Reassuringly expensive
September proved to be a solid month for returns, with broad gains across both bonds and shares. As a result, our suite of funds continued to build on their strong performance over the past year. Positive economic growth, coupled with easing monetary policy, is providing tailwinds to a market that remains expensive across both shares and bonds.
Much like consumers are adjusting to higher prices compared to a few short years ago, investors are also adjusting to valuation levels in asset prices that look elevated vs history. That’s not to say everything is expensive, we continue to find reasonably valued companies to invest in. Last month, we saw good returns from a range of our holdings, including technology picks AppLovin (+40.6%) and Salesforce (+8.2%), DIY retailer Lowe’s (+9.0%) and Spanish airport operator Aena (+8.2%).
Last month saw a surge in activity in the NZ share market, with capital raises and takeover activity. Corporate issuance of shares has weighed on the NZ market (the NZX 50 ended the month marginally lower), and there might be more supply to come. But it did start to clear the decks for a clearer run ahead, especially if delivered rate cuts can start to alleviate the economic malaise. One beneficiary of last month’s corporate activity was infrastructure investment company Infratil, whose shares rallied 11%.
Australian shares outperformed last month, particularly materials companies, as China stimulus-measures boosted sentiment. Key pick, mining company BHP, rallied 12.7% and our Australian funds performed well, particularly the small cap-focused Dynamic Small Companies Fund (+3.5%).
With many central banks cutting interest rates, bond markets continue to deliver positive performance. However, much already appears to be in the price, and we are wary that long term bonds are vulnerable to a reversal. As a result, our holdings are concentrated in the less interest rate sensitive shorter maturities.
The investment backdrop is supportive of asset prices. But we are wary of those higher valuations and the looming risk event of the US election. The policy mix in the US could look quite different depending on the outcome. Markets are likely to remain choppy until we can get this event behind us.
