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Investing highlights & lowlights — August 2018

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Investing highlights & lowlights — August 2018.

A snapshot of the key factors driving the performance of markets and your funds last month

New Zealand

The New Zealand share market had a strong August with the New Zealand Growth Fund gaining 4.9%. Portfolio performance was driven by double digit performance by three key portfolio positions – Xero (+19.3%), Delegat’s (+20.2%) and A2 Milk (+20.7%). All three of these companies generate a significant portion of their earnings offshore and have been beneficiaries of the weak NZD. A weak kiwi dollar is a helpful tailwind for the export sector.

On the flip side the more domestically oriented companies Fletcher Building (-9.5%) and Freightways (-4.3%) struggled with Fletcher Building’s profit result pointing to some weakness in the domestic economy and Freightways layering in more cost, impacting current profitability.

During the month we added to the portfolios investment in A2 Milk as it continues to execute well in China, reducing our position in Vista Group given strong recent performance and Michael Hill as the company continues to find the retail environment challenging. 


Australia

The Australian share market had a strong performance with the main driver being strong company profit results. Our portfolio had a return of 4.6% for the month. Wisetech Global was a standout up 40% for the month. The firm provided upbeat guidance next year with another year of strong growth expected. Other notable performers were healthcare company CSL (+15.6%), and debt collector and consumer lending firm Credit Corp (+12.2%).

During the month we sold our investment in hospital operator Ramsay Healthcare. While we have long admired the quality of the business our work over the past few months has highlighted a number of headwinds facing the company that appear somewhat structural in nature. We believe this means the company will struggle to grow earnings as rapidly as the market has become accustomed to. This been a great investment for the Fund but we don’t want to overstay our welcome! 


International

The International Equity Fund returned a healthy 3% in August. Most sectors had positive a positive month with the Information Technology sector the best performer, posting a gain of over 7%. One of the top contributors to our portfolio performance was Apple Inc which surged 20% during the month. This was a result of a strong earnings report, with strong revenue and earnings growth. Cisco Systems also bet market consensus estimates and rose almost 16%. Having a higher exposure than the benchmark to Italian firms Intesa Sanpaolo SpA and Enel SpA detracted from performance as Italian stocks were hit hard over concerns over the budget and the formation of a potentially populist government spooked investors.

The New Zealand Dollar depreciated against the US Dollar by almost 3% as the RBNZ’s sentiment was interpreted that the central bank is unlikely to raise interest rates anytime soon. Emerging market currencies were hit by crises, as the threat of contagion from the collapse of the Turkish Lira and Argentinian Peso spread. Emerging market equities underperformed their developed market counterparts significantly during the month as a result. Economic strength and strong corporate earnings saw sharemarkets in the US once again reach record highs. 


Fixed income

Once again, all fixed income portfolios contributed positively to this month’s outperformance over the benchmark. Positioning remains divergent between managers. As has been the case over the past few months, each manager continues to source unique opportunities in which to add value. This is an extremely encouraging dynamic as the overall portfolio is currently less reliant on one, or even a small number of, value drivers.

The portfolio has been mildly overweight a basket of emerging market currencies of late. This as one of our manager’s views those currencies particularly favourably relative to the U.S dollar present. Unfortunately, the strong sell-off across much of the emerging market universe this month caused a dragged on performance. The manager believes this move is overdone and has chosen to maintain their position for now.

 

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