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THE ALLIOTT INVESTMENTS REPORT DECEMBER 2, 2009
The key focus of Alliott Investments is the prudent and disciplined approach to the creation and protection of our clients wealth.
IN THIS UPDATE....
INSURANCE POLICY WORDING
WHAT TO DO WITH FIXED INTEREST WHEN INTEREST RATES RISE
THE BIG PRINT GIVETH AND THE SMALL PRINT TAKETH AWAY
Insurance policy wordings are not the most exciting read, but it is well worth taking the time to read them with a highlighter in hand.
Insurance policies are legal contracts and are technical documents - the addition (or removal) of a few words or the placement of a full stop or comma can make a big difference to your cover.
A few examples might help:
- Un-occupancy clause – all home and contents policies have these, basically they say that cover stops if the property is unoccupied for more than "X" days and X can vary from 30 to 90 days depending on who you are insured with. This is important if you have a holiday home that you may not visit over winter or if you are going away from home for an extended period. Going to mow the lawns or having a friend come over to empty the letter box and water the plants is not enough to reset the clock.
- The fact that your policy notes that the house is a holiday home does not negate the un-occupancy clause - our practice is to get this clause deleted from holiday home policies.
- Rental house insurance - there is a huge range in policies calling themselves “landlord insurance” from those that provide fire and storm damage only to policies that cover rent arrears, malicious damage and theft by tenants up to the full value of the house. One landlord policy claimed to provide cover for rent arrears, malicious damage and theft by tenants but then limited it to $3,000 in the small print and if a tenant trashes your house $3,000 won’t go far.
We are able to assist with reviewing your policies to ensure they are going to give you the benefit you want.
Contact our insurance specialist Gerard Gill on 09 520 9200 or email him here.
WHAT TO DO WITH FIXED INTEREST WHEN INTEREST RATES RISE
All else being equal, when interest rates available to investors are high and about to fall, you want to have far off maturity dates (say 6 years +) for the preponderance of your fixed interest positions. When rates are at the trough and about to rise, you want to keep your maturity dates short (say less than 4 years). When rates are around the mid range, and you are not sure whether rates are about to rise or fall, you want to have a good spread; some short maturities and some long.
The above is driven by the fact that if you hold a long-dated bond that can be traded and, therefore, has a market price, its underlying value will rise if market interest rates for that maturity date fall. And vice versa. So, going back to the paragraph above, holding a long-dated bond in times of falling market rates will pay you the interest due, plus you will pick up a rise in the underlying price of the bond – it is like a capital gain.
If we ask ourselves, where are interest rates now, and where will they move from here, the above may give you pause for thought if you hold long-dated bonds. All else being equal, the smart money will gravitate to short maturities if interest rates are thought to be about to rise. You may want to discuss the shape of your bond portfolio with us and whether selling some off the longer maturities and replacing them with shorter positions could be right for you.
Taking the last 25 years of data, the market rate for the benchmark 10-year NZ Government Stock was 18.50% in Feb 1986, reached its low (4.50%) 12 months ago, and has risen steadily to 5.75% now.
Phone Alliott NZ on 09 520 9200 and ask for David Burt or Alexandra McKenzie or contact David here.
David Burt, Alliott Investments Limited
A copy of a Disclosure Statement is available on request, free of charge.
ALLIOTT INVESTMENTS ADVISORS
INSURANCE AND KIWISAVER ADVISOR GERARD GILL
Gerard is an insurance consultant who operates his own independent brokerage company specialising in both business and personal risk protection and KiwiSaver advice.
In 2008 and 2009 Gerard was named Professional Investment Services (NZ) Adviser of the Year.
INVESTMENTS ADVISOR DAVID BURT
David is an independent investment specialist with responsibility for managing portfolios for many of Alliott NZ's clients.
He offers a consultancy service advising on such matters as reviewing the investment strategies of a family trust, appraising managed portfolios and calculating retirement or other personal funding needs.
David also can assist with the migration of UK pension funds to New Zealand and has found that, in most cases, a proportion of the funds can be immediately freed up as ready cash.
David Burt’s Disclosure Statement is available free of charge upon request.
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