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Investing highlights & lowlights — January 2018

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Investing highlights & lowlights — January 2018.

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 had a sluggish January until rallying on the last day of the month The NZ Growth Fund returned 0.8% which was slightly ahead of the benchmark NZX50 at 0.5%. The highest performing sectors for the New Zealand share market overall were consumer staples, materials and industrials. Leading the way for our portfolio were Xero (+7.9%) and Freightways Limited (4.3%). Drags on performance for the month were in the healthcare sector, with Abano Healthcare, EBOS and Fisher & Paykal Healthcare underperforming.


Australian Growth Fund
2018 got off to a positive start for the Australian portfolio with a gross return of 0.7% for the month outperforming its ASX200 benchmark, which was down slightly. The portfolio benefited from overweight positions in the Healthcare and IT sectors, which are known for the combination of quality and higher earnings growth that we seek. Healthcare stock Resmed delivered a Q2 FY18 earnings result that showed solid revenue growth and an encouraging improvement in margins.

IT stock WiseTech was the standout in their sector despite no specific news from the company. The IT sector also provided our laggard for the month, NEXTDC. We suspect January's share price weakness was likely driven by a broker report suggesting sluggish sales at its second Melbourne data centre. We take a longer term view. Given the exponential growth of data usage, we expect the company to earn attractive returns on the capital it is deploying in new capacity.


International Growth Fund
It was an outstanding January for the International Growth Fund with a gross return of 6.2%, significantly outperforming the benchmark at 2%. Top performers this month were Black Hawk Networks, Alibaba and Amazon.

In January a significant development was a takeover bid for Blackhawk Networks, the digital gift card business, who will be acquired by a US private equity firm. While we are sorry to see the firm go, pleasingly the takeover offer is a +27% increase over the share price, reflecting what we believe is a fair premium for this company. We added to the portfolio with Pandora, a Danish jewellery brand who are dominant in their category, producing 120 million pieces in 2017. The company operates a fully integrated business model, with ownership of the supply chain from design and production through to retail.


Property & Infrastructure Fund
In January global infrastructure shares had a flat month and local property indices weakened slightly and this is reflected in the Property and infrastructure fund return of 0.1%. Local companies Port of Tauranga and Kiwi Property Group were top local portfolio performers. A drag on performance was portfolio company Union Pacific Corporation, down 0.4% for the month after reporting a slightly disappointing Q4 earnings result. The 2018 outlook remains solid, underpinned by expectations of volume growth and productivity gains.


Income Fund
Selected corporate bonds contributed to positive returns in January. Pleasingly, our trio of high conviction corporate bond investments from Frontier Communications, Boparan and Altice contributed strongly to the portfolio's return this month. Core to our bullish views on these three companies was their potential to launch a range of self-help initiatives which we believe could strongly dispel a number of the key investor concerns surrounding them. In short, all three began to deliver on this in January.

Our macro-economic indicators had been suggesting inflationary pressures have been building slowly since late in 2017. Accordingly we made the decision to reduce the sensitivity our portfolio has to changes in interest rates. However, we are confident that the corporate bonds we have selected generate strong, positive returns regardless of the direction in which bond yields are moving.

 

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