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Investing highlights & lowlights — LifeSaver & FFTWO October 2018

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Investing highlights & lowlights — LifeSaver & FFTWO October 2018.

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

All Fund returns below are after fees & before tax

New Zealand 

 

The New Zealand share market suffered its largest fall since May 2010 in October slipping 6.4%. Similar to last month it was the defensive sectors like utilities and telecommunications that were the strongest relative performers.

The New Zealand Growth Fund was down 7.9% for the month. The top portfolio performer in our portfolio was Restaurant Brands. Restaurant Brands was boosted by news that Mexican financial investor Finaccess may make a partial bid for the firm. Finaccess is a private equity fund that has a shareholding in a similar business to Restaurant Brands, AmRest Holdings, a large Polish- fast food operation and is, in our view, a credible player. We are currently waiting for Finaccess to formalise its offer. It is important to note that there is no certainty that this final offer will materialise.

During the month we exited our position in Abano Healthcare. Ongoing disappointing sales growth from its Australian dental business, Maven, and limited margin improvement has ultimately dented our confidence in the business, leading to our decision to exit.

Volatile markets provided the opportunity for us to add to positions in some of our favourite companies over month including A2 Milk, Fisher & Paykel Healthcare and Xero. Buying quality companies in times of turmoil is one way to seek to boost portfolio returns over time.


Australia

 

Concerns around higher interest rates, slowing global growth, the spectre of rising cost pressures and a tit for tat trade war seemed to weigh as much on the Australian share market as they did on international share markets. Our Australian portfolio was down 8.0% for the month.


Global logistics software firm Wisetech was the portfolio’s worst performer over the month falling over 25%. Despite its price fall it was notable the company increased revenue and profit guidance over the month highlighting that demand for its software solutions continues to increase.

While watching share prices fall can be tough, we remain confident in the longer term investment case underpinning portfolio companies and we used weak share prices in October to top up investments in a number of companies as well as adding Aristocrat Leisure to the portfolio.


International 

 

The International Equity Fund significantly outperformed its benchmark in October by 0.6%. However, Global Markets had their worst monthly return since 2008 and in absolute terms, the portfolio returned -5.5% versus a benchmark return of -6.1%. Value was added by having a lower than benchmark exposure to Industrials and Consumer Discretionary. Consumer Discretionary was hit hardest during the sell-off and fell by 10%. The Utilities sector was the best performer, and was the only to provide (a small) positive return for the month of 0.7%. The fund was mainly helped by holding more Value (cheaper) stocks, as the contrasting style of stock, or Growth stocks (which are relatively more expensive) were laggards. Cash drag was also a significant contributor to returns as the portfolio has relatively higher levels of cash than the benchmark, which has no cash exposure. 

Most currencies depreciated against the US Dollar, and the New Zealand Dollar was no exception, falling by -1.5%. However, the volatility seen in equity markets generally did not spill over into the currency markets which were relatively not as turbulent.

The largest contributor to benchmark-relative returns was Comcast, which rose almost 10% after announcing both earnings per share and revenue figures which exceeded expectations. Another major contributor was having a lower than benchmark exposure to Amazon, which had a tough month, falling by 19% in local terms. 

 


Income Fund 

 

The solid run of outperformance for our global fixed income portfolios was retained in October.  Again the source of this outperformance was quite diverse across each fund, suggesting each manager continues to generate uncorrelated returns from the other. 

Rising interest rate expectations again put downward pressure on high grade, safe-haven fixed income assets in October.  But rather than this being due to greater optimism surrounding the outlook for global growth, concerns are now growing about the impact higher rates will have on company profitability.  This caused corporate bond valuations to also weaken.

 

 

 

 

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