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Monthly Report June 2020


Returns


Return  volatility

All returns are in NZ$ 30 June 20 3 months 12 months Since
inception pai

Since
inception pai

Aspiring Fund

1.56% 14.15%  5.33%   10.57%
    9.36%

New Zealand Equitiesii

5.23% 16.89% 9.05%     8.90%
   11.82%

Australian Equitiesiii

2.11% 21.99%  -5.01%     5.58%
    16.68%

World Equitiesiv

-1.26% 9.92%  7.10%    6.20%
    12.83%
i February 2006, ii NZX50 Gross, iii ASX All Ordinaries Accumulated, iv MSCI World Equities Total Return

Unit Price

$3.9833


Asset Allocation

New Zealand Equities

36.4%

Australian Equities

12.1%

International Equities

29.6%

Bonds

1.4%

Total Cash

20.6%

Short Equities

-1.2%
Net Fund Value $418.6m


The Fund's main direct currency exposures at month end were - NZD 47%
, AUD 20% , USD 26%


The Fund returned 1.56% in June, weathering elevated intra-month market volatility but negatively impacted (-1.3%) by strong appreciation of the NZD on offshore investments.

Global Equities markets began June as strongly as May ended. The MSCI World Equites Index was up 6.6% at highs in the second week of month. However, momentum then turned sharply, and following a subsequent fall of 3.7% World Equities finished the month up 2.6%.  

This inflection in market direction was particularly evident when looking at average stock returns across markets. On an equally weighted (or average stock basis) US S&P500 stocks rose 9.7% at highs before falling 7.4%. Similarly, for companies in New Zealand’s top 50 index, stocks rose 9.8% (on an average stock basis) and then declined 5.8%. 

Supported by the euphoria of economies opening up across the World, investor confidence and momentum ruled early in the month. As an example of extraordinary risk appetite, after filing for Chapter 11 bankruptcy protection on May 22nd, Hertz shares rose 896% to highs on June 8th when the company’s equity value (US$786m) was almost double where it was prior to filing! The buyers of Hertz were the ‘wealth seeking’ younger investors we touched on in our May Newsletter. The number of Hertz investors (gamblers) on Robinhood (the commission free, retail trading platform) surged by over 100k in a buying frenzy. Hertz shares subsequently crashed by 75%.

On 11-June a new COVID outbreak was detected in Beijing that saw a partial shutdown of the city. Chinese officials talked of “wartime mode” to contain the virus as 76K people were tested on the following Sunday. Concurrently, virus spread reaccelerated in the US’ early reopening States (see chart below). Hospital capacity issues resurfaced in Arizona, and bar closures were mandated across California. No coincidence, market direction changed at this time. Corporate updates from the likes of Starbucks and Disney further highlighted the uncertainty in the trading environment ahead.

 

 



We expect virus and vaccine news to continue to impact investor sentiment, with ongoing conflicting information likely to see volatility continue until vaccine deployment is more certain. As an example, the CEO of Pfizer fuelled the bulls with a prediction of the company producing 100m vaccine doses this year. At the same time a senior official from the World Health Organisation said successful development of a vaccine “could take years”. What to believe?

What seems increasingly likely is the NZ economy missing at least a few seasons of peak Summer Tourism activity (our Auckland Airport thesis assumes 2019 tourist numbers do not return until 2026). Despite more positive recent data (aggregate NZ credit card debt back to 2016 levels, retail spending surge post lock-down) we are taking particular caution with more cyclical business investments. Recent virus outbreaks in Melbourne and difficulties at our border add further threat to Australasian / Pacific bubble timing.

Despite this market backdrop, the Fund had very few negative detractors in June and the majority of the Fund’s equities portfolios had pleasing performance. Of note, our NZ Portfolio returned ~3.5%, and our International (ex ANZ) portfolios were up over 4% (local currencies).

The Fund’s unhedged currency exposure, and a material 4% appreciation of the Kiwi dollar materially impacted the Fund’s NZD returns during the month. The NZ TWI (trade weighted currency) is now trading in-line with its ~15yr average range. In what we view as non-normal risks to the NZ economy we favour the diversity and insurance in our unhedged currency exposure.

Our Australian Portfolio was up 2.4% in the month, with the key contribution coming from our core holding Cleanaway (+12.8%) on no particular news. Cleanaway’s share price has returned back to January / pre-COVID levels, and closer to where we deem fair value.

The International Portfolio was led by Tencent (+21.5% in June, and 33% year to date following an extremely strong Q1 result in May), Freeport +11.6% (as the copper price continued its recovery back to levels seen in January) and Amazon (+13%).

Amazon continues to provide tactical defensive characteristics against the virus threat (as a stay at home / online company) and strengthening long-term appeal as the dominant platform play for the New Retail future. At the time of writing, the stock is up 56% year to date, representing an equally staggering US$500bln increase in company value. To put the scale of this in context, blue-chip US retailer Walmart (founded ~75 years ago) has a valuation of US$385bln. We have taken the opportunity to take some profits in Amazon.

In New Zealand, Tilt Renewables (+10%) was the Fund’s key winner. Our recent discussions with management unsurprisingly confirmed the business is on track and remains well positioned to capture ongoing investor attraction to their stabilised assets and development pipeline. This investor interest was highlighted by multiple takeover bids for Australasian peer Infigen Energy, which saw its share price rise 57% in the month.

We continue to be offered large institutional investor deal-flow and have been active establishing new positions and adding to old favourites. An example of the latter is EBOS which returns back as a Top-10 Fund holding following the $323m sell-down from a large holder. We like the business, management, and the valuation of its shares.

Midway through an unpredictable year, the Fund was down 3.4% and July has begun positively. While it is easy to be blindsided by equity benchmark returns driven by high concentration in a few large companies, as an index unware and highly diversified Fund the chart below shows our investment positions have traversed the market environment reasonably well. Average large cap stock returns are still firmly in the red across most markets (down ~14% in NZ, -9% in Australia, and -11% in the US), as are small company index returns, indicating opportunities still remain. Australian large company index performance (-10%) has been particularly weak with high exposure to Financials which we have luckily avoided.




Our investment thesis remains unchanged. We continue to see low interest rates providing an enduring investor push to risk assets medium-term. We note Fed Chairman, Jerome Powell, recently commenting “we’re not even thinking about raising rates” until 2022. Nearer term we expect the combination of still depressed share prices and market volatility to present investment opportunities for the Fund.


Top 10 Holdings


Amazon

4.1%

Infratil

3.7%

Tilt Renewables

3.7%

Contact

3.4%

Alibaba

3.2%

EBOS

3.0%

Cleanaway

2.7%

Google

2.6%

a2 Milk

2.4%

Grifols

2.0%


Disclaimer :  The information contained in this newsletter reflects the views and opinions of the issuer of the Aspiring Fund, Aspiring Asset Management Limited.  The content of this newsletter is not intended as a substitute for specific professional advice on investments, financial planning or any other matter, and does not take into account any particular investor’s objectives, financial situation or needs.  Investors should seek the advice of an authorised financial adviser before making any investment decisions. Although the information provided in the newsletter is, to the best of our knowledge and belief correct, Aspiring Asset Management, its directors, employees and related parties accept no liability or responsibility for any loss, damage, claim or expense suffered or incurred by any party as a result of reliance on the information provided and opinions expressed in this newsletter, except as required by law.  Please also note that past performance is not necessarily an indication of future returns.

For further information please read/request a copy of the Product Disclosure Statement for the Aspiring Fund (available at www.aaml.co.nz) or contact Aspiring Asset Management..