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Investing highlights & lowlights — August 2017

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Investing highlights & lowlights — August 2017.

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

New Zealand Growth Fund
The NZX50 delivered yet another strong month in August, making it eight months in a row of positive performance, adding 1.6% and taking its gain to 13.6% for the year. The New Zealand portfolio gained 0.2%, trailing the index. Fisher & Paykel Healthcare was the top contributor, up 7.3% for the month, during which it held its AGM and effectively lifted its underlying operational earnings guidance. Trade Me was the biggest drag on performance for the month, (down 15.0%), after the company confirmed it will be re-entering a period of reinvestment back into the business and therefore margins will come under slight pressure.


Australian Growth Fund
Despite a deluge of news over the reporting season, the return on the ASX 200 Index for August was a modest 0.7% in Australian dollars. Our Australian portfolio returned 1.9% in Australian dollars. With the New Zealand dollar softening, the New Zealand dollar return was 3.4%. The portfolio had an acceptable reporting season with 64% of our companies meeting or beating consensus earnings expectations and 36% falling shy. Median earnings growth for the portfolio was 6.9%. Among our larger positions, the market responded very favourably to the results of ARB (encouraging export growth) and Carsales.com (sound core Australian performance and strong growth from key offshore investments). Seek was punished for disappointing guidance for the year ahead due to reinvestment in the business.


International Growth Fund
Global share markets were broadly flat in August, having recovered from a mid-month sell-off linked to North Korean missile tests and escalating geopolitical tensions. Despite this backdrop the International portfolio gained 3.6%, supported by strong performance from a number of our technology investments (Alibaba, PayPal and Descartes in particular) and a weak New Zealand dollar. Alibaba reported strong results during August, with increasing traffic on their Tmall ecommerce website driving 56% revenue growth in the June quarter. Logistics software supplier Descartes also performed strongly in August following the bolt-on acquisition of competitor MacroPoint, which will allow them to provide customers with real-time tracking of the trucks transporting their products. Oilfield services company Core Labs was the worst performer in the portfolio in August (down 12%) following a selloff in oil prices in August.


Property & Infrastructure Fund
The Property & Infrastructure portfolio was up strongly, lifting +2.7% in August. Our two cellular tower companies, Crown Castle and American Tower were our top contributors, up 7.8% and 8.6%, on the back of better than expected second quarter results. The best performing stock in the portfolio was Arena REIT, up 12.1%. This was particularly pleasing to see as we added to the position in the equity raising in early August and since then the childcare property company has reported a stronger than expected earnings result. The biggest detractor from performance was Trustpower (-6.0%) which is consolidating after several very strong months of performance.


Income Fund
Our strong preference towards holding government bonds at this time had the portfolio on a solid footing again this month. Bond yields across many developed markets continue to fall (i.e. prices rise) and investor demand for safe-haven assets continues to rise. In particular, it was our holdings in U.S and U.K government bonds that provided the largest boost to the portfolio’s 0.4% after fees return for the month.

Unfortunately, not all bond markets benefited from strong demand this month. As growing uncertainty surrounding the political landscape in Italy again caught the attention of investors, it was the southern European nations that saw their bond markets retrace some of their previously strong performance. As such, our holdings in both Spanish and Italian government bonds were some of the weakest performers this month. Despite this mild pullback we continue to maintain our view that the improving economic outlook across Europe will benefit these largely export-led nations.

 

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