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Top 10 Risks and Opportunities for 2024

When establishing our core investment views for the near- and medium-term, we are conscious that markets often skew towards tail risks, and also towards factors that are already observable but uncertain.When our research team considers technology disruption in sectors and the macro-environment, we have to be aware that the range of outcomes may provide investment opportunities as markets can react both slowly to news and rapid...

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Hamish Pepper, Chris Di Leva | Posted on Dec 13, 2023
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Investment Horizon: Top 10 risks and opportunities for 2023 – A mid-year reflection

At the risk of jinxing things and, barring a few weeks in March where the collapse of Silicon Valley Bank looked like it could create broader risks for the banking system, the first half of 2023 was relatively uneventful. Particularly when compared to the corresponding periods
in 2020 and 2022.

After a year of negative returns for both bonds and equities, “the scores on the board” look healthier for both. Equities have bounc...

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Chris Di Leva, Hamish Pepper | Posted on Jul 5, 2023
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Investment Horizon: On the ground in China – the key shifts needed to counter strong bearish sentiment

Senior Research Analyst Øyvinn Rimer presents his noteworthy insights and discoveries from a recent visit to China, where he visited more than 30 companies spanning diverse industries. Despite prevailing pessimism, certain winners emerged, and indications suggest an imminent shift towards a favourable upturn.

China property, prospective policy and iron ore – how low can it go?
After a long four years, we were finally back on ...

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Oyvinn Rimer | Posted on Jun 14, 2023
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Top 10 risks and opportunities for 2023

Investment markets generally have many different factors that drive returns, however occasionally there are very few. 2022 will go down as the latter. Inflation was the dominant theme for 2022, creating an unenviable backdrop for bond markets as central banks raised rates to try and combat rising inflation. Equity market valuations fell sharply adjusting to higher discount rates.
 

While we pointed out the risk of inflation b...

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Hamish Pepper, Chris Di Leva | Posted on Dec 15, 2022
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Impact Investing: Responsible investing’s latest frontier

What is Impact Investing? Responsible investing has evolved over time, from simple portfolio exclusions such as alcohol and tobacco, through to only selecting investments that meet certain Environmental, Social and Governance (ESG) criteria, and investment managers engaging with company management to try to effect positive change in these ESG areas.  

Impact investing has become a buzzword of late and has evolved to mean slig...

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Lewis Fowler | Posted on Jul 1, 2022
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Social Spotlight III: Modern Slavery

  • Modern slavery is a key social issue still occurring today and is a core aspect to be addressed as part of the United Nation’s Sustainable Development Goals
  • In our final article following our research project on social aspects, we summarise our findings on modern slavery prevention practices across a sample of the New Zealand market
  • We found that the majority of the respondents do not regularly monitor or evaluate their supply chain partners
  • Approximately one third of the respondents do not currently have a response mechanism in place in case of a modern slavery incident
  • Modern slavery incidents may lead to costs associated with victim support, legal proceedings as well as reputational damage
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Jorge Waayman | Posted on Feb 2, 2022
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Top 10 risks (and opportunities) for 2022

Looking back on 2021 it is interesting to ponder how it will go down in history. Could it be seen as the year that inflation had a momentary resurgence before fading back into the background, or the year that entered us into a new normal? Could it be seen as the year that the 2021 United Nations Climate Change conference (COP26) brought about meaningful climate change mitigation? Could it be seen as the year that sent Chinese stocks into a bear market or the year that provided the buying opportunity of a generation?

