Generate Fund Performance - January 2023
Global equity markets have had a strong start to 2023, rising 7.1% in January (MSCI World Index in local currencies, equivalent to 5.4% in NZD). These gains were driven by economic data that indicates the world's largest economies are more likely to be heading for a "soft landing" instead of a recession, and investors scrambling to position for this better-than-expected outcome.
Our global direct investments have performed well in these conditions, with six of our long-standing investments rising more than 20% on the month on the back of incrementally positive news about their financial performance. Western Alliance Bank (+26.5%), Pulte Homes (+25%) and TSMC (+24.5%) all delivered strong earnings results for Q4'22, while Uber (+25.1%), Meta (+23.8%) and Amazon (+22.8%) all saw positive incremental data that points to better financial performance late last year and ahead in 2023.
Intuitive Surgical was our weakest performer, down 7.4% for the month, as the company announced they were unlikely to launch their next generation Da Vinci robotic surgical system within the next 12 months, contrary to the market's prior expectation. While this was a disappointing development for us, Intuitive has performed very well since we added it to the portfolio last September. We remain very enthusiastic about the company's long-term prospects, and we would like to increase our investment in the company if its share price shows further weakness.
New Zealand & Australian equities
The local stock market, as measured by the S&P/NZX50 Index, had a strong month in January returning 4.3%, as 39 of the 50 benchmark constituents eked out positive returns. The two largest contributors to this performance were Fisher and Paykel Healthcare, who updated the market with a positive trading update, and Auckland Airport in the absence of any relevant news.
A standout performer within the Australasian portfolio was Ryman Healthcare, which returned 29%. There was no new news in the month for Ryman. However, to provide some context for the magnitude of the move, the company’s share price had declined -37% in December after having revealed to the market an uncomfortably large and escalating debt profile. The Fund’s investment in Ryman is very small, and consequently the impact on overall performance was immaterial.
Oceania Healