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Investing highlights & lowlights — August 2018

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Investing highlights & lowlights — August 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 Growth Fund

 

The New Zealand share market had a strong August with the New Zealand Growth Fund gaining 4.9%. Portfolio performance was driven by double-digit performance by three key portfolio positions – Xero (+19.3%), Delegat’s (+20.2%) and A2 Milk (+20.7%). All three of these companies generate a significant portion of their earnings offshore and have been beneficiaries of the weak NZ Dollar. A weak kiwi dollar is a helpful tailwind for the export sector.   

On the flip side, the more domestically oriented companies Fletcher Building (-9.5%) and Freightways (-4.3%) struggled, with Fletcher Building’s profit result pointing to some weakness in the domestic economy and Freightways layering in more cost, impacting current profitability.

During the month we added to the portfolio's investment in A2 Milk as it continues to execute well in China, and reducing our positions in Vista Group given strong recent performance and Michael Hill as the company continues to find the retail environment challenging. 


Australian Growth Fund

 

The Australian share market had a strong performance with the main driver being strong company profit results. Our portfolio had a return of 4.6% for the month. Wisetech Global was a standout performer closing the month up 40%. The firm provided upbeat guidance for next year, with another year of strong growth expected. Other notable performers were healthcare company CSL (+15.6%), and debt collector and consumer lending firm Credit Corp (+12.2%)

During the month we sold our investment in hospital operator Ramsay Healthcare.  While we have long admired the quality of the business, our work over the past few months has highlighted a number of headwinds facing the company that appear somewhat structural in nature. We believe this means the company will struggle to grow earnings as rapidly as the market has become accustomed to. This been a great investment for the Fund but we don’t want to overstay our welcome! 


 International Growth Fund

 

International share markets had mixed results in August. Pleasingly our portfolio was up 3.9% for the month. Performance was supported by TJX Companies and adidas. TJX (+14%) produced a strong set of quarterly results, with sales growing 12% on the prior year. This was driven by a combination of same store sales growth at the company’s TJ Maxx and Marshalls stores and new store openings.  adidas (+14%) reported solid second quarter results, with double digit revenue growth on the back of strong performances in the Chinese and US markets.

The two biggest drags on performance were Alibaba and Pandora. Alibaba (-7%) was dragged down by weak Chinese equity markets, with many Chinese technology companies down 5-10% during the month. Alibaba reported second quarter results during the month that showed 33% revenue growth in its core ecommerce business. Despite Alibaba’s scale they are still growing customers rapidly, with 24% growth in customers over the last year.    Pandora (-15%) is a company we added to the portfolio early this year. Needless to say it has not performed as we expected and we have now exited our position. Pandora’s growth has continued to slow as the launch of new its collections and management’s turnaround initiatives have failed to stabilise the business. 


Property & Infrastructure Fund

 

The Property and Infrastructure Fund had a return of 1.4% over August, which was more subdued than prior months and underperforming global share markets. Notable gainers in the portfolio were New Zealand based Tilt Renewables up 7% as there is a take-over bid on the horizon, and Auckland International Airport due to pleasing growth in passenger numbers driven by Air New Zealand and increased frequency from other airlines, which led to an earnings upgrade.

Performance was negatively affected by Atlantia, which was down 29% after experiencing a tragic disaster, with a bridge collapsing on one of the roads they owned. 


Income Fund 

 

The Income Fund had a strong return of 0.5% in August.  Global investors have become increasingly concerned by escalating trade tensions and rapidly falling emerging markets. This risk aversion pushed bond yields lower, driving strong gains across this safe-haven asset class. Portfolios holdings in key government bond markets were the best performer. August underlined the importance of fixed income in investment portfolios that if things get tough fixed income invariably performs well.

As typically happens when the portfolio has a strong month the most “liquid” assets were the largest drag on performance. These holdings, which consist predominantly of cash or near-cash securities, carry lower levels of income in return for greater ease of access to the funds.

While our holdings in such securities are often small they are extremely important. They offer both you, our clients, the availability to redeem your investment at short notice whilst also affording us, the manager, the flexibility to react quickly should opportunities in the market present themselves.

 

 

 

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