8/23/2021 12:00:00 AM

Market Update - August 2021

Welcome to the August market update.

In our latest video, we were joined by Mark Devcich, Chief Investment Officer and Portfolio Manager. We covered off these questions.

  • We are in another lockdown - what impact is this having on the NZ share market? 
  • The Reserve Bank has delayed increasing rates, but have signalled it may increase them through next year and beyond. What impact will this have on the share market, property market, mortgages, term deposits etc?
  • Reporting season is in full swing. So far, what are the standout performers in the Australasian funds?
  • Danish healthcare company Novo Nordisk, along with healthcare stocks in general, has done well. What's driving this, and what's exciting about this specific company?

    We have also included a transcript.

    Kind regards,

    Mike Taylor
    CEO + Founder



    Transcript:

    Sam de Court: Hi everyone, my name is Sam De Court, and joining me today is founder and CEO Mike Taylor and Chief Investment Officer Mark Devcich. Here we are again back at our homes recording our videos. So Mike, we’re in another lockdown. What impact is all this having on the New Zealand share market?

    Mike Taylor: Very muted. I think the first day, the first couple of hours, some stocks were down. And we've seen a reversal of that, back at the back end of last week. Why have we seen that? I think it's because everyone's got the playbook for this. We've seen how lockdowns work before in New Zealand, we know what happened last year, and it's not really a case for share market investors to panic.

    SDC: So obviously last week what we saw was the Reserve Bank delaying increasing interest rates, however they made it pretty clear that they're going to probably steadily increase them through next year and beyond. What impact do you see this having on New Zealand share market, property market, mortgages, TDs (term deposits) etc?

    MT: So if we assume the lockdown only goes for a sort of a two to four-week period, then it will have a very small, limited effect on the New Zealand economy going forward. And if it has limited effect, then that's not going to change the RBNZ’s guidance or outlook for interest rate increases. So, yes, it was prudent to hold off a rate increase in August, but if we’re back out of lockdown in October, we can expect that the RBNZ, as they signalled in their NPS update just last week, that rates will be going up so we can expect a rate increase in October, and then further ones going through to next year till they get to a point where they've normalised the OCR to around say 2%. What does that mean? Well most of that is actually already priced in by the market. So there shouldn't be too much change for TDs or mortgage rates going forward because it's already kind of priced in. However, the shorter term of the curve, which might be one-year term deposits or one-year mortgages, they will rise as the OCR rises in the coming 18 months.

    SDC: Alright thanks Mike. Mark over to you now. So we're obviously getting towards the end of August, and this is famously the busiest month generally for the Pie Funds investment team. I know you guys generally have Do Not Disturb signs around your necks and you're working through many of the weekends. Can you please talk us through why this month is so busy. And what have been the standout performers that you've seen in the Australasian funds?

    Mark Devcich: It is a very busy time, especially heading into the end of August, Sam, and that's because the Australian companies which have 30 June balance dates have to get out their full-year reports by the end of August. So just two highlights that we're seeing so far. We’ve got one more week left of reporting season but some of the good positions have reported so far. EML, this is our largest position across Pie Funds. This is going to be a very interesting result because they’ve had a regulatory issue with the Central Bank of Ireland which has caused the share price to be quite weak recently, and on the result, they came out and they came in line with the guidance that they’d given. But what was more interesting was the commentary around how that remediation is going. I guess what has happened is the worst case scenarios have been taken off the table, it looks like, so they're not going to lose their licence, they can still issue programs, the underlying momentum in the businesses is really strong, and the earnings is still looking really, really strong. So it's actually a really interesting scenario and we think EML has got a lot more upside and probably can recover back to where it was before the regulatory issue.


    The second one is a company in the Emerging Companies Fund and we've owned it for some time, called Atomos. What they do - if you’re not a camera buff -  they have a video recorder that you attach to cameras, and even though they're pre reported their result, they came out and reported a result that was slightly better than what they said they would. Stock has been up about 30% in the last few days, and I think people were finally realizing that Atomos has one of the only solutions in the market that enables you to record Apple ProRes Raw. So what is that? Well that's a new kind of high quality, resolution format for video and allows you to edit it on Macs and they've got one of the only solutions in the market. So if you go out and buy a camera these days, it's pretty much going to have ProRes Raw enabled. Atomos is the only way you'll be able to record that kind of video at the moment, so it's gonna be a lot of strong demand and they've also got a couple of new products coming to market. They've got a live streaming video recorder which is going to be really good for those social media influencers out there - maybe you’ll buy one yourself Sam - and a gaming video recorder so for those gamers, I'm not a gamer, but there's a lot of gamers out there, especially the younger generation. That is used to record yourself playing games and also videos of the in-game playing as well. So, Atomos is looking good. It has struggled for a while -  there was a founder transition -  however, we think that stock can go back to all time highs as well.

    SDC: Two interesting examples there Mark. Mike, back to you. Healthcare is obviously a very strong theme and it's talked about a lot in the investment circles. One of the standout performers in the Pie Funds investment team at the moment has been Danish healthcare company Novo Nordisk, can you maybe tell us a little bit about this company?

    MT: I think one of the things why healthcare stocks have been benefiting this year, just going away from a less specific point of view, is that healthcare stocks have got quite good pricing power. So if there is an inflationary period, then these are very defensive names to hold so we've had that to start the year. Then also we have seen with multiple waves of Covid-19 that the vaccine players such as Pfizer, Moderna, AstraZeneca performed particularly well this year so the healthcare sector as a whole has done well. 

    Looking at Novo Nordisk specifically, they've come up with this revolutionary drug, which has had FDA approval called Wegovy. Now that's a drug that targets people who are obese or sort of severely overweight, and what it does is it interacts with a part of the brain, which regulates your appetite. So as you can imagine, the level of obesity particularly in the US, is a growing and significant problem. So, there's the potential for this drug to be what we might call in the industry, a real blockbuster. So if that happens, and it is taken up and used widely, then this will be a huge boon for this company. 

    SDC: Mike, Mark, thank you so much. Thank you everyone for watching, have a fantastic month ahead and fingers crossed we're recording the next video from the office.



    Information is current as at 23 August 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information.? Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.?