Once again, this year has again been a prosperous one for investors in our local share market. The market benchmark, the NZX 50 Gross Index, has rallied +21% since the beginning of the year.
However, looking at the detail of individual stock returns there is a clear trend. Standout returns delivered by a handful of stocks drove the market. Without these key contributors, the headline return for 2017 would have been far more mediocre.
a2 Milk, Fisher & Paykel Healthcare and Xero were the standout performers in 2017. They rallied +273%, +62% and +69% respectively and together they contributed 10.7% to the overall index return of 21.0%. The performance by a2 Milk alone added 5.4% to the index. Meanwhile Fletcher Building, one of the poorer performers with a share price decline of 22%, detracted 2.5% from the index.
NZX 50 Gross Index: +21.0% year to date, stock selection has been key
Source: FactSet (Return period is 31 Dec 2016 – 14 Dec 2017)
The clear message from this is that stock selection was important to achieving a reasonable return in 2017. Depending on whether you avoided the poor performers and held the standouts would have made a large difference to your overall return. This is taking an active approach to investing.
At Milford, we take an active approach to investing. We do not simply buy and hold the market. We research and interact with hundreds of companies each year to assess where your money should and shouldn’t be. We aim to identify the best opportunities across all markets and asset classes we invest in. And as markets change, we constantly re-evaluate our investments.
Across the New Zealand share allocations of our funds this year we held far more a2 Milk, Fisher & Paykel Healthcare and Xero than Fletcher Building. Right now, we are working hard to find the next standout performer.