InvestNow News 11th Oct – Pie Funds – CIO Report: Keep calm and carry on evaluating cashflows
7th October, 2019 – Mark Devcich, Chief Investment Officer
This quarter has seen a continuation of strong equity market performance. Falling interest rates drove the NZX50 up 4.0%; the New Zealand 10 yr fell from 1.6% at 30 June to 1% by 30 September. During the quarter, the RBNZ also cut the official cash rate by 50bp, a rare double cut, given concerns around flagging business confidence in NZ and external trade shocks. Term deposit rates have fallen in tandem and further boosted the NZ equity market. Fully imputed dividend yields on defensive utility stocks are still yielding ~5% gross compared to a 2.7% on a one-year term deposit. The other implication has been a falling NZD, which fell from 67c to 62.5c during the quarter.
The Australian large-cap ASX200 and ASX Small Industrials were up 2.8% and 4.2% for the quarter including dividends. However, selective stock-picking has enabled us to outperform the market quite substantially despite holding high cash levels averaging 30-40% over this time.
Globally we have seen disappointing economic data from Europe and Asia as these regions have substantial exposure to the manufacturing sector, which is detrimentally impacted by the trade wars. Europe is disproportionally affected as manufacturing accounts for approximately 25% of the economy, whereas in the US it is only about 11% of the economy.