Investing highlights & lowlights — June 2016
05 July, 2016
This month we share how each portfolio is tracking including some of the highs and lows from your investment team.
- There were a few highlights in the New Zealand portfolio last month with Tegel Group reporting its first profit as a listed company, a good result slightly ahead of forecast. Z Energy successfully completed the purchase of Caltex. The company reported no problems in the first month, which was important given the complexity of the hand-over.
On the other side, two companies in the portfolio had some exposure to Brexit. Delegat's Group export around 30% of its wine to this region and Mainfreight's Wim Bosman division in Europe contributes around 17% of their overall revenue. Both share prices fell initially following the vote; however, our view is the impact will likely be relatively minor in the medium-long term. Arguably, demand for New Zealand's sauvignon blanc may increase as people grapple with the complexity of separating the UK from the Common Market.
- Our Australian portfolio saw a 4.5% loss over the month, which was slightly behind the broader Australian market. With the exception of property all sectors of the share market were down due to Brexit fears. Encouragingly our portfolio broadly held its own in these difficult conditions, with one exception — Henderson Group. Its shares were weak given the company's exposure to European share markets, and uncertainty regarding their ability to sell UK-based products to European investors.
- Global equity markets' initial reaction to Brexit was to sell due to increased uncertainty over global growth and the future of the EU. We used this as an opportunity to selectively buy shares at lower prices. Companies in the portfolio like Mead Johnson and Ecolab held up well. We've been watching Amazon for a while and took advantage of the market weakness to buy. Amazon has built market-leading positions in two areas (ecommerce and public cloud infrastructure) while also building strong strategies to reduce competition. With powerful long term growth trends, we see this as being a great addition to the portfolio.
- The Property and Infrastructure Fund was resilient in June despite volatile equity markets globally. Stride Property created Investore a separate listed company, to house its large format retail properties, which consist mainly of Countdown supermarkets. Managed by Stride the move will provide a new management fee income stream and grow its property management business. The market responded positively to the change with Stride's share price up over 6% for the month. Zurich Airport and Aéroports de Paris were weak in June, with the fallout from Brexit hitting airline and airport stocks following concerns over slower passenger traffic growth.
- Bonds issued by developed world governments rose strongly this month as investors sought safety from the uncertainty created by Brexit. Our holdings in New Zealand, Australian, UK and US government bonds performed particularly strongly, outpacing almost all other bonds globally. In a world where over 30% of all governments bonds are now trading with a negative yield we think our higher yielding holdings in these countries' bonds are attractive.
Brexit saw our UK bank bonds fall in value this month as they now face a more challenging environment ahead. Despite this earnings headwind, we believe banks such as Barclays and The Royal Bank of Scotland remain exceptionally well capitalised, maintain high levels of liquidity, and continue to produce earnings that far exceed their debt financing requirements.