A surprisingly strong month for stocks
It may come as a surprise to you - it certainly has been a pleasant one for me - but stocks staged a very strong comeback in May and all our funds with an exposure to equities had a great month.
It was a rolling start for our new KiwiSaver Aggressive Fund, which finished up 5.5% since inception earlier in the month. And the Australasian Growth Fund was our top performer, returning 8% for the month. You can speak to the team if you want more information on either of these products.
Special mention to our Portfolio Managers, Dealers and Analysts who’ve done a great job over the last two months navigating what has been an extremely volatile period. It’s been challenging to understand, as the dynamics and drivers of the market moves have been shifting constantly. So well done team, thank you for your hard work! Readers and investors, these guys and girls work tirelessly to be the best in a zero-sum game (for there to be winners, there have to be losers). And trust me when I tell you - it’s not easy.
A relaxation of tariff concerns, stronger than expected consumer confidence data, solid company earnings, and (remarkably) a robust US economy have taken stock markets to within spitting distance of the all time highs reached in February this year. From here though, there is some work to do to make new highs.
Looking forward, I feel optimistically cautious (after the recent strength shown by the market), rather than cautiously optimistic. Because there most certainly will be curve balls coming our way, of that I am certain.
Deficits, empires and Shakespeare
When I was growing up, my Dad always used to quote Shakespeare's Hamlet when referencing money: “neither a borrower nor a lender be,” he would say. I've never read or seen Hamlet - we studied Othello at school – but, to be honest, I found Shakespeare a complete bore. And so it wasn’t until much later in life (during the GFC, in fact) that I made a decent attempt to understand what advice Polonius was giving to his son before he left for France.
Essentially, whether you are borrowing money or lending money, you can wind up in a difficult spot - often leading to resentment, damage to your reputation or, worse still, conflict. I’m not just talking about the borrowers either - it can be the lenders too. And so this is the situation that many governments find themselves in: owing too much money, or having lent too much to a particular country.
Under the microscope currently is the US deficit. With the current predicament outdone only during wartime or recessions, the question on everyone’s mind is: How much longer can this continue? History is riddled with the corpses of failed economies that ran deficits, spent too much, tried to inflate away their debt and, ultimately, led their way to ruin.
During the American Civil War, the Confederacy’s dependence on printing money and accumulating unsustainable debt caused runaway inflation and a financial collapse. These economic pressures undermined the Confederate war effort and contributed significantly to its eventual defeat.
I could cite many other examples, so there is definitely precedent for investors to be concerned by the current “beautiful bill” that now sits with Congress and is expected to grow the US debt pile a few trillion more. But does anyone ACTUALLY care? Can’t the US just buy its own debt? And inflation seems well-anchored at 3%. Plus, the US is the reserve currency.
People have been worried about the US debt burden since I started Pie Funds nearly 20 years ago, and yet here we are. The difference now is that it’s not just tomorrow’s problem - it’s today’s.
For example, interest payments on debt now exceed military spending. Historian Niall Ferguson has written on this very point, describing how the downfall of the Roman, Spanish, and British Empires was, in part, due to financial stress - the tipping point being when debt servicing exceeded military spending. Of course, these things don’t happen overnight, but the stage is now set.
The current goal of the US administration appears to be that they can grow their way out of this (rather than reduce the deficit by cutting costs and tariffs). Time will tell.
For us, in the here and now, we’re keeping a watchful eye on interest rates. Further rises from here will be problematic for stocks. But for now, the bulls are running, so we run with them.
Information is current as at 31 May 2025. Pie Funds Management Limited ("Pie Funds") is the manager and issuer of the funds in the Pie Funds Management Scheme and Pie KiwiSaver Scheme (the Schemes). Any advice is given by Pie Funds 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 Schemes' 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 statements for the Schemes, 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. The information is given in good faith and has been derived from sources believed to be reliable and accurate. However, neither Pie Funds nor any of its employees or directors gives any warranty of reliability or accuracy and shall not be liable for errors or omissions herein, or any loss or damage sustained by any person relying on such information, whatever the cause of loss or damage. No person, including the directors of Pie Funds, guarantees the repayment of units in the Schemes or any returns of units in the Schemes.