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Investing highlights & lowlights —October 2018

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Investing highlights & lowlights —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 Growth Fund

 

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.


Australian Growth Fund

 

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 Growth Fund

 

Our portfolio was down 8.2% in October after global markets experienced one of the biggest monthly declines for shares since the global financial crisis. In the US, the 7% fall in the S&P 500 Index made it the worst month since September 2011.

In contrast to the weak market, results from earnings season during the month showed that most listed US companies are growing strongly with earnings growth an astonishing 26% for the quarter.

The volatility did create opportunities which we took advantage of, adding Chinese company Tencent to the portfolio. Tencent Holdings is a leading Chinese video game and social media company that we have followed for quite some time. The firm’s WeChat social media and messaging app puts it front and centre of the lives of over one billion users and offers a multi-year, powerful earnings growth runway protected by a wide network moat.

Dialysis care provider, Fresenius, delivered disappointing results during October and was the biggest detractor from performance. Revenue growth in the third quarter of 3% on a constant currency basis was lower than expected, impacted by weak emerging markets and US growth that was slightly below expectations. While the result was disappointing, Fresenius services a kidney dialysis market that we expect to grow steadily and profitably over the long term, despite occasional quarterly volatility.

 


Property & Infrastructure Fund

 

The Property and Infrastructure was down  2.0% for the month of October. After underperforming global sharemarkets all year, infrastructure sharemarkets sharply outperformed during the month.  The more stable cashflows and higher dividend yields that property and infrastructure shares offer compared to the broad sharemarket create a safe haven status for this asset class.    


Income Fund 

 

In an otherwise disappointing month for most global fixed income markets, the portfolio maintained its value. In a repeat of last month, rising interest rate expectations put downward pressure on the value of high grade, safe-haven fixed income assets. October added another layer of concern for investors with worries that higher rates will feed through to weaker company profitability. This caused corporate bond valuations to weaken. We continue to be cautiously positioned.

 

 

 

 

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