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Hamish Pepper, Chris Di Leva | Posted on Dec 17, 2021
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Social Spotlight II: Human Capital Management (Including video)

  • Health and safety, diversity and inequality are key issues related to the United Nation’s Sustainable Development Goals.
  • In our second of three articles following our research project, we summarise our findings on health & safety, gender diversity and income inequality.
  • We found a lack of injury frequency disclosures, with less than half the companies in our sample reporting on recordable injuries and lost time metrics.
  • Gender diversity across total employees is broadly equal, but there is significant room to improve female representation in senior roles.
  • Significant variance exists between sectors on our measure of income inequality.
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Jorge Waayman | Posted on Jul 30, 2021
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Social Spotlight I: Employee Engagement

  • Employee engagement, among larger NZX-listed corporates, was assessed through company reports and a survey.
  • We found a low level of disclosure on employee engagement scores, turnover and absenteeism with comparability between companies difficult.
  • The majority of companies that did disclose showed improvements in their employee engagement scores and turnover, but not absenteeism.
  • Sector dispersion is evident with the IT, Communication and Consumer Staples companies showing the greatest improvement in employee engagement survey
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Jorge Waayman | Posted on Mar 16, 2021
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Top 10 risks (and opportunities) for 2021 - With video

As we sat down to write the top 10 risks and opportunities this time last year, there was a plethora of things to consider including US/China trade tensions, elections, and global growth. As it transpired, there was only one risk that really mattered, COVID-19. While a key focus of COVID-19 was the speed of the downturn in investment markets, to us, it would be remiss to not focus on the other important aspects. Such as the speed of the fiscal and monetary response, the acceleration we have seen in technological trends and perhaps the most incredible feat, that we have created multiple effective vaccines five times quicker than any other time in history. Necessity really is the mother of invention.  

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Chris Di Leva, Hamish Pepper | Posted on Dec 17, 2020
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Lifting the bonnet: Electric vehicle adoption, or a lack thereof?

Key Points

  • Electric vehicle (EV) adoption, among larger NZX-listed corporates, was assessed through a quantitative and behavioural survey
  • There is low EV penetration in company fleets, on average, with significant dispersion between industry sectors
  • Reputation benefits are ranked as the most important driver of EV transition
  • A lack of suitable EV models is rated as the largest barrier to adoption, even above cost
  • A majority of the companies surveyed had immediate plans to invest in more EVs, however this has likely changed in light of COVID-19
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Jorge Waayman | Posted on Jul 1, 2020
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Listed Property – Known knowns, and known unknowns

Key Points

  • Listed property assets have not yet fully recovered.
  • Diverse impact of COVID-19 may create investment opportunities.
  • A wide range of outcomes are possible, and we review current evidence on rental abatements and deferrals.
  • It is reasonable to assume rentals falling by between -5% for industrial assets, through to -20% plus for secondary retail malls.
  • Banks have been supportive refinancing and extending debt facilities.
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Shane Solly | Posted on Apr 21, 2020
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How vulnerable is our housing market?

Key Points

  • Housing affordability continues to be a major challenge for many households. Initiatives to increase supply and to manage risks to the financial system have helped to contain house price rises, but they have not been able to hold the market back from strong price gains across the country. Our analysis had suggested that house prices could keep rising in the near term, supported by falling mortgage rates and a buoyant economy. However, risks of price declines are growing. The coronavirus outbreak has elevated the risks.
  • The drivers of strong price gains over recent years have been positive migration, falling mortgage rates and strength in the jobs market. We see limited scope for these factors to add to housing market strength over the medium term. Coronavirus could be a catalyst for weaker prices if the economic impact is significant and unemployment increases.
  • Prior to COVID-19 we had considered whether a housing market bubble might exist. We judged that this was not the case, although some traditional features of bubbles are apparent.
  • Recently announced policy responses from the Reserve Bank of New Zealand and our Government are meaningful and we expect them to mitigate risks to a considerable degree. The key issues for housing will be the jobs market and whether any mortgage payment flexibility is forthcoming.
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Mark Brown | Posted on Mar 17, 2020
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Top 10 risks (and opportunities) for the next decade

“We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction” 

- Bill Gates

A decade ago, the world’s largest and fourth largest companies were oil companies, Exxon Mobil and BP. The third largest company was HSBC Bank and the sixth largest company was IBM, the inventor of mainframe computers. Entering a new d...

