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Monthly Report May 2020


Returns


Return  volatility

All returns are in NZ$ 31 May 20 3 months 12 months Since
inception pai

Since
inception pai

Aspiring Fund

2.62% -2.36%  5.96%   10.52%
    9.38%

New Zealand Equitiesii

3.33% -3.36% 7.56%     8.57%
   11.79%

Australian Equitiesiii

6.10% -6.20%  -5.42%     5.46%
    16.73%

World Equitiesiv

4.44% 1.10%  12.21%    6.33%
    12.85%
i February 2006, ii NZX50 Gross, iii ASX All Ordinaries Accumulated, iv MSCI World Equities Total Return

Unit Price

$3.9221


Asset Allocation

New Zealand Equities

35.0%

Australian Equities

13.0%

International Equities

30.2%

Bonds

1.6%

Total Cash

20.1%

Short Equities

-1.0%
Net Fund Value $419.5m


The Fund's main direct currency exposures at month end were - NZD 47% , AUD 19% , USD 27%



The Aspiring Fund returned +2.62% in May, resulting in a year to date return of -4.9%.

These are quite extraordinary times. In the face of a generational rise in unemployment across the globe, ballooning public debt, and rising US / China tensions - unprecedented levels of monetary and fiscal stimulus and near zero savings rates, continue to drive investor attraction to equities.

Bond markets are being flooded by Central Bank buying which has resulted in 90% of government bond yields now trading below 1% (Deutsche Bank). Investors are returning to fixed interest funds with Citibank noting that high yield bond funds have recovered all of their March outflows. Strong demand is right across the risk curve. At the quality end, this is best represented by Fund holding, Amazon, who recently raised $10b of debt for a 3-year term at 0.4% pa!

Regular readers of our newsletter will be well versed in the strong influence low interest rates have on the valuation of shares. The question has been what will break the trend, will it be risk aversion sparked by the next economic recession? 

Well today, in a period which will undoubtedly be labelled as a recession, the TINA (there is no alternative, to equities) trade is alive and kicking. If TINA wasn’t enough, the fast turnaround in equities has sparked FOMO (fear of missing out), a dynamic which is clearly evident with elevated trading participation by retail investors.

Currently equity markets are moving in the opposite direction of failing economies. The magnitude of this dislocation is something we have not witnessed in our careers. This is driving polarising views on the sustainability of the recent rally – views we simplify from two investor types.

The more traditional investors are concerned about risk and wealth retention, and challenge whether the return outlook is attractive enough against the vast amount of uncertainties and economic risks. The second group are typically younger, ‘the wealth seekers', who care less about text book return risk premia and more about the absolute return – zero in the bank doesn’t work, so let’s try something else. We have sympathy for both camps, and indeed if they have long enough time horizons, both may be correct. A long-run return above zero, while disappointing to some, is still better than zero.

Following supportive data on China’s COVID recovery, investor confidence has been buoyed by virus cases rolling off their peaks around the world and activity levels lifting in response to lockdown measures being eased.

In China, Goldman notes the economy is now operating at around 94% of 2019 levels according to various indicators they track. In the US, where the virus is far from contained, consumer spending has improved materially, as indicated by Visa’s total US payments volume falling just 5% year on year in May, from down 18% in April.

With NZ’s successful containment of the virus outbreak, coming out of levels 4 and 3, we have seen fuel volumes, retail spend (left chart below) and power usage (right chart below) bounce back to pre-COVID levels.

 


Post lock-down pent-up demand is likely playing an important role in the recovery in consumer spending, and Government stimulus has been highly supportive.

In the US, with job numbers back to 2010 levels, economists estimate close to half of workers earned more in State Government unemployment benefits than they did at their jobs before the coronavirus pandemic shut down. In Australia, the Government’s policy to allow early withdrawal of up to $10k of superannuation has produced some extraordinary results. Of the $14bn of super cash withdrawn toward the end of May, 64% was spent on discretionary items and 11% on gambling.

In New Zealand we suspect the Government will attempt to keep voters reasonably happy leading up to the general election in September. The imminent move to Level-1 will be a welcome boost to the hospitality industry. However, the true state of the economy will not be apparent until we see how the Tourism sector fares through its peak summer months in the absence of high spending overseas visitors.

Returning to Fund performance, the Australian equities portfolio was a key highlight (+8% in AUD) with Fortescue Metals (+16.2%) and Mesoblast (+19%) leading the way. Fortescue gained on the back of a steeply rising iron ore price (+21.6%), driven by Chinese demand and Brazilian supply concerns, and Mesoblast continued its stellar run (+90% year to date) after raising $138m to scale up manufacturing of its COVID-19 related product.

In NZ, Kathmandu (+31.7%), Pushpay (+77%), and Infratil (+4%) were key Fund contributors. Following the deeply discounted capital raise in April, Kathmandu provided a positive business update in early May which noted a surge in online sales and digital engagement and a staged reopening of stores. The stock was supported further by strong retail data in NZ and Australia. We exited our position in May after being up over 100% since raising.

Pushpay had a remarkable month after producing a strong annual result with 33% profit growth for the year. More importantly, Pushpay guided to a strong year ahead with the fall in church attendance due to the virus, driving adoption of its digital platform.

A small (0.09%) detractor to Fund performance was Z Energy (-9%), which announced a capital raise at their earnings announcement. The capital raise has given Z balance sheet breathing space, but through negotiations with debt holders, came at the cost of being restricted from paying a dividend until September 2021. We participated in the equity raise, and after significantly lagging other post lockdown recovery stocks it is pleasing to see the shares trade higher.

In the International Portfolio, Lululemon (+34%) and Auto Trader (+21.7%) lead the way, offset by Grifols (-6.8%) and large holding Amazon which fell 1% after lapping strong (+27%) April performance. Autotrader, a UK online car marketplace, has resumed trading and pointed to their own marketplace data and consumer research showing healthy levels of demand. Lululemon, a leader in healthy lifestyle inspired athletic apparel, continues to outperform its peers, and we have since taken profits in the name after a remarkable run, up close to 50% since entering the portfolio. 

The initial rally in risk assets was led by Growth and Defensives. Over the past weeks, markets have moved into a second phase, with a further rally in equities driven by a rotation to Cyclicals. This is despite any improved clarity on self-sustaining (ex-stimulus) economic growth, and improved certainty on the timing for large scale vaccine deployment.

The risk rally is continuing at the time of writing, with a strong start for Markets and the Fund in June. We are continuing with a more cautious approach to stock selection and risk as we believe equities have been too quick to factor in a best case exit from the pandemic.






Top 10 Holdings


Amazon

3.8%

Tilt Renewables

3.4%

Infratil

3.4%

Alibaba

3.2%

Contact

3.0%

Cleanaway

2.9%

Google

2.8%

a2 Milk

2.4%

Grifols

2.2%

Sanofi

1.9%


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..