Investing highlights & lowlights — October 2016

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Investing highlights & lowlights — October 2016.

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

A personnel update
As you know, Murray Brown, our New Zealand Portfolio Manager, announced his retirement recently. We are thrilled to have found his successor after a comprehensive search. We are not able to identify him just yet but we can tell you that he is a Kiwi, with extensive market experience and a great investing pedigree. He is excited about continuing (and even improving) the great performance track record of our New Zealand funds and will be returning to New Zealand early in the New Year.

New Zealand Growth Fund
October was a difficult month for New Zealand stocks. The NZX50 fell more than 5% in October and is down 8% from its September high. Although trading updates from New Zealand companies have generally been solid, increasing global interest rates have seen increased caution towards the New Zealand market, particularly by foreign investors who had been attracted to the high dividend yields on offer in New Zealand.

Mainfreight's performance was a highlight in October bucking the prevailing trend with its share price up 4.6%. This strength came on the back of a recent investor day, where they showcased their international growth strategy and provided a solid trading update. The trading update highlighted they are tracking well so far this year, with strong performance in New Zealand and improving results in Europe, Asia and Australia.

Australian Growth Fund
October saw a continued rally in mining stocks on stronger commodity prices, and continued weakness in demand for the shares of companies offering reliable earnings and cash flows. New portfolio addition Rio Tinto was among the best performing mining shares, and Nanosonics continued its strong run after a solid earnings report. Wisetech Global similarly remained strong. Previously strong performers like Ramsay Healthcare, our outdoor media names, Bapcor and Dominos were weak as share markets showed increased sensitivity to the share price valuations of growth companies.

International Growth Fund
We are in the middle of third quarter earnings season and results to date have been mixed. Google, MasterCard, Icon and Blackhawk all delivered strong earnings growth, significantly ahead of market expectations although disappointingly, in the current uncertain environment in the lead up to the US presidential elections, share price response was muted. On the negative side, Cerner, eBay and Varian had minor quarterly disappointments and their share prices fell significantly. Nervous markets indeed.

Property & Infrastructure Fund
Trustpower completed its long-anticipated spin-off of Tilt Renewables in October. Tilt Renewables is an owner and developer of wind farm assets in Australia and New Zealand. Tilt is uniquely positioned for growth given Australia's need to move away from coal-fired generation, towards wind and solar power if it is to meet its global carbon emission commitments.

The global hunt for yield has provided a strong tailwind for property and infrastructure stocks over the last two years. However, renewed focus on potential rate hikes by the US Federal Reserve has seen a jump in global interest rates, creating a difficult environment for yielding assets. While the Property & Infrastructure Fund fell 3% in October, it is still up over 7% year-to-date.

High Income Fund
A combination of strengthening domestic economic data and a stoking of global inflationary fears caused fixed income markets to fall (yields to rise) last month. Following a period where cash holdings have been a drag on our fund performance, this provided a valuable cushion for the more challenging environment for fixed income assets. Our larger than usual cash balance also afforded us the ability to add to specific investments at more attractive valuations, given the recent sell-off. We now expect a cut to the Official Cash Rate here in New Zealand in November to be the last of its kind for some time. We also expect the Federal Reserve to raise the equivalent Federal Funds rate in December, should the presidential election go in the favour of Hilary Clinton.


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