Investing highlights & lowlights — July 2016

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Investing highlights & lowlights — July 2016.

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

  • In the New Zealand portfolio, the Michael Hill International share price lifted 29% for the month after the company released strong sales figures for the year to June and announced a major roll out of its new Emma & Roe chain of stores. Auckland Airport reported another strong month of passenger arrivals and Summerset Group reported strong sales of occupation rights for both new and existing units and beds at its retirement villages for the second quarter.
  • Our Australian portfolio delivered a 7.6% gain over the month ahead of the broader Australian market. The portfolio was strong across the board, with stocks enjoying a post-Brexit relief rally. ResMedsurprised the market with a strong fourth quarter result reflecting positive sales and profit performance. Shares in asset manager Henderson Group staged an initial recovery, as the company reassured investors of its continued ability to market European and British products regardless of the Brexit referendum result. The mining sector, in which the portfolio has no positions, continued its strong rally.
  • International shares portfolio — we're currently in the middle of the earnings season, with companies reporting first half results. To date most companies have delivered earnings results in line or ahead of our expectations, which is pleasing. In particular, Alphabet continues to successfully generate strong revenues off its large user base, while Ebay also saw revenues accelerate. One of the low lights was Stericycle who delivered a weak set of results, raising some questions about their core growth rate. We are visiting Stericycle in the coming weeks and will reassess our position accordingly.
  • The Property and Infrastructure Fund was up 3.1% in July, benefitting from the post-Brexit rebound in share markets and continued demand for stable and high yielding assets classes. We added two new investments to the portfolio in July, American Tower Corp (AMT) and Kinder Morgan Inc (KMI). AMT owns a portfolio of 140,000 cell towers globally which it leases to telecommunications companies. The move to 4G networks and mobile data growth is driving increasing demand for use of AMT's towers. We believe AMT will grow earnings materially over the next five years, while paying a healthy dividend yield. KMI is the largest energy pipeline company in North America, with its 80,000 miles of pipeline transporting over 40% of US natural gas. KMI's infrastructure is critical for getting gas to consumers and we see the potential for significant dividend growth in the years ahead.
  • Bonds continued their solid performance this month. Ever reducing cash rates around the world continue to push investors out of deposits and into higher income generating assets such as bonds. This 'hunt for yield' shows no signs of abating and with the outlook for the Official Cash Rate in New Zealand to fall further over the coming months, we think fixed income assets will remain in strong demand for now. In times when market performance is strong the biggest detractor in the Fixed Interest portfolio performance is often its cash holdings. As we noted back in May, cash is an integral part of our fixed income portfolios. It offers clients access to their money at short notice whilst giving our investment team flexibility to react to opportunities.


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