A Sizzling Summer

For the third month in a row, fund returns were positive, helped by a strong performance from our stock holdings. Global shares outperformed bonds as investors became more sanguine about the prospects of near-term economic weakness (in the US economy) being avoided. Better growth outcomes coupled with falling inflation has fuelled investor optimism over the past three months.

Share markets picked up from where they ended in 2023. After an initial wobble, global shares finished the month higher, as investors continued to see reduced risks around the outlook. Inflation is easing globally, and interest rate cuts are looking likelier. Bond markets are optimistic on the timing and magnitude of these cuts. This creates two-sided risks; an inflation resurgence could see bonds sell off, whilst a slowing economy or a shock could see bonds rally further. Our corporate bond holdings have performed well, handily outperforming government bonds of similar maturities over the last few months. After this strong performance, we continue to reduce our exposure, whilst retaining conviction that they remain solid investments.

January delivered outperformance for our stock picks (vs the broader market). Pleasingly, we had good wins across all regions for some of our largest holdings. Standout performer was US hospital operator HCA Healthcare, up 12.6% on the back of strong reported earnings and outlook. Other global performers were payment software company Fiserv (up 6.8%), AI beneficiary Meta (up 10.2%), and ongoing performance from ride-hailing company Uber (up 6.0%). We had good performers locally too, with Australian pharmaceutical company CSL and NZ infrastructure company Infratil both up 5.3%.

The stunning three-month rally in shares and bonds has been a rising tide for our funds. This rally reflects reduced risks around the outlook, amid an optimism that policymakers can deliver a soft landing for the economy. Whilst the rally looks to have run a little ahead of the fundamentals, a more benign backdrop is one that is ripe for stock selection. Share market valuations are elevated, but we continue to find attractively valued investment opportunities that can boost returns going forward.