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Investing highlights & lowlights — November 2016

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Investing highlights & lowlights — November 2016.

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

New Zealand Growth Fund
Our best performing New Zealand stock in November was Mainfreight (up 8.6%) having released strong first half year results that highlighted continued market share gains and solid margin improvement. We are pleased with the operating performance of our portfolio companies during the recent interim result and ASM season, with most company results and outlook statements in line with our expectations. Fisher & Paykel Healthcare fell 7.7% during the month as the market reacted to its patent dispute with competitor ResMed. We see this reaction as overdone and have used the opportunity to add to our position.


Australian Growth Fund
In November, all sectors were down on the Australian market except the Mining, Energy, Utilities and Financials sectors. Even within these sectors, generally the weakest companies with the most volatile earnings were the strongest performers. While our preference for quality companies typically keeps us out of cyclical sectors and companies with volatile earnings, increasing the portfolio exposure to Australian banks, and adding mining heavyweight Rio Tinto to the portfolio, contributed positively in yet another month we would characterise as a “low quality rally” in Australia. These gains were offset by a loss on Vocus Communications when its earnings guidance disappointed investors. This left the portfolio flat over the month, lagging a strong Australian market.


International Growth Fund
The United Parcel Service was the poster company for the portfolio last month. We think a Trump presidency heralds a potential move from a low growth and low inflation environment to one where expected tax cuts and increased fiscal spending will boost both growth and inflation and as a consequence lift interest rates. This shift has been particularly painful for the portfolio in the short term as investors have shifted out of technology and other solid growth sectors (Cerner Corporation and STRATEC Biomedical were our largest negative contributors in November)  into more economically sensitive sectors such as financials and industrials sectors where we have low weightings. We have pivoted our portfolio a little towards these sectors and will continue to opportunistically add more where we find strong STEEPP ideas.


Property & Infrastructure Fund
Global property and infrastructure stocks declined in November as the hunt for yield continued its recent reversal. This was driven by increased investor focus on a potential Fed interest rate hike, combined with an expectation that the Trump presidency may result in higher inflation and interest rates. US railroad operators, Union Pacific and Norfolk Southern, were our best performers in the month, supported by an improving outlook for transport volumes and the US economy. Our communications tower operators Crown Castle and American Tower were the weakest performers, driven by views that Donald Trump’s administration will be more supportive of mergers between their customers; the US telecom operators.


High Income Fund
The Income Fund continues to weather this fixed income market turbulence well when compared with both local and global bond indices. We have long held a  conservative view towards interest rate exposure and this stance has helped shield the fund from this recent bout of market weakness.

A near-term boost to sentiment (from the Trump victory) and a mild acceleration in economic activity and inflation caused global bond yields to rise (price to fall) further in November. This swift and all-encompassing bond market sell-off has offered investors little in the way of places to hide. However, as is typical with periods of indiscriminant selling, attractive opportunities are now beginning to present themselves.

 

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