Investing highlights & lowlights — January 2017

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Investing highlights & lowlights — January 2017.

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

New Zealand Growth Fund
The NZX50 bounced back in January (+2.5%) after a weak final quarter in 2016. The New Zealand Growth Fund was up slightly more than the index in January at +3.1%.

Ryman Healthcare had some positive news in January when its proposed retirement village in Devonport got the green light by the Auckland Council. The six level village will have 195 independent living units, 78 serviced apartments and over 120 care beds. Abano Healthcare’s interim result in late December confirmed a record half year result, with underlying earnings up 71%. Importantly, the trajectory of its Australian business is also improving.

The only laggard was Tegel (down 4%), with weak poultry prices continuing to weigh on its share price.

Australian Growth Fund
The share price of our largest Australian portfolio position, CSL, was strong when it told investors that profits would be higher than expected on particularly strong performance in key therapies. ResMed had a strong earnings report, showing continued strength in its flow generator sales and gathering pace in its mask sales. Rio Tinto continued a strong run, with its disposing of non-core assets increasing the likelihood of strong cash returns to shareholders. Portfolio heavyweight, Brambles, disappointed investors with weak performance in its key US market on lower customer activity.

International Growth Fund
The International Growth Fund was up 0.1% in January, slightly ahead of our benchmark which was flat. The US reporting season is now well underway and results during the month were generally strong. Alibaba was up 15% during the month as the recent sales growth momentum was maintained in the fourth quarter. Another of our ecommerce companies, eBay, was up 7% after strong holiday sales saw an accelerating growth rate.

The biggest detractor from performance was Cognizant which fell 6% on concerns that Trump may place greater restrictions on highly skilled visas; which could increase the company’s operating costs in the US.

Property & Infrastructure Fund
The Property & Infrastructure Fund was up 1.4% for the month, supported by a solid start to the US earnings season. Our two US railroad investments (Union Pacific and Norfolk Southern) both posted strong results in January. After weak volume growth last year, the outlook for volume is positive for 2017, which combined with strong cost control by both companies and ongoing price increases, will drive strong earnings growth this year.

The biggest detractor from performance in January was Dexus (-7%), a real estate investment trust (REIT) focused on prime office properties in Australia. Dexus sold off as rising interest rates dragged on the broader Australian REIT sector.

Income Fund
January was a calmer month for financial markets with global investment flows reflecting a more balanced view towards fixed income assets. This improved appetite is likely to have been driven by the marked increase in yield that bonds now offer, as well as a growing suspicion that “Trumponomics” may not be the source of sustained growth that many had initially hoped it would be. We too are finding more attractive opportunities across fixed income markets.

Growing political uncertainty ahead of upcoming national elections in Europe this year saw government bonds across the region underperform their global peers. Our holdings in a range of European government bonds were negatively affected by this development. We expect this performance to be recovered over the coming months as the chances of the most extreme political possibilities are reduced.


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