Newton’s 1st Law: An object in motion remains in motion

February delivered broadly positive fund performance for the fourth month in a row. The year-to-date theme of strong shares and weaker bonds persists, with notable outperformance of global shares over NZ and Australian shares.

The past month has seen companies around the world reporting results, keeping Milford’s investment team busy as we assess the outlook for our holdings. It was pleasing to see some strong results from our key holdings. Technology companies and excitement over AI is garnering plenty of attention, and our funds have been invested in companies along this theme. Meta is a core holding and announced impressive annual revenue growth of 25%, sending the stock up 26% last month and 50% over the past three months.

Uber Technologies is another stock we have invested in heavily. The company is focused on becoming a blue-chip investment and this is paying off as the shares rallied 22% last month and 41% over the past three months. Some lower profile stocks are also delivering solid returns. For example, Spanish airport operator Aena has been quietly rallying over the past few months, including a 6.6% gain in February.

Australian and NZ shares were clear underperformers, but company reporting continues to offer opportunities for stock picking. In Australia, property company Goodman Group continues to be a solid performer, up 18% in the past month as its strategy of investing in data centres resonates with investors.

NZ shares are persistently lagging global peers and we remain firmly underweight. We have also largely avoided exposure to the cyclical industries, which are struggling as household finances are under pressure from higher mortgage rates. Compared to where we were a few short months ago, there has been an impressive turnaround in markets. Strong, consumption-led growth in the US has offset weakness elsewhere and fears of recession, or the impact of it on company earnings, has receded.

This optimism has seen a surge in bond yields this year. But so far, yields have yet to move high enough to stop the momentum in markets – particularly the red-hot AI-related thematic. A more benign outlook provides fertile ground for stock picking. Whilst we are wary of the pace and narrowness of the rally so far, it does appear to be the result of “rational exuberance” rather than a broad bubble at this stage.