Investing highlights & lowlights — August 2016

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Investing highlights & lowlights — August 2016.

This month we share how each investment portfolio is tracking, including some of the highs and lows direct from our investment team.

New Zealand Growth Fund
The New Zealand results season did not disappoint. We had six companies in the portfolio record a 5% or more share price increase for the month, in an overall flat market. The best performer was retirement village owner Summerset which again recorded strong earnings growth on the back of increased sales of new and existing units and beds, along with increased development margins.

The Metro Performance Glass share price rose on the back of likely additional work it will receive from Auckland's new Unitary Plan, and from a bolt-on acquisition it made in Australia during the month. Tegel got an unexpected boost when Australia announced their decision to allow imports of all chicken from New Zealand, not just cooked chicken as per the current regulations. Fisher & Paykel Healthcare was counter-sued by rival Resmed over disputes around alleged patent infringements. This could be messy with only lawyers likely to benefit from this two-way dispute, although the overall impact on Fisher & Paykel Healthcare's earnings is likely to be minor.

Australian Growth Fund
August saw a tough reporting season in Australia. Lofty investor expectations made it hard for companies with a record of strong earnings growth to surprise positively, and any signs of weakness in these companies saw their shares sell off. Our large portfolio positions generally fared well, led by Ramsay Healthcare, which beat expectations and traded up strongly. While the majority of our portfolio positions beat or met their numbers, a miss from APN Outdoor saw a significant fall in their share price.

International Growth Fund
August was the end of the second quarter reporting season in our International Fund and pleasingly most companies in the portfolio reported results in-line or above expectations. The lowlight for the month was the weak performance of Park24, which despite good operational results came under selling pressure from convertible bond holders who had recently converted to shares.

Property & Infrastructure Fund
In the Property & Infrastructure Fund, TrustPower finally announced details of the proposed spin-off of Tilt Renewables; its Australasian renewable generation developer. Tilt has 11% market share of installed wind generation capacity in Australasia and plans to more than double its generation fleet over the next five years. The spin-off of Tilt into a separately listed entity is planned for October which will provide a better platform to raise capital, as it executes its growth strategy.

During August we exited our position in Aurizon Holdings, an Australian railroad operator exposed primarily to the transportation of coal. Whilst management have done a good job operating the business and managing costs in a tough market, weak global coal demand and a struggling customer base (coal miners) reduces its ability to grow over the medium term.

High Income Fund
August is typically the month when most northern hemisphere investors trade their computer screens for the latest best-selling novel and head to the beach. So it was of little surprise that financial market activity was rather muted this month. However, the major theme we've been highlighting remained — low deposit rates continue to cause demand for corporate bonds to significantly outstrip supply. This positive dynamic helped our funds post another solid month of returns.

This month, Federal Reserve members went to great lengths to prepare market participants for a hike to the US cash rate over the coming months. This provided the impetus for a mild retracement in US Government bonds, following what has so far been a strong year for these safe haven assets. Despite this, we continue to view US Government bonds in a favorable light relative to other global Government bonds.


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