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06 March, 2019

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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

New Zealand 

Our NZ portfolio returned an outstanding 6.6% for the month, significantly outperforming the NZ market (+3.8%). Top portfolio performers included Fisher & Paykel Healthcare (+17%) after the market reacted well to the mutual agreement with competitor ResMed to end their respective global patent litigation, which will deliver meaningful cost savings over the next couple of years. Software player Vista Group (+13%) reported a strong 2018 result with revenue growth of 23%, ahead of its guidance. Vista is entrepreneurial and proactively invests in developing new businesses and many of these like Powster, Numero, and Cinema Intelligence continuing to gain traction. We think Vista is a high quality software player in its niche and there is significant scope for it to continue growing at strong rates for many years.

A drag on performance was Pushpay -5% after revenue for the December quarter was softer than anticipated.  with processing volumes in the last week of December fell short of expectations. The company still expects strong revenue growth for the next year of around 30%.



The Australian Growth Fund rose 3.8% in February as the ASX 200 delivered its strongest monthly return since July 2016.  Financials (+9.1%) led the index up, enjoying a relief rally following the release of the Royal Commission’s final report.The majority of our portfolio companies reported results during the month.  On the whole, the results were well received by the market.

Nanosonics (+24.3% in A$ in the month) was the standout performer.  It delivered strong revenue and profit growth on the back of the second generation trophon release.  It also had high growth in (recurring) consumable revenues to meet the needs of its growing installed base.  This is a longstanding portfolio holding for us and pleasingly, management continues to execute well.

Next DC (-8.9%), our worst performer for the month delivered a credible result.  It disappointed the market in the sell-through rate of its Melbourne (M2) facility.  This is largely a function of timing in our view and the fundamentals for its long run growth remain sound.


International share markets had another excellent month, with the S&P Global LargeMid Cap Index up 4.4% in New Zealand Dollar terms. The Fund lagged the market slightly, ending up by 4.2% in February. The Fund has a higher exposure to relatively cheaper stocks which hurt performance as it was the more expensive high growth stocks that led the gains in the month. Investor risk appetites are clearing improving as markets put the pessimism of December behind them. This increase in risk appetite was further evidenced by flows into more volatile stocks as investors chased returns.

The fund has a lower exposure to the Software & Services industry which detracted from relative performance, while lower exposures to Consumer Services, Food Beverage & Tobacco and Media & Entertainment all significantly added to the relative performance. The New Zealand Dollar depreciated against the US Dollar by 1.6% with optimism around the trade talks between the US and China supported the US Dollar. These currency moments further boosted the fund’s returns as foreign assets are now worth more when converted back into the home currency.                                                        

Relative performance was boosted by not owning Warren Buffet favourite; Kraft Heinz, which collapsed by 31% after releasing a dismal earnings report coupled by a large write-off. A significant overweight to BP, which was up almost 5%, helped in a month where crude oil prices rose by 6%. Not owning Softbank detracted from performance after the company announced a massive stock buyback program.

Fixed Interest 

All three fixed income strategies outperformed their relative benchmarks in February.  As was the case during a middle of last year, the diverse positioning of each manager meant that they sourced this outperformance from a diverse range of opportunities – an all-round pleasing result. 

Late in the month, NZ Fixed Interest portfolio company Fonterra reduced their earnings forecast for FY19.  Both weaker sales volumes across Asia and higher group operating costs continue to be cited as the cause of the problems.  We believe the first of these is somewhat transitory.  But it will be the execution of their strategic plan (once the review is complete) that will be what really defines this turnaround story.  On that point, we remain confident they have all the levers required to stabilise the business.  The decision to not pay an interim dividend and review their longer term distribution policy is also pleasing initial offset.



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