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Investing highlights & lowlights — September 2018

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Investing highlights & lowlights — September 2018.

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

New Zealand

Our New Zealand portfolio was down -0.5% for the month. This was a mild underperformance of the New Zealand Sharemarket, which gained 0.4% driven by the utilities and telecommunications sectors - generally not our favoured sectors. Portfolio performance was driven by our logistics companies with both Mainfreight (+7.8%) and Freightways (+5.1%) having good months. Notable drags on performance were Vista Group (-6.4%), Summerset (-8.2%) and a2 milk (-10.8%).

We increased our positions in a number of companies. The Xero holding was increased given we continue to be impressed, as we get to know the company more closely and meet more personnel. We also increased in Fletcher Building and A2 Milk. We reduced our position slightly in Ryman.


Australia

Our portfolio was down 1.6% for the month of September. One of the biggest drags on performance was CSL, which is one of our largest company holdings in the Australian portfolio. After a strong run year to date, CSL was down -11% in the month. There was no specific catalyst for this although the company was sued late in the month by competitor Shire for patent royalties relating to the sales of one of their products. We will be watching this closely, however our initial assessment is that this is not materially problematic to CSL. Datacentre company NextDC was down -8.3% during the month. Despite an initial positive response to the earnings result delivered on the last day of August, the market then reacted to the lack of progress in contracting more of its recently constructed data centre capacity. Management put this down to timing delays rather than a lack of demand and in fact have bought forward the expansion of its second data centre in Sydney because of the strength of the underlying demand for capacity. We remain confident in this investment and increased our investment in the company during the month.

Performance was driven by resource companies Rio Tinto and BHP, returning +8.3% and +7.2% respectively, due to resilient bulk commodity prices. Following on from a strong performance in August, Wisetech rose +3.5% in the month. Resmed (+2.5%) also contributed meaningfully to the month’s returns after hosting an investor day in San Diego in September where it shed further light on its investments in software and data analytics functionality and updated the market on new product releases.


International

The International Equity Fund returned 0.6% in September, performing in line with the rest of the market. The Energy sector was the best performer, up 3.7%. As the fund is overweight Energy stocks, this added to the benchmark-relative performance. Real Estate was the worst performing slice of the market, as the fund is neutral these stocks, it had a minimal impact on relative benchmark returns.

The New Zealand Dollar ended the month with effectively no change versus the US Dollar, even though it reached multi-year lows during the month as the US Federal Reserve once again raised interest rates by 0.25%. Solid macroeconomic numbers released in the US showed that unemployment remains at record lows and an increase in average hourly earnings.

The top contributors to benchmark-relative returns were two stocks that the fund has lower exposure to than the rest of the market. DowDuPont fell 8% after expectations fell for commodity earnings during the second half of the year and GE Company fell 12% after it announced issues with its newer gas turbines in its power division.


Fixed income

Our fixed income portfolios again outperformed their relative benchmarks in September. However the outperformance was more muted than in recent months. Again it was the diverse positioning of each manager and their ability to source returns from a diverse range of opportunities that aided the strategy most.

Strongly rising interest rate expectations, particularly those in the United States, are pressuring bond valuations lower. A major of our portfolios hold an overweight stance to U.S Treasuries at present, this was the most notable drag on performance in September.

 

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