A snapshot of the key factors driving the performance of markets and your funds last month
All Fund returns below are after fees & before tax
The big news in New Zealand markets was the ten year Government bond rate falling sharply, to near lifetime lows. This supported the strong performance of yield stocks such as telcos and electricity companies which are not our favoured sectors given the lower growth profiles. It was not surprising the our NZ portfolio was modestly behind the NZ market, albeit with a healthy return of 4.9% (the NZX50 was +5.9%)
In portfolio news Synlait, processing partner of The a2 Milk Company released its first half 2019 result. This was meaningful as its maintenance of full-year guidance highlights a strong second half run-rate which reconciles with a2's sales growth expectations. We continue to believe a2 still has strong growth prospects and have added to the position following the share price weakness in March the wake of its strong first half result in February.
We made a significant change by exiting our position in Michael Hill. The investment case has shifted and the longer term prospects for the business are increasingly challenged. Positively the recent recovery in share price from depressed levels provided an opportunity to exit at an attractive price.
The Australian portfolio was up 1.8% for the month, ahead of the Australian market. Wisetech rose +20% in A$ following a successful capital raising in which it raised $300m in fresh equity. This provides it with additional balance sheet flexibility to keep investing heavily in growing its earnings through organic and acquisitive investments. Wisetech re-affirmed full year guidance during the month as well. The latest Outdoor Media Association data reinforced the positive structural trends of outdoor advertising growth, benefiting Ooh! Media which was up +11.9% in the month.
The banks lagged in the month, with CBA (-4.5%), WBC (-3.9%) in particular giving up a meaningful portion of their ‘Royal Commission’ relief rally in February. Operating conditions are showing few signs of improving with soft house price and credit lending data, and the prospect of higher capital requirements in their NZ subsidiaries all continuing to weigh on performance.
Global share markets posted positive returns in March, with the S&P Global LargeMid Cap Index up 1.2% in New Zealand Dollar terms. The International Equity fund lagged and was up 0.9% during the same period. Country exposures made little difference in the relative return, but a higher exposure to the Automobiles & Components industry detracted from performance as data released in the US showed auto sales continue to slow. Smaller companies underperformed larger companies globally, while cheaper companies underperformed expensive companies as concerns of a slowing global economy spread. The major catalyst for the fears was poor German (a proxy for the rest of the European Union) manufacturing survey results, posting decline that was worse than expected.
The New Zealand Dollar ended the month unchanged versus the US Dollar.
The major single stock contributor to relative returns was Boeing – which the fund does not own. Boeing fell by over 12% as multiple countries grounded its 737 Max planes after two crashes in the past five months. Apple was another significant contributor, which the fund has a higher exposure to than the benchmark. Apple was up almost 13% as it announced a new raft of products. The largest detractor was Biogen which ended the month down 29% after they announced they would discontinue an ongoing Alzheimer’s drug study, which was expected to be a blockbuster drug.
The New Zealand Fixed Interest Fund had a very strong month, taking its twelve-month return to over nine percent. The Fund continues to benefit from the investment teams non-consensus overweight duration position. Our global strategies produced strongly divergent outcomes this month, with PIMCO underperforming and Wellington broadly matching the performance of their benchmark.
PIMCO’s underperformance this month was driven by their strong underweight to duration. This is comprised largely of a below benchmark allocation to Japanese and European high-grade bonds, which both performed strongly over the month.