Article written by Fisher Funds – 8th April 2021

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 Growth Fund returned 4.6% in March.  Corporate travel software provider Serko (+22.0%) provided two positive updates. Firstly, booking volumes are reaching their highest rate since the onset of COVID as Australian inter-state travel rebounds following the easing of restrictions. Secondly, its ‘Booking for Business’ partnership with Booking.com has commenced migrating customers to the new Serko-powered platform, which will be a material revenue driver for the company in the fiscal 2022 year and beyond.

Retirement village operator Summerset (-5.5%) shares fell as the New Zealand government announced a housing package to support first home buyers, increase housing supply and tax on investors. The changes are expected to reduce investor demand for existing housing and curb strong recent house price growth. This is a potential negative outcome for retirement village operators who rely on prospective residents selling houses to fund moving into a village.

Australian Growth Fund

The Australian Growth Fund returned +2.9% in March.  This compares to +3.15% return for the ASX 200 Index (70% hedged into NZ$).

Pathology business Sonic Healthcare rose +11.9% as Europe’s COVID-19 vaccination programme continues to flounder as another wave of COVID has seen infection rates rise again.  Sonic operates a large number of labs that processes COVID-19 swabs including in Germany.  It therefore benefits from any increased COVID testing activity in these jurisdictions.

Our small (less than 1% of the portfolio) position in wellbeing software provider Limeade (-41.8%) had a tough month.  Limeade signed up fewer customers than the market had hoped for in the six months to December.  However, this was impacted by COVID-19 and its longer term growth prospects remain bright.  The pandemic has increased the importance for organisations to track and improve the wellbeing of what is likely to be a more geographically fragmented work force post COVID. This is evidenced by a stronger customer pipeline than pre-COVID.

International Growth Fund

The International Growth Fund ended the month up 3.5% versus the benchmark up 5.1%.

March, and the first quarter of 2021 were dominated by rising bond yields and a value-led equity market rally. The S&P 500 index was up 4.2% for March, with value up 6% and growth underperforming, up 2.6%. It is now just over a year since equity markets bottomed. The S&P 500 has rallied 78% since then and is 17% above its pre-Covid high. The 10-year US Treasury bond yield now stands at 1.74%, vs. 0.5% at the low in August and 0.9% at the start of the year.

Dollar Tree (+17%) company’s initiatives continue to perform well. The discount store operates two banners, Family Dollar, which sells everyday items, and Dollar Tree, which sells more discretionary items for special occasions. Family Dollar has been a covid beneficiary and sales momentum remains strong. Dollar Tree will benefit from the US re-opening as people start getting together once again to celebrate birthdays and the like.

Facebook (+14%) share price has been supported by growing consensus and commentary from CEO Mark Zuckerberg that changes Apple has made around advertisers ability to track users on Apple devices will have limited effect on Facebook and may even be positive for Facebook’s shopping product.

Adidas (-7%) was lower after Chinese consumers retaliated against the EU, the UK and Canada’s decision to impose sanctions on Chinese officials due to ongoing reports about forced work on the Uighur ethnic minority in Xinjiang’s cotton industry. Adidas had already decided not to source cotton from Xinjiang in 2019. Swedish retailer H&M has been one of the hardest-hit brands with Nike and Adidas still selling well on the few data point we have.

StoneCo (-28%) is a payments provider in Brazil. While shares were lower in March, they are still up 200%+ over the last year. Recently, there has been weakness in the share price as investors rotate out of ‘growth’ companies in favour of ‘value’. At the same time Brazil’s poor handling of covid-19 is likely to impact the country’s economic fortunes.

Property & Infrastructure Fund

The Property and Infrastructure Fund was up +5.8% in March. Wind farm owner and developer Tilt (+22.9%) received an offer to acquire its business for $7.80 per share, almost twice the pre-takeover trading level in December. The high price reflected the significant value in Tilt’s project pipeline for new wind farm developments. While we are reluctant to sell our shares in companies that have a strong outlook, we feel the current offer fairly values Tilt’s business.

Vienna Airport (-6.3%) and Zurich Airport (-3.3%) presented a more subdued outlook for traffic and earnings in 2021 as the current COVID wave in Europe receding slower thanpreviously expected, delaying recovery prospects.

Income Fund 

Our investment into Kennedy Wilson Europe Real Estate Limited was a portfolio highlight this month. Despite the pandemic, the company’s property portfolio (predominately office) maintained relatively steady occupancy levels during 2020 and given an expected rise in business activity across the United Kingdom and Europe, leasing activity will likely increase during 2021.

Another portfolio highlight this month was the fund’s exposure to the Altice group, a French-based broadband and mobile service provider. The group issued a robust set of accounts for the 2020 financial year which reflects its leading market positions in several EU markets. Management guided for an uplift in profitability and cash flow for the current fiscal period.

Finally, the fund’s position in the Irish banking group Permanent TSB also boosted performance in March. The bank issued a steady set of 2020 annual results and maintained a very strong capital base which underpins our investment thesis. The bank’s asset quality (i.e. the ability of their customers to pay their mortgage) should continue to improve as the Irish economy improves. Households have also built up a considerable savings pool during the pandemic, putting them in a far better position than is typical when an economy exits a downturn.

On the flipside, rising long term wholesale interest rates continued to be the major theme across global fixed income markets as investors continue to raise their expectations for economic growth and inflation. When interest rates rise, like they have recently, the value of all the previously issued bonds decreases. This is because newly issued bonds come to market with higher interest rates, making the current stock bonds less valuable to investors. This impact continued to weigh on portfolio returns in March.