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Investing highlights & lowlights — May 2016

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Investing highlights & lowlights — May 2016.

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

  • All our New Zealand portfolio companies reporting March full year profit results performed well, with most exceeding analysts' earnings forecasts. Fisher & Paykel Healthcare continues to perform exceptionally well, and after a poor first half, Mainfreight delivered a much improved second half result and said momentum has continued into the current financial year. Although Metro Performance Glass delivered a full year result in line with forecast, it has yet to reap all the benefits of the strong new housing market and record orders for new commercial building work. Now that it's new Auckland plant is running well and new commercial work is about to start, earnings should be much improved going forward.
  • A solid return for the Australian fund over the month was well ahead of the broader Australian market. Technology One again reported strong sales growth and great progress on its cloud distribution platform. Portfolio heavyweight Ramsay Healthcare was up on indications of promising cost savings, and smaller healthcare holding Nanosonics also rallied as changing regulations governing hospital disinfection practices favoured its Trophon solution. Credit Corp's share price responded positively to upgraded guidance for debt ledger purchases that will benefit earnings in future years. We exited Flight Centre as the increased share of low-cost airlines in the travel market is negatively affecting the company's profitability. Toxfree Solutions shares were weak after it announced that key customer Chevron is potentially retendering its waste services contract in Western Australia.
  • Despite one of the weakest earnings quarters since the global financial crisis, most of the companies in our International portfolio delivered solid first quarter results. We added two stocks, Descartes a Canadian company that provides logistics software that allows businesses real time monitoring and control of goods across their supply chain, and Zoetis, a global leader in the animal health industry, for both livestock and pets. Both companies have strong moats and good long term growth prospects.
  • New Zealand reporting season has started well for the Property & Infrastructure Fund, with our three New Zealand listed property trusts (Goodman Property Trust, Kiwi Property Group, and Stride) all delivering solid revaluation gains and rental growth for the year. Kiwi Property Group's share price pushed higher in May on final details of its acquisition of a 50% stake in The Base, the dominant regional shopping centre in Hamilton, and further news regarding its planned expansion of the Sylvia Park shopping centre. Two detractors from performance in May were our US railroad investments, Norfolk Southern and Union Pacific, which retreated after strong share price performance in April and continued weakness in industry coal and intermodal volumes.
  • Fixed interest markets in Australasia were the stand-out global performers last month, driven by a surprise rate cut from 'across the ditch'. Our portfolios, which currently favour New Zealand and Australian fixed income assets, benefited strongly from the move. We continue to favour these higher yielding fixed interest markets over most of their global peers. The only thing holding back our fixed interest portfolios in May were our holdings in cash and other similar short-dated investments. In strong markets, these low returning investments can be a drag on performance. But in just the same way, the stability of these assets can help protect the portfolios in weak months.

 

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