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Investing highlights & lowlights — January 2016

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Investing highlights & lowlights — January 2016.
  • Our Australian share portfolio weathered January's volatility well, and despite foreign exchange hedging losses dragging the Fund down, we remained ahead of the overall market. ResMed reported, beating expectations on a strong sales performance. Medibank surprised positively, upgrading its earnings guidance as it made quick progress on efforts to contain claims expenses. Hospital group Ramsay Healthcare was weak following this announcement, but at this stage we expect Ramsay's scale and best in class execution will see them continue to grow profits.
  • The share prices for our New Zealand portfolio companies in January were generally slightly down due to weakness in world share markets rather than any company specific news-flow. Of note, Michael Hill International enjoyed the more buoyant retail environment, reporting a good Christmas sales period, with positive same store sales in all of its geographic divisions. Auckland Airport announced plans to upgrade its international terminal following strong growth in tourist numbers.
  • Contrary to expectations, sovereign bond yields have fallen around the developed world following the Fed's December interest rate hike. Our overweight stance in these assets continues to benefit our fixed income portfolio performance. While weakness in high yielding fixed income assets was, until December, largely confined to the structurally weak energy and mining sectors, as global recession fears have grown, other sectors are now being impacted.
  • Our regulated infrastructure and listed property investments have generally held up well. Disappointingly, our railroad investments have been a meaningful detractor to Fund performance. Although the commodities rout has been well publicised, we were surprised with the recent earnings downgrade issued by Aurizon and the broad-based slowdown in US freight volumes which has weighed on our US railroad investments. While we believe the share prices have overreacted, we can't ignore the unpredictability of short-term earnings in the current commodity environment. We have reduced our railroad exposure in favour of more defensive investments, including a new position in toll-road operator Transurban.
  • In our International portfolio, Adidas and Nike proved resilient in the recent sell-off, helped by a solid operating environment and in Adidas' case, a well managed transition of CEOs. After a strong post spin-off result last quarter, Ebay reported mixed quarterly results with weak guidance mainly due to ongoing currency challenges.

 

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