Investing highlights & lowlights — March 2018
By Fisher Funds
10 April, 2018
A snapshot of the key factors driving the performance of markets and your funds last month
New Zealand Growth Fund
In March the NZX 50 again performed better than most other major international market indices, but finished the month down -0.7%. The New Zealand Growth fund outperformed, finishing up +0.6%. The best performing stock in the portfolio was Summerset up 9.5% on the back of its strong 2017 result in February. Performance was also driven by Xero (+5.3%) and Delegat (+4.7%) . We added to our position in Freightways in the month, having digested the solid interim result and gained further comfort with new CEO Mark Troughear.
The biggest drag on performance was usual market darling a2 Milk (-6.3%) down after Nestle’s launch of a competing A1-free product in China under the 'illuma Atwo' brand. This is a natural and expected development and we will monitor this with interest. While it does create uncertainty an alternative perspective is that this endorses the strength of a2’s proposition, which may in fact accelerate awareness and growth of the whole A1-free category, where a2 is the clear category leader.
Australian Growth Fund
The Australian market had a tough month with the ASX down -4.1%. While in some ways its cold comfort it is pleasing that the Australian Growth Fund outperformed the benchmark falling -2.9%. This is an important outcome of our strategy where we believe that investing in quality, growing companies provides some protection in more challenging and volatile market environments.
In terms of individual positions top fund performers were Dominos (+7.2%) and AUB Limited (+6.1%), in both cases on not a lot of news. Key detractors were Sonic Healthcare Limited (-5.1%), Credit Corp Group Limited (-6.5%) and Seek (-5.9%). Seek shares experienced a selloff in sympathy with tech stocks around the world as did data centre company Next DC and software business Wisetech.
International Growth Fund
The International Growth Fund was flat in March, outperforming our global benchmark which fell 1.2%. While our exposure to technology companies like Alphabet (-6%)dragged on performance during the month, some strong financial results and developments elsewhere in the portfolio such as Adidas (+8%), Descartes and William Demant helped offset the impact of our technology holdings. Our more defensive healthcare holdings also provided support.
We exited hearing aid manufacturer William Demant. With its share price up 55% since we added it to the portfolio, it is now trading at an elevated valuation and we decided to exit our position and reinvest the proceeds in other opportunities. We took advantage of the market weakness in March to add to our holdings in LKQ Corp and Cerner. Cerner is a healthcare IT company and longer term we see technology playing a critical role in the modernisation of the US healthcare system. we believe Cerner has a key role to play in this shift.
Property & Infrastructure Fund
The global infrastructure and property sectors saw some respite and posted small positive gains, after the sharp negative impact of volatility and rising US bond yields in February. The Property and Infrastructure Fund was flat for the month slightly lagging behind its benchmark (+0.3%). Trustpower was the top contributor (+8.1%) as the Tauranga Energy Consumer Trust withdrew its controversial proposal to replace annual cheques to consumers with charitable donations.
Aeroports de Paris gained +6.6% as the prospect of a privatisation of its Paris airports potentially carries further upside for shareholders. Offsetting this, Flughafen Zurich declined (-6.4%) as operating earnings guidance for its 2018 fiscal year was slightly lower than expectations and capital spending for its Zurich airport 'Circle' office and retail project is now expected at higher levels. We again trimmed our position in toll road operator Atlantia following a revision to its bid for Spanish operator Abertis, which will now see it acquire a non-core stake in construction/engineering group Hochtief.
We believe economic activity across the major global economies has reached the “as good as it gets” phase. The portfolio reflects this with investments that stand to benefit from a combination of rising inflation, higher short-term interest rates, and lower long-term interest rates across a range of western economies. This positioning is based on the belief that central banks will continue to tighten monetary policy. This will eventually slow their economies.
The increased market volatility seen recently has resulted in a wider distribution of returns across the fixed income landscape. In March some of our higher yielding investments provided strongly positive contributions while others dragged our performance back. While this volatility makes the performance of our funds more variable on a month-on-month basis, we believe the improved opportunities it provides an active manager like us puts us in a good position for the year ahead.