May was a difficult month for many of the Australasian funds with the global funds faring better.

EML Payments, the largest and a longstanding position across our funds, had an unexpected regulatory investigation announcement regarding the activities of an acquisition they made last year in Ireland. Unfortunately, EML couldn’t discuss many details on the investigation which added to the uncertainty and investors sold the shares off. The share-price declined ~35%, after having already fallen 10% from recent highs. A fall of such magnitude requires a reassessment of the investment thesis. Although there is high uncertainty, the gravity of the situation is unlikely to represent anywhere near a fall of $800m in market capitalisation when the usual outcome is a six-figure fine. With any payments business doing billions of dollars in transactions, a small portion of transactions will always be suspicious. It is ensuring the requisite controls are in place to prevent or detect these transactions happening and EML can probably bolster its controls in these areas to appease the regulator.

Growth stocks struggled in May as developed economies continued to re-open and investors increased exposure to cyclical and recovery stocks. Since February, the cohort of stocks with the fastest revenue growth have declined the most as more of their valuation is derived from cash flows far in the future which are most impacted by a rise in interest rates.

We attended the first in-person conference in Sydney during May and were surprised at how busy the restaurants and cafes were. It was great to see fellow investors in person. The Australian economy, especially NSW, is on fire as consumers feel wealthy due to high house prices, elevated savings levels and great job prospects, although businesses are struggling to keep up with demand given supply shortages and a tight labour market.

What is indeterminate currently is whether a higher inflationary outlook persists.

Markets that have more exposure to value versus growth stocks have outperformed this year. The NZ market has high exposure to growth stocks such as Fisher & Paykel Healthcare and defensive infrastructure stocks which are sensitive to interest rate movements. It has underperformed the Australian market which has more exposure to banks and resource companies which do better in a rising interest rate environment and strong economic growth environment. The NZ market is down ~6% YTD whereas the Australian market is up ~8% (in NZD).

We continue to find many opportunities and have invested in a number of IPOs recently that look attractive but are also wary of those that are coming to the market opportunistically with shareholders looking to sell out.

Once again, thank you for entrusting your capital with us.

Information is current as at 31 May 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.