Milford as a financial services provider, is deemed an essential service. You will have heard from our CEO, Mark Ryland we continue to be open for business, albeit without physical meetings. The Milford team is fully resourced and continue to actively manage your investments from remote locations.
The Covid-19 outbreak continues to unfold with cases in the developed world accelerating and authorities implementing lockdowns and physical distancing measures. Aside from the health impact to people the world over, the significant impact on economic activity over the coming months is being filled by fiscal responses from governments. This includes loans to businesses, support for wages and spending on healthcare and other priority areas. The size of these fiscal responses is escalating daily and central banks are also acting to provide support, for example government bond markets over the past week.
With such a rapidly changing environment, markets are finding it difficult to quantify the extent of the economic slowdown, let alone price each company’s earnings over the coming one or two years. There is increasing acceptance from market participants that the scale and duration of lockdowns will be larger and longer than at first hoped. As a result, global share markets have been struggling to find a point at which prices are supported, namely a ‘bottom’.
Our previous updates have outlined how our funds have been defensively positioned yet not immune to the market falls globally. We have been active in mitigating risk and increasing overall cash levels, balanced with increased exposure to companies we consider well positioned in this environment and maintaining exposure to equities to the extent that we are not excluded from market rallies as and when they occur. Some examples below:
- Our funds exposure to shares has been reduced significantly, for example, our two largest funds, the Milford Active Growth Fund (both the KiwiSaver and Investment Fund version) has a share exposure of around 50% (in a ‘normal’ market, neutral share position would be 80%) and our Milford Diversified Income Fund has a share exposure of 10% (neutral share position 40%).
- We have reduced or eliminated exposure to directly impacted businesses. For example, we own no shares in Air New Zealand Limited or Tourism Holdings Limited.
- We have significantly increased our exposure to companies that directly benefit from the Covid-19 outbreak. For example, Fisher & Paykel Healthcare Limited is one of our largest individual shareholdings in the Milford Active Growth Fund.
- We hold significant amounts of cash in our funds. For example, the Milford Diversified Income Fund has a total of nearly 50% cash (including cash equivalents) and the Milford Active Growth Fund has around 36% cash measured in the same way.
The rapid fall in markets will no doubt create opportunities to invest in great companies at very attractive prices over the medium to long term. However, we maintain our disciplined approach and we will actively consider opportunities for new investments as the pathway ahead becomes clearer. Patience is required, and with significant cash holdings, we’re positioned well to take advantage of these opportunities and invest capital when the time is right.
We appreciate that this is an unprecedented time in New Zealand. At Milford, we have many years of collective experience to draw upon combined with our New Zealand quality of resilience. The Milford team are personally invested in the same funds you are and we understand the impact current market activity is having on your investments. We will continue to keep you updated regularly and in the meantime should you have any questions please get in touch with a member of our Investor Services team.