Investing highlights & lowlights — July 2018

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Investing highlights & lowlights — July 2018.

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

All Fund returns below are after fees & before tax

New Zealand Growth Fund

In July the New Zealand portfolio was down for the month at -0.1%. Market performance was led by the interest rate sensitive sectors of telecommunication and real estate. Consumer staples were down due to a combination of a stabilising New Zealand Dollar in July and weak milk powder prices earlier in the month. 

In portfolio news, top performers for the month were Vista Group +9.7%, and Delegat +5.8%.  While Mainfreight ended the month with a modest result of +0.6% at their ASM in July sentiments were positive, drawing attention to strong revenue growth from April to June, leading to profit improvements. A2 Milk fell 8.7% due to weaker than expected margins for next year. These have been impacted by a step up in marketing spend in China and the US plus CEO transition costs.  


Australian Growth Fund


July was a solid month for the Australian market overall, with telecommunication, industrial and healthcare sectors performing well. The Australian Growth Fund returned 0.8%. Technology One Limited was a top performer, up 16% after alleviating market concerns that a change to a Software as a Service business model would not impinge the long run earnings power of the business. Credit Corp was up 13.9% for the month after reporting full-year results that were in line with earlier forecasts and pointing to strength in its US business. 

The biggest drag on performance was ARB (-7.9%). This result seems to be reflective of moderately softer industry data rather than any specific company news, and we remain confident in this investment. 

 International Growth Fund


The International portfolio was up 0.9% in July. Global markets had a strong run in July despite some jitters in the technology sector although some of the shine of the global rally was taken off for Kiwi investors by a stronger dollar. In our portfolio, performance was driven by Alphabet (+9%), Expedia (+11%) and UPS(+13%). All three companies reported strong revenue growth and double-digit earnings growth. 

A notable drag on performance was Facebook (-11%) after receiving a lot of publicity in the month. Read more our thoughts on Facebook here.

Property & Infrastructure Fund

Our Property and Infrastructure portfolio performed solidly and was up 1.7% for July. Globally, infrastructure and Real Estate Investment Trust's (REIT's) underperformed global equities with the biggest driver of this being a sell-off in global bonds. 

 Railways are the biggest contributors for the month based on strong economic activity in the United States. The top portfolio performer was Norfolk Southern after reporting a slight earnings beat, that was a combination of higher pricing than expected and better cost control. Union Pacific and Arena REIT were also top performers. 

Income Fund 


The fund had a strong July with a 0.5% return. This was in an absolute sense as well as relative to the broader fixed income markets. Performance was driven by our holdings in Altice and Boparan. Altice Europe benefited from multiple headlines citing increased appetite for consolidation in the French telecommunications sector. While no announcement has been made yet, the rationale for a reduction from 4 providers to 3 would be highly beneficial to the remaining companies in this price sensitive market. With strong personalities and gamesmanship at play, we expect to see additional posturing over the coming months before a definitive deal.  Pleasingly Boparan reversed fortunes with the value of their bonds rising back strongly after several rumours of imminent asset sales across its fish and branded portfolios.  

Italian domiciled insurer Generali produced another strong set of results during the month, yet our investment in a subordinated bond issued by the company has been more heavily impacted by the growing political uncertainty recently surrounding Italy. While we anticipate further volatility ahead for assets deemed to be Italian, we believe this company will continue to produce strong results, which will ultimately reward investors with the conviction to remain invested.   



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