The New Zealand Growth Fund returned -6.8% in March, compared to its benchmark of -5.8%, reflecting weak equity markets globally due to US strikes on Iran and the closure of the Strait of Hormuz.

The situation in Iran has pushed petrol and diesel prices up significantly and raised concerns about potential supply shortages. There is also the risk that cost pressures cannot fully be recouped from customers, which would put pressure on profit margins. However, companies such as Mainfreight and Freightways have explicit fuel surcharge mechanisms to ‘pass through’ price increases to customers. The impost of higher fuel prices may also negatively impact economic activity.

Several companies in the portfolio saw share prices weaken, particularly those most obviously exposed to a potential slowing in activity, or to higher fuel costs. These included Mainfreight (-10%), Freightways (-15%), Vulcan Steel (-19%), Delegat (-12%), Auckland Airport (-12%), and Summerset (-16%, via the second order potential impact to house prices and sales). Infratil (+4%) hosted an investor event in Sydney for CDC Data Centres, in which it holds a 49.7% shareholding worth around A$7 billion, making it the most significant asset for Infratil. The day highlighted how well CDC has positioned itself in the Australian market by getting ahead of evolving technical requirements (such as closed-loop water cooling and high power density) and using advanced planning and engagement to circumvent industry bottlenecks (such as planning approvals and power grid connections). CDC has several significant data centre campuses in its pipeline that are well placed to meet demand for increasing use of AI, in a market where capacity is scarce. It had the confidence to increase its core earnings (‘EBITDA’) guidance for its upcoming 2027 fiscal year from around $660 million to $680-720 million.

The recent bout of volatility has allowed us to dynamically reallocate capital within the portfolio, including taking advantage of opportunities we saw to add to Contact Energy and Infratil. We have been cognizant of the environment, trimming and limiting sizing of key positions where necessary to manage risks, including Fisher & Paykel Healthcare, Summerset, Xero, and Mainfreight. The recent sell-off has been out of step with our view of our companies’ fundamental performance, which has been largely in line with our expectation so far this year. As a result, our assessment is that the portfolio has rarely been offering the value we see today.