Generate Fund Performance - October 2022


Generate Contributor


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International Equities

Global equity markets rose 7.2% in October, in what, we believe, is another bear market rally. Most bear markets evolve over 12-24 months, and they're typically peppered with rallies of 5-15% within the longer-term downtrend. 2022 has been typical in this regard, with the market falling 21% since its peak late last year, and yet having five bear market rallies of 5-15% so far. We aim to strike a balance with our positioning during these periods: staying defensive overall yet moderating this defensive posture as valuation levels and our other internal market signals suggest near-term conditions may improve.

One driver of the stronger market performance during October has been the Q3 earnings season. Many companies have delivered robust results, highlighting the strength of the US economy, in particular. Among our investments, Intuitive Surgical gained 31.5%, JP Morgan 21.6%, and Merck 17.5% during October on the back of strong earnings results and a favourable market backdrop.

Meta Platforms was our worst performer in the month, falling 31.3% after guiding the market to much higher operating costs in the coming quarters than what had been anticipated. This was a particularly disappointing result for us because we had correctly forecast that Facebook and Instagram would show revenue resilience in the face of the competitive threat from TikTok, and yet our anticipated improvement in Meta's earnings did not materialise due to their investments in R&D for server capacity to further strengthen their business for the future.

New Zealand & Australian equities

October was a volatile month, although ultimately, the Australasian portfolio returned a positive 1.5%. Broadly, company announcements were positive over the month, with Auckland Airport and Genesis Energy increasing earnings guidance for the next financial year, while Fletcher Building reaffirmed target earnings guidance for the year ahead.

Turning to the portfolio, two strong performers in the portfolio came from our Australian bank exposure with Westpac and National Australia Bank rising 16.8% and 12.5% respectively. While there was no company specific news flow released over the month, investor optimism around near-term profitability tailwinds as interest rates rise continues to support the sector. Later in the month, ANZ released their FY22 results, which all but confirmed the investment thesis.

Other notable positive performers were Chorus, New Zealand’s fibre network operator, which rose 9.3%. Meanwhile, Mainfreight, the New Zealand-based global freight, warehousing and logistics provider rose a very strong 12.8%. During the month, Mainfreight hosted investors at their new Auckland-based distribution centre to provide an update on current business conditions and how they’re placed into the near-term future. The nature of this release was very optimistic, with Mainfreight highlighting that they remain in a strong position with respect to pricing and profitability, while continuing to win new business and market share from competitors.

Key detractors from performance were within our Retirement Village/Aged Care holdings, with Arvida and Summerset, declining 12.5% and 10.2%, respectively. These companies continue to come under pressure as the housing market declines, the availability of nurses remains challenged and Government funding for nurses remains below required levels.

Looking ahead, November will be a busy month for news flow as nearly 1/3rd of the companies listed on the S&P/NZX50 will report their next set of financial results. Notably this includes, Fisher and Paykel Healthcare, Infratil, and Ryman Healthcare.