Investing highlights & lowlights — February 2018

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Investing highlights & lowlights — February 2018.

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

New Zealand Growth Fund
NZ was near the top of the equity pack globally for the month, primarily because our correction was much shallower than most global markets. The New Zealand Growth fund was down 1.3% underperforming the benchmark NZSE50G (-0.8%). A driver of fund performance was the recent addition of A2 Milk that rose 43.8% for the month. Other strong performers were Summerset and Fisher & Paykel Healthcare. A number of changes were made to the portfolio weightings during the month off the back of the technical market correction which gave the opportunity to add to high quality positions at discounted prices. We added to our positions in A2 Milk, Auckland International Airport, Fisher & Paykel Healthcare. Fund performance is not impacted by CBL as we do not hold this company in any portfolio.

Australian Growth Fund
Despite volatile markets around the world the Australian share market was broadly unchanged for the month. The Australian Growth Fund lagged the market slipping 0.9%. Strong results underpinned the leading performers for the month. Datacentre company NextDC, crushed market expectations with a very upbeat earnings result. NextDC is benefitting from the accelerating move towards cloud computing and away from traditional on premise IT infrastructure. CSL and ARB demonstrated strong profitability, delivering healthy share price gains.

The biggest negative impact for the month was from logistics software provider Wisetech which, despite posting profit growth of 32%, lagged bullish market expectations. To put this in context, and even with February’s steep share price fall, Wisetech shares have risen 96.4% in the last twelve months. We remain confident in the outlook for the firm.

International Growth Fund
February performance was a stark contrast to January, as consistent positive returns gave way to market volatility. The International Growth Fund was down 1%, outperforming our global benchmark which fell 2.5%. William Demant was a standout performer in February, returning 16%, thanks to strong organic hearing aid growth. Pandora provided a healthy contribution, returning 13%. We added TJX Companies to the portfolio who has a good runway for growth.

The largest drag on performance in February was Expedia (-18%), which announced growth guidance for 2018 that disappointed the market. While Expedia’s long term investments in an expanded sales force and the retooling of its IT infrastructure have been detrimental to short term financial performance, we believe these investments position the business better for future growth.

Property & Infrastructure Fund
Global infrastructure equities again lagged broader indices, down 7% for the month vs. global equities down 4-5%. This was due to the increased sensitivity of these stocks to interest rate increases, which was the genesis for the intra monthly correction. While the Property and Infrastructure fund was down it outperformed global infrastructure equities and Australian and NZ property equities and was only down 3.5%. It was a broadly inline report card for portfolio companies reporting results during the month. We added to Folkstone Education Trust during the month.

Income Fund
The largest positive contribution this month came from a selection of our top-down macroeconomic focused investments where we aim to place each major developed nation at a certain point in its credit cycle. From here we look to invest in assets that are likely to benefit as each country transitions from one phase to the next. We believe the United States is now in the late stage of its expansionary phase. This view is reflected in the portfolio with investments that stand to benefit from both rising inflation and higher short term U.S interest rates.

Corporate bond markets did not recover from the volatility — induced sell-off as equity markets did, continuing to trade with a notably weaker tone. This saw the portfolio’s higher yielding investments drag down performance this month. Our reduced positions incorporate credit at present meant that the impact to the portfolio from this weakness has been materially reduced from what it would have been a year ago.


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