, and signals the Federal Reserve’s commitment to ‘walk-the-walk’ to try to control inflation.
The Reserve Bank of New Zealand also raised interest rates in May after it hiked the OCR by 0.5%. The OCR now sits at 2%, and the Reserve Bank’s updated forecasts show it reaching 4% by September of next year. While the rapid rise in interest rates has impacted portfolio returns over the last year (particularly conservative funds with a high allocation to bonds), it is important to note that market expectations have already adjusted so that a rise to 4% next year is already baked into prices of bond investments. There is a silver lining though - higher interest rates mean reinvestment rates are now much more attractive, supporting the future returns of bond investments.
The magic of the managed fund
Let’s talk about shares for a minute. No matter how you invest, there are really just two ways to make money from owning shares:
1. You receive a slice of the profits (called dividends), or
2. You sell your shares to someone else for more than you paid (that’s capital gain).
That’s it. Anything else is simply a different way of packaging those two outcomes.
What is Life Insurance?
Life insurance is one of those things that many people know they should probably have but they’re not quite sure what it does, how it works, or whether it’s actually relevant to them. This article breaks it down in clear, everyday terms to help you understand the basics before you decide if it’s something worth exploring further.