Summer Growth Selection

How did your portfolio perform? 

The Summer Growth Selection (the fund) delivered a return after fees and before tax of 2.47% for the month of April. For the 12 months to the end of April, the fund delivered a return after fees and before tax of 12.53%.

Whilst most of our individual asset class managers outperformed their respective benchmarks during the month the Global Equities Fund struggled, with all three of our global equity managers under-performing. We have multiple managers and investment styles to minimise the exposure to just one concentrated idea, however this diversification did not help us this month.

The twelve-month underperformance by our global managers is disappointing; we recently acted by replacing one of those managers in January this year. Please see more on this change in the Global Equities Fund commentary or on our website.

For details on the Growth Fund's single asset class funds, see the relevant commentary.

We actively manage the fund’s foreign currency exposures and hedge the international fixed interest segment of the fund. The New Zealand dollar rose 3.21% against the US dollar and fell -1.68% against the Australian dollar. 

What happened in the markets you invest in? 

Global equites produced an exceptional return over the month of April, more than reversing the losses driven by the start of the Iranian conflict. Whilst the US was very strong, based on exceptional first quarter earnings season, it was Emerging Markets and Japan that led returns in April.  Korea and Taiwan are positively exposed to the data centre and AI boom, and they were amongst the best performers.

The NZ equity market was largely flat – with reporting season not kicking off until May – whilst the Australian market delivered a return just above 2%. Both markets are less exposed to the AI theme, and neither of their respective economies were as strong as the US going into the Iranian conflict.

NZ listed property performed solidly, as investors focused on the defensiveness of their long-term contracted rents against a softer domestic economy.

Cash and fixed interest markets delivered modest positive returns, as the negative impact of the spike in inflation was largely captured in the April returns. 

What are we thinking about the future? 

Last month we noted that a quick end to hostilities would support a rebound. We did not see a peace deal in April, yet global equity markets recovered extremely well. As noted above, US first quarter earnings were materially stronger than our expectations, as was guidance for near term growth.

We have been under-weight global equities on valuation grounds for some time on a tactical basis. Although we have been adding recently as stock returns spread beyond the largest US tech companies, earnings expectations improved and market level returns flatlined. The April move in the market is supported by near term earnings revisions, but valuations are entering “new paradigm” levels for the market leaders, in our view.

Ever-rising profit margins and returns on capital are supportive of higher valuations, but we have been through productivity and new era technology driven growth before. In every single case, high margins have eventually been competed away. We see no sign of a slowing right now, but remain on the lookout for signs that competition will erode returns of these extremely profitable companies.

Other asset classes would all benefit from an enduring peace deal in the Middle East, with valuations currently ranging between fair value and attractive.