Investing highlights & lowlights — February 2017
By Fisher Funds
06 March, 2017
A snapshot of the key factors driving the performance of markets and your funds last month
New Zealand Growth Fund
The New Zealand share market continued its strong run in February, with the S&P/NZX50 up 1.6%. EBOS was our top performer for the month, up 9.5%. The distributor of healthcare and pharmaceutical products delivered strong interim results, driven by good growth in both its Consumer Products and Animal Care businesses. The biggest detractor from performance was Metro Performance Glass (-23%). Metro downgraded its full year profit guidance due to challenges in efficiently scaling up production in the buoyant construction market.
Australian Growth Fund
February was a busy month for Australian companies with reporting season. While average earnings for the Aussie market were strong, the average disguised two very different stories. Mining companies were very strong on the back of commodity price rallies, and banks looked a little more positive. Other sectors of the market were not nearly as strong. In this environment, 72% of our portfolio companies met or beat profit expectations. The biggest contributors to portfolio performance for the month were Seek and CSL both of which delivered better than anticipated first half earnings. Tox Free Solutions was the laggard as its earnings from resources-related capital expenditure continued to decline.
International Growth Fund
Our International Fund was up 2.8% in February. Infant formula producer, Mead Johnson, was up 24% on the news that the company is to be acquired by the UK consumer goods group Reckitt Benckiser. Cognizant was another strong performer, up 13%. In addition to improving growth momentum, the company announced new initiatives to increase profit margins and return capital to shareholders over the next few years. UPS was down 2% for the month after reporting results below expectations. While parcel volumes were up strongly, a higher proportion of e-commerce deliveries to consumers drove margins lower, given it costs more to deliver parcels to residential homes than between businesses.
Property & Infrastructure Fund
The Property & Infrastructure Fund performed strongly in February (+3.2%) on the back of solid results from a number of our portfolio companies. Transurban Group was up 8.1% following solid traffic growth and toll price increases on its Australian toll roads. Our two childcare focused real estate investment trusts, Folkestone Educations Trust and Arena REIT, were up 12.5% and 12.8% respectively, following positive interim results. Both companies showed strong like-for-like rental growth and significant property revaluation gains.
Demand for fixed income assets continued to recover in February. This improving appetite has meant that in order to secure an investment in these assets, investors have become more willing to accept a lower level of future income from them. The result is bond yields falling (and their price rising). Such is the optimism surrounding future growth at present we saw particularly strong interest in many of our holdings in corporate-issued bonds. Bonds like these typically perform best in periods of strong economic activity.
Despite the aforementioned optimism surrounding the economic outlook, some of our portfolio companies are still not quite performing as well as we would like. This month we saw disappointing results from both Frontier Communications and Anheuser-Busch InBev. Anheuser’s weak quarterly result has done little to dent the company’s undeniably strong credit quality in our opinion. But we are growing more concerned about Frontier’s ability to successfully execute on its integration plan for its recently acquired assets and their persistence with paying out an unsustainably high dividend. This investment remains under review as we collect more information surrounding the likelihood of a turnaround in these two aspects.