Investing highlights & lowlights — April 2016

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Investing highlights & lowlights — April 2016.

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

  • In New Zealand, Michael Hill International achieved sales growth across all its geographic divisions, with its fledgling Emma & Roe brand showing real early promise. Abano Healthcare gave better than expected guidance for full year earnings and late in the month received an indicative bid for its 50% share of Bay Audio at a price significantly above its book value. Having risen strongly this year-to-date, the EBOS share price took a breather this month.
  • Our Australian portfolio again kept pace with the buoyant Australian market during the month. After we added to our position in Ansell last month, its price rallied a convincing 14%. Similarly CSG was up 11%, again following an increased weighting earlier in the year. Nanosonics was up 9% after reporting strong sales in the United States. Flight Centre (-10%) was weak after Qantas told investors that it expected route growth to slow in the future. Our research indicates that the areas affected are not relevant to Flight Centre. Toxfree Solutions (-7%) pulled back after a strong performance in February and March.
  • A stronger kiwi dollar pared the return from our international portfolio holdings for New Zealand investors. April heralds the start of the first quarter earnings season and a number of portfolio companies delivered good results. Expedia's share price reacted positively to strong growth in hotel bookings and a positive operating environment. PayPal's results reinforced the company's strong position in the payments area. In Europe, Adidas had a stellar result with growth across all regions and most product categories. On the negative side, Alphabet's share price fell slightly, despite reporting what we thought were strong results, as investors became pre-occupied with a very small revenue miss. Recent portfolio addition Stericycle delivered results below expectations and management guided for weaker 2016 earnings than previously expected, largely due to delayed synergies from a recent acquisition and weakness in their energy related hazardous waste business. We continue to believe the fundamentals in the business are strong.
  • The start of the US reporting season brought good news for the Property & Infrastructure Fund, with solid results from Crown Castle, Union Pacific and Norfolk Southern. The particular standout was Norfolk Southern, with its share price up 8% over the month, after the company reported stronger earnings despite a difficult economic environment for rail operators. Cell tower infrastructure owner, Crown Castle, reported another strong result with the company well on track to deliver their targeted 6-7% pa annual dividend growth. Our two US regulated utilities Aqua America and ONE Gas lagged slightly during the month, as increasing US interest rates put pressure on interest rate sensitive utility and REIT stocks.
  • A comparatively quieter month for news flow allowed fixed income markets to consolidate further in April. Yield-hungry investors, who have been starved of new corporate bond issues this year, returned to fixed income markets in their droves resulting in higher prices which benefited a range of investments in our fixed income portfolios. The Reserve Bank of New Zealand decided to keep the Official Cash Rate unchanged this month. This was a mild disappointment to fixed income investors who were hoping the recent rise in the NZ$ and a persistently weak inflation outlook would force the Bank to reduce the rate further. Our holdings in certain New Zealand government-issued bonds gave up some of their recent strong gains.


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