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Investing highlights & lowlights — FFKS & Managed Funds

January 2020

Investing newsroom
Fisher Funds ,

Fisher Funds
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09 January, 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 Growth Fund

The NZ Growth Fund posted returns of 1.4% in January, lagging the local share market which returned 2.0% (S&P/NZX50G).

Infratil (+7.5%) updated the market on the independent valuation of its investment in Canberra Data Centres (‘CDC’), which was revised significantly upwards by around $500 million as at December versus March 2019. We continue to like Infratil as a defensive exposure with several growth assets that have been under-appreciated by the market.

Auckland Airport (-1.1%) air traffic continues to be below-trend as Chinese passenger numbers are reducing, while key Australian and New Zealand passenger numbers are flat. This reflects cuts in airline capacity, softer trans-Tasman economic conditions than recent times, plus less growth in Chinese outbound travellers. Like everyone, we are actively monitoring the progress of the current Coronavirus outbreak both with concern for the health and wellbeing of our society, but also as a risk factor for the company in the near term. History suggests such events do not negatively impact airports in the long term.

 


Australian Growth Fund

The Australian Growth Fund had a strong start to the year returning +5% net return in January, ahead of the ASX 200 which returned +4.8%.

 Link Group rose +16.2% (in A$) in the month after it announced an acquisition of a European loan servicing business. This was taken well by the market as it is seen as complementary to Link’s existing banking & credit management division based primarily in Ireland, and should add to Link’s earnings growth in time.  Credit Corp (+14.9%) and Resmed (+14.4%) kicked off reporting season for our portfolio companies, with both companies reporting strong increases in after tax profits, and good performances from key business divisions.

 oOH!Media fell (-6.6%) in January following the announcement that founder and longstanding CEO, Brendon Cook will retire from the company during 2020.  He is staying on while a replacement is being found and we see this announcement as part of a well orchestrated succession plan by the company.  We think the longer term outlook for oOH!Media’s prospects remains sound.

 


International Growth Fund

The International Growth Fund gained 3.2% for the month, ahead of our global benchmark which gained 0.4%. The coronavirus outbreak took the shine off a strong start to the year in global markets. The S&P Index ended flat for the month after being up 3% at one point. European markets were down 1% and the MSCI China Index fell 5%.

Earnings season is now in full swing with eight of our companies reporting in January. Results for our portfolio have generally been positive. Amazon was up 9% following a strong earnings report with revenue growth strong across the cloud computing business, e-commerce and advertising, and profitability also exceeding market expectations. The company’s recent shift to one day shipping continues to pay dividends with healthy growth in e-commerce and the company adding more Prime subscribers than any previous quarter.

Dollar Tree, the discount retailer fell 7% for the month following its earnings release in December. The company is attempting to turnaround the performance of their Family Dollar banner. Management has made good progress growing sales by revamping stores, but profit margins have been under pressure as the company shifts away from discretionary items to selling more everyday items such as food. Despite the disappointing share price performance, we remain positive on the steps Dollar Tree management are taking to realign the Family Dollar banner for sustained growth.

 


Property & Infrastructure Fund

In January the Property & Infrastructure Fund returned 2.6%, behind its benchmark of 3.3%.

Infratil (+7.5%) updated the market on the independent valuation of its investment in Canberra Data Centres (‘CDC’), which was revised significantly upwards by around $500 million as at December versus March 2019. We continue to like Infratil as a defensive exposure with several growth assets that have been under-appreciated by the market.

Auckland Airport (-1.1%) air traffic continues to be below-trend as Chinese passenger numbers are reducing, while key Australian and New Zealand passenger numbers are flat. This reflects cuts in airline capacity, softer trans-Tasman economic conditions than recent times, plus less growth in Chinese outbound travellers. Like everyone, we are actively monitoring the progress of the current Coronavirus outbreak both with concern for the health and wellbeing of our society, but also as a risk factor for the company in the near term. History suggests such events do not negatively impact airports in the long term. The fund’s other port and airport holdings also saw price declines.

The fund’s North American railroad holdings Union Pacific (-0.8%) and Norfolk Southern (+7.3%) announced encouraging fourth quarter 2019 results which saw only very modest reductions in earnings despite major volume reductions primarily relating to the trade war and flow on impacts. Both railroads’ Precision Scheduled Railroading (PSR) initiatives are delivering against expectations, which will drive strong earnings growth when we return to a more normal freight volume environment.


Income Fund 

The Income Fund had a pleasing 0.6% return in February. Defensive positioning held the portfolio in good stead in the face of growing concern about the fall-out of the COVID-19 outbreak.  As market sentiment turned sour late in the month, investors sought safe harbour in many of the assets held by the portfolio, driving their price higher.

On a disappointing note, Synlait Milk announced the lowering of its profit expectations for the current financial year ending July 2020.  Management indicated profits will be lower than previous guidance due a range of factors which caused its share price to drop while the bond remained broadly steady at its new issue level. We are seeking further clarity from the company regarding this update and continue to evaluate the risk-reward balance of this holding.    

 

 



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