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Hamish Pepper, Chris Di Leva | Posted on Jan 17, 2020
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Top 10 risks (and opportunities) for 2020

What a difference a year makes. When we sat down to write down the risks and opportunities for 2019, we were amid a sharp market drawdown. The US earnings season had raised concerns about an earnings recession, the market was worried the Fed was too hawkish and the trade war had injected fear into markets. Fast forward to today and earnings have been resilient, the Fed is on hold and the trade war, which did escalate during 20...

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Harbour Team | Posted on Dec 18, 2019
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Findings from Harbour's carbon emissions research project

Key points
  • 26 companies of the 55 studied disclosed emissions data (47%)
  • There was wide variation in the quality of disclosure from companies
  • Of the companies that disclosed, 52% had emissions on a decreasing trend
  • Most companies record their emissions themselves and have no third-party verification
  • Technological advancement is key with innovation in electrification, carbon capture and storage, and software solutions
  • The Zero Carbon Bill, the Paris Agreement and the Emissions Trading Scheme are all important policy settings aimed to help decrease carbon emissions
  • The Task Force on Climate-related Financial Disclosures (TCFD) recommendations are an increasingly popular framework for companies worldwide to report against, to ensure their climate change disclosure is meeting the needs of their investors.
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Jorge Waayman | Posted on Nov 14, 2019
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The move to the public cloud accelerates

We try to attend at least one global technology conference each year to keep abreast of latest developments, market trends and hot topics. Over the last five years, speakers have focused on many exciting areas with large market growth potential (covering online migration and SaaS business models disrupting the old world), consumers going mobile, big data and Artificial Intelligence (AI), and the Internet of Things (IOT) to nam...

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Kevin Bennett | Posted on Sep 30, 2019
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Perspectives on China: Don't Expect a Sugar Rush

The longer-term narrative remains intact: urbanisation and the rise of the middle-class consumer
Consumption habits continue to move online but are fractionalising, moving at a fast pace to social network platforms
Longer-term growth risks remain around demographics and high public debt
Technology and infrastructure spending continue to frame growth opportunities
 

Getting on with urbanisation in the new global orderIn two we...

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Andrew Bascand | Posted on Sep 24, 2019
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Secular changes are benefitting global growth investing. Are they here to stay?

Key points:Since the Global Financial Crisis (GFC), growth stocks have outperformed value stocks significantly. This follows a long period of outperformance for value.
Whilst the “tech bubble” made some investors weary of technology and growth companies, valuation levels for tech companies today are significantly lower than 20 years ago. Further, investors should look at the earnings certainty of industry incumbents through th...

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Chris Di Leva | Posted on Jul 12, 2019
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Sustainability is Good for Returns

Harbour has been a signatory to the UN Principles of Responsible Investing since 2010 and is also a member of the Responsible Investing Association of Australasia.

Harbour is adding sustainability as an investment mega trend in our equities process
We continue to find integration of ESG factors is a positive factor for returns
An additional overlay of sustainability as a mega trend influence may provide better interaction an...

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Shane Solly | Posted on Jun 27, 2019
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5G to enable new technology platforms

Investors need to factor in the opportunity and potential disruption of new technology and changing consumer preferences for mobile and fixed broadband communication. Fifth generation mobile networks (5G) provide a transformational shift in the telecommunications landscape. Why is this change so important?

It enables new technologies, like driverless cars, mobile medicine, the Internet of Things
It may accelerate the transiti...

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Harbour Team | Posted on Jun 10, 2019
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Capital Gains Tax: Unanswered questions for managed funds and KiwiSaver

Key pointsWe don’t know yet which measures suggested by the Tax Working Group will be adopted by the Government. There is still a lot of water to go under the bridge.
The proposed capital gains tax makes investing in New Zealand and Australian share markets less attractive, yet there is no proposed change to the tax regime for other share markets.
While managed funds like KiwiSaver will be required to calculate their tax bill ...

