Investing highlights & lowlights — June 2018
By Fisher Funds
05 July, 2018
A snapshot of the key factors driving the performance of markets and your funds last month
New Zealand Growth Fund
It was again a strong month for the New Zealand portfolio, rising 4.3% and comfortably outperforming the S&P/NZX50G index which was up +3.3%.
Fisher & Paykel Healthcare, Xero and Vista Group were the Fund's top performers on little news flow, and drove a meaningful share of both absolute return and the majority of our outperformance relative to the index. There were no material detractors during the month, but we were surprised with the announcement from Michael Hill that it will immediately close all six remaining Emma & Roe stores, rather than undergoing the trial phase announced in March.
Australian Growth Fund
In July the Australian portfolio returned 3.3% trailing the benchmark ASX 200 which was up 3.7% for the month. Our performance was relatively broad based with the healthcare and commercial sectors leading the way. Top performer was Nanosonics, gaining 19% for the month off the back of news of regulatory approvals in some key international markets for their second generation Trophon. Double digit growth was also achieved by Insignia (+15%), APN Outdoor (+10%) and Wisetech Global (+17%). The biggest drag on performance was Ramsay Healthcare, down 12% for the month after being plagued by revenue headwinds.
International Growth Fund
The International portfolio was up 2.2% in June, outperforming our global benchmark which was up 1.3%. After a strong start to June, global markets retreated late in the month and closed broadly flat as trade fears re-emerged. Defensive sectors including utilities and consumer staples outperformed, while industrial and technology companies underperformed.
Our top performing company was logistics software company Descartes (+11%), on the back of a small acquisition and reporting revenue growth of 23% and EBITDA growth of 16% for the first quarter, ahead of management's 10-15% long-term guidance. Strong performers were also TJX Companies, the off-price retailer (+5%) and heart valve manufacturer Edwards Lifesciences (+6%). The notable drags on performance were jewellery retailer Pandora (-11%), and parcel delivery giant UPS (-8%). Pandora's decline was after weak monthly results. New launches in the coming months are expected to support sales and management have reaffirmed guidance of 7-10% sales growth for the year.
Property & Infrastructure Fund
Our Property and Infrastructure portfolio performed solidly in May and was up 2.2% for the month. Aeroports de Paris (AdP) was the standout performer (+10% in local currency), rallying on the news that the French Government will sell at least part of its majority stake (subject to Parliamentary approval). We reduced our position in Zurich Airport during the month following the unexpected proposal by the regulator to force Zurich Airport's non-regulated business to subsidize it's aeronautical-business, which if enacted will reduce the likely revenue from airline tariffs from mid-2020.
Our preference for highly rated government bonds over those offered by lower rated corporate issuers was again the key contributor to performance this month. This as trade wars raged and economic data softened. We are cognisant though that too much exposure to government bonds will greatly reduce the yield, or expected income, of the portfolio whilst also leaving it exposed should interest rates rise quickly. That is why pairing these investments with carefully selected corporate bonds remains key to maintaining both an attractive level of income and diversification across the Fund.
Our investment in Boparan was the largest drag on performance this month. A weak quarterly earnings release was the initial reason for a fall in the price of our bonds. But a confusing and, at times, frustrating conference call between management and debt investors following the earnings release, was the cause of a more protracted slide in the bonds over subsequent days. Unsatisfied with the answers management provided, we arranged a one-on-one call with the incoming Chief Financial Officer, Craig Tomkinson. The result of which has helped cement our investment thesis, despite this recent weakness in the bonds.