The investment team at Generate has remained highly active since the coronavirus began to take hold of China late January. This has been across multiple sectors and asset classes.
Firstly in currency. We been actively managing all our currency exposures across USD, AUD, HKD and EUR. Going a little deeper, with the New Zealand dollar close to parity with the Australian dollar we now have an unhedged position. Our USD hedging has changed materially throughout the last two months, but especially over the last month as events of the coronavirus unfolded. By reducing our USD hedge levels we have been able to take advantage of the New Zealand dollar’s material fall YTD.
To equities, we went into February with a decent cash and bond buffer which represented a view that equity markets were at very high valuations. Domestically, we took an early view that the retirement sector may represent elevated risk should the coronavirus land on our shores and took action to reduce that exposure. To further highlight this, our retirement sector exposure today is less than half what is was at the beginning of February. Turning to tourism, our Funds have long had negligible exposure to this sector as tourism sector valuations did not represent value to us. We have added to positions with defensive qualities and highly sustainable cash flows. Examples of this can be best found in the infrastructure space such as Vector and Spark.
Over the last few weeks, the investment team has been scrutinising company cashflows and balance sheets to both screen for risks to the Funds’ holdings, and also to search for opportunities where the current market may produce material valuation dislocations. Complementing this we have been on the phone talking to the executive teams of companies we invest in to understand their strategy in the current unprecedented situation and keep well informed of developments.
Going into lockdown has not changed the way we fundamentally operate. The investment team is working well remotely and we continue to monitor risk and opportunities across all our Funds as well as actively respond to new information as it comes in.