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Investing highlights & lowlights — April 2018

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Investing highlights & lowlights — April 2018.

A snapshot of the key factors driving the performance of markets and your funds last month

New Zealand Growth Fund
It was a tough month for the NZ Growth Fund which was down -0.2% and underperforming the NZSE50G which was up 1.5%. The good news for the month were positive returns from the Fund’s investments in Xero, Vista Group and Infratil. Michael Hill Jewellers was a drag on performance after announcing mixed third quarter sales results, with growth in only some markets.

Fletcher Building was added to the portfolio mid month as we became convinced that the combination of new management and a new strategic focus will once again allow Fletcher’s high quality positions in the Australian building materials sector to shine through.


Australian Growth Fund
In April the Australia Growth Fund rose 3.2%. This was behind the benchmark which posted its first positive monthly gain for the year rising 4.2% for the month. The big market dynamic for the month was the strong share price performance from resource companies, both energy and basic commodities. While the Fund enjoyed gains on its investments in BHP and Rio Tinto it has a smaller exposure than the broad market to these sectors, causing the Fund to underperform the market for the month. The other negative contributor to returns was the Fund’s investment in debt collector Credit Corp. Although a poor performer of late, we still rate management highly and are excited by the company’s prospects in the United States. Credit Corp came out and reaffirmed profit expectations late in the month which should calm investor’s nerves.

The positive contributors were more company specific. APN Outdoor found some support with industry data pointing to a rebound in demand for the out of home advertising sector and enjoyed a share price surge. CSL, the largest investment in the Fund, had another strong month rising 9.6% with investors anticipating healthy upcoming profit results on the back of a worse than usual flu season in the northern hemisphere. CSL is a leading global provider of flu vaccines.


International Growth Fund
The International Growth Fund was up 1.2% in April and the two top performers were Core Laboratories and delivery giant UPS. UPS’s results were supported by strong ecommerce and business-to-business volumes, while oilfield services company Core Labs benefited from recent increases in the oil price. LKQ Corp, the aftermarket car parts supplier, was our worst performer in April with its share price down 18% for the month. The company was hit by a temporary disruption in their new automated distribution centre in Europe, which impacted revenue growth and margins in the fourth quarter.

We added Facebook to the portfolio, the owner of four of the most dominant social networking and messaging platforms in the world (Facebook, Instagram, Messenger and WhatsApp). Facebook is benefitting from strong growth in digital ad budgets and share price pressure from the Cambridge Analytica data breach has created an opportunity for investors to purchase the stock at a very attractive valuation. The addition of Facebook was funded by our exit of Amazon in April.


Property & Infrastructure Fund
For the month the P&I Fund was up a solid 1.8%. It was pleasing to see Kinder Morgan, a gas pipeline company, as one of the top performers given it has been a drag on returns previously. The company delivered its 1Q18 result, beating expectations on higher than expected volumes, helped partly by colder winter weather in the US. The company now already expects to beat its 2018 profit and dividend forecasts.


Fixed Interest
Overall fixed income returns were more muted this month, due to rising global inflationary concerns reducing investor demand for fixed income assets. Pleasingly the Income Fund outperformed its benchmark, driven by key corporate bond holdings (Sprint and Frontier Communications) and our inflation-protected securities. Our investment outlook remains unchanged from recent months. The portfolio is positioned for a combination of rising inflation, higher overnight interest rates in the United States, and lower long-term interest rates across much of the developed world.

Broadly higher bond yields have caused the capital value of a majority of our holdings to fall this month. Consequently, it is this improvement in the income we can expect from the asset class in the future that has now begun to cautiously attract us back into certain government bond securities.

 

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