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Chris Di Leva & Andrew Bascand | Posted on Mar 27, 2019
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Banks: Increased capital requirements to change the landscape

A material lift in bank capital is on the cards.
If implemented it is likely to result in a combination of higher lending rates, lower deposit rates and potentially lower returns on equity.
The landscape of lending markets is also likely to change, with Australian banks becoming more discerning about the volume of lending to low return sectors and we may see the emergence of non-bank lenders.
The proposal by the Reserve Bank o...

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Andrew Bascand | Posted on Mar 1, 2019
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Three things the Equity Risk Premium is telling us about investment markets

One of the key decisions that investors must make is how much to respectively allocate to equities and bonds. This decision is made in the knowledge that over time equities have generated superior investment returns. Compensation for the additional volatility, the additional return equities earn over bonds is known as the Equity Risk Premium (ERP). The ERP, while persistent over the long term, varies over the short to medium term, with the direction of the variance having broad implications for investment portfolios.  

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Chris Di Leva | Posted on Feb 12, 2019
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RBNZ banking rules shaping credit markets

Changes to banking rules are set to have a meaningful impact on New Zealand’s fixed interest market in 2019:

A proposed rule forcing banks to hold more equity capital will make the banking sector more stable, however, it will come with a raft of second-round impacts. Chief among those will be the impact on banks’ willingness to lend. This is what we are watching most closely;
Separately, we may see an explicit preference for ...

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Simon Pannett | Posted on Feb 1, 2019
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New Zealand equity market debt trends

One of the driving factors behind the global financial crisis (GFC) was high levels of company debt. High leverage and lower earnings coverage of interest costs heightened risk in the US equity market. Recently published research by a global investment bank[i]  suggests that US company debt levels may be creeping up again. But are we seeing the same thing happen in New Zealand?

Research by Harbour indicates that the median N...

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Andrew Bascand, Shane Solly | Posted on Jan 28, 2019
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10 Risks to Watch in 2019

When investing in an uncertain world, it is useful to distinguish between a core view of the most likely outcome for economies and markets, and the key risks that could challenge that assessment.

In our most recent monthly Harbour Outlook we set out our core view. [1] Markets have experienced goldilocks conditions over the past 5 years, with solid economic growth, low inflation and low interest rates. Through 2018 we have see...

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Harbour Team | Posted on Dec 17, 2018
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Postcard from Colorado – outdoor retailers

Harbour’s Managing Director Andrew Bascand and Senior Research Analyst Oyvinn Rimer travelled to Denver, Colorado for the Retail Outdoor conference.

Why did we attend the Outdoor Retailer Winter Market?

The Outdoor Economy in the U.S. alone is 3x bigger than the entire GDP of New Zealand
The Outdoor Economy is growing and is a source of global growth
Trade war and tariffs are impacting on the Outdoor Economy directly
Innovat...

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Oyvinn Rimer, Andrew Bascand | Posted on Nov 14, 2018
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Investment Horizon: Harbour Macro Research Day

Our internal Macro Research Day is a chance to re-visit the research that anchors our medium-term view.
Locally, we expect economic activity to moderate rather than slow sharply, and the RBNZ to remain on hold for a considerable time ahead to provide the best chance for core inflation to lift above 2%.
Globally, we see interest rates rising, but with monetary policy still supportive for financial markets while global inflation...

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Harbour Team | Posted on Oct 17, 2018
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Harbour Investment Horizon: Fiscal Policy Outlook

There is growing coverage in the media that a slowing economy could force a fiscal tightening to stay within the government’s fiscal responsibility rules.
There is little evidence that the market is concerned with this risk, with the New Zealand government bond yields trading below the US for the first time in 25 years.
While providing important political discipline, there is also some flex in the fiscal responsibility rules, ...

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Christian Hawkesby | Posted on Aug 17, 2018
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Investment Horizon: Interest Rate Cycles - Endings and Beginnings

As expected by the market, the US Federal Reserve lifted the US Fed Funds Rate this week to 1.75%-2.00%.  This was the second hike in 2018 and a continuation in a cycle that began in late 2015.  In a post-GFC environment where interest rates are eventually expected to settle at lower levels, it’s natural to ask how far away the US Federal Reserve is to the end of its interest rate cycle.  At the same time, in New Zealand, the ...

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Harbour Team | Posted on Jun 14, 2018
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The state of Infant Milk Formula in China

Harbour Senior Research Analyst Oyvinn Rimer recently took a trip to China, to investigate the state of the Chinese consumer milk market.
Disclosure: Harbour owns a2 Milk in a number of portfolios.

Having regularly visited China for a decade now, it never ceases to amaze me the sheer scale and speed of their development. Despite frequent visits, there are always noticeable changes to the land and cityscapes.

Two weeks ago, ...

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Oyvinn Rimer | Posted on May 9, 2018
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The Changing Face of the New Zealand Credit Market

Over recent years the New Zealand credit market has been going through something of a quiet revolution. The borderline between bank lending and fund management is becoming blurred. Fund managers are stepping into areas traditionally dominated by banks, as regulatory reform has imposed higher capital costs on banks. Fund managers are broadening their investment choices and the range of bonds issued has become more varied. There...

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Mark Brown | Posted on Apr 30, 2018
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Quantitative or qualitative equity research?

At Harbour, we believe it is best to use a mixture of quantitative and qualitative equity research to make investment decisions. Quantitative research is used as a filter to break down the investment universe, pick potential outperformers and underperformers, and support analyst and portfolio manager views with tangible numbers. Our qualitative research looks at a firm’s business model, competitive advantage, corporate governa...

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Susanna Lee | Posted on Mar 16, 2018
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Goldilocks: Not too hot, not too cold

After strong year for returns from Australasian equity markets, investors are asking: what does 2018 offer? Are the ‘goldilocks’ conditions of solid economic growth, low inflation and easy monetary policy settings likely to continue to support equity market returns?

While we believe the near-term outlook for local equity returns remains positive, two scenarios may challenge these goldilocks ‘not too hot, not too cold’ conditi...

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Shane Solly | Posted on Dec 29, 2017
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Dispelling the myth that a dual mandate implies easier monetary policy

In the economy section of the new NZ government’s Coalition Agreement, the top of the list is “Review and Reform of the Reserve Bank Act”. Given the preference of Labour and NZ First to give the RBNZ a dual mandate for both inflation and employment, the market has interpreted this as implying lower interest rates to encourage job growth.  In our view, while the inclusion of a full employment objective will enable the governmen...

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Harbour Team | Posted on Nov 6, 2017
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Lessons from RBOHA

On 8 October, a large number of retail investors will breathe a sigh of relief, as they receive their principal of $900m back on what was New Zealand’s largest retail bond issue when launched ten years ago. It has been a bumpy ride for these investors. Many lessons have been learnt. In a world of low yields and interest rates, they will face one remaining question of how best to put their principal back to work to generate inc...

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Harbour Team | Posted on Sep 22, 2017
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Quantitative Investment Styles and when they perform

Factor investing as a style has become increasingly popular in the last decade with the rise of Smart Beta funds globally. These strategies are expected to outperform the market over the long term. Each different strategy selects companies based on favourable characteristics defined by the strategy. There are many different factors such as risk based factors (value and size) that command a premium, fundamental factors (growth ...

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Susanna Lee | Posted on Aug 18, 2017
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Raising Inflation Targets?

At the press conference following the US Federal Reserve (US Fed)’s most recent interest rate decision, Governor Janet Yellen made an admission that marks a significant change in tone from the US Fed.  She acknowledged that the debate over whether to raise inflation targets is “one of the most important questions facing monetary policy”[1], and encouraged further research. While we still believe there is a low chance of the US...

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Harbour Team | Posted on Jun 30, 2017