December saw the Fund up 0.70%, behind the benchmark index which returned 0.88%. This capped off a good year for the fund with an annual return of 7.9%, 2.9% ahead of the benchmark which returned 6.1%.

Towards the end of the month most Kiwis tend to wind down as the summer festivities approach. Unfortunately, local markets didn’t get the memo with New Zealand GDP figures coming in much lower than expected. A bit of nuance is required when interpreting the results, but the abridged version is that the economy is in a much weaker position than official statistics had been indicating earlier in the quarter.

The quickest market to react was the NZ Dollar, dropping over 2.2% against the US Dollar, taking the value back to post-GFC lows. Not much cheer for those spending $NZD on their holidays abroad. Interest rate markets also reacted, pricing in more OCR cuts, sooner. For this economic cycle, a final OCR below 3% now looks increasingly likely.

We had long thought the ‘real’ economy was struggling more than official data suggested and so have positioned the fund accordingly. This helped us both across the year and in December with bonds from New Zealand companies Goodman Property and Oceania Healthcare benefitting as interest rates dropped.

Another highlight for December was the recent addition of Grifols bonds, which were up over 3% for the month. Grifols is a globally recognized healthcare provider, focusing on blood plasma collection and processing. Globally they are the number 2 provider of blood plasma deriver products which are critically important for patients, particularly those with immune deficiency or auto immune disorders. We have followed the company for several years and took an opportunity provided by a failed takeover bid (by Brookfield Asset Management) in late November to purchase Grifols bonds at cheaper prices through December.

Detractors for the month were some of the strongest performers over the last year, with prices pulling back late in December. These were from banks such as JP Morgan, Commonwealth Bank and Natwest Group. While we are strong believers in their long-term business prospects, we have been trimming our financial exposures in the latter half of the year as prices rose. This limited the impact of the price falls in December.