9/8/2021 12:00:00 AM

CIO Report: Growth stocks fare well


Chief Investment Officer Mark Devcich discusses the latest market conditions.

August was a strong month across the board especially for Australasian markets. Reporting season was a particularly buoyant period with the small-cap end of the market performing well. This may seem counterintuitive as NZ went into a hard lockdown and lockdowns in many states of Australia were extended, which is severely curtailing economic activity. We had some particularly good share-price reactions from large holdings across the portfolios including EML, Uniti Group and Macquarie Telecom.

A number of Australasian retailers and service-based industries had dire trading updates for the current financial year as mobility restrictions have impacted trading. Fortunately there is some light at the end of the tunnel of lockdowns with NSW set to ease restrictions once full vaccination levels reach 70% - a precedent NZ hopefully will follow. Globally there are also concerns around logistics cost inflation due to skyrocketing shipping costs and supply chain disruptions in Asia. We have become acutely aware of this issue and have moderated our holding sizes across some positions we believe may be impacted by escalating costs of inventory.

Globally, most markets performed well in August and growth stocks also fared better than value which our funds are more leveraged to generally. The much-awaited speech at Jackson Hole by Federal Reserve Chair Jerome Powell suggested inflation concerns were mainly transitory which appeased markets.

The strength of markets this year, with such little volatility, have been a little surprising given the strong rebound last year from the lows in March. This year stock prices have been driven more by earnings improving rather than multiples expanding which is encouraging and with interest rates still extremely low, equities look an attractive asset class.

A number of positions received takeover bids during the month including Z Energy in NZ and Afterpay in Australia. This thematic is likely to continue, especially for those assets that have been out of favour with public equity market investors. A number of our positions recently have performed well after executing significant accretive acquisitions which make sense given the low cost of funds that are available.

Once again, thank you for entrusting your capital with us.

Information is current as at 31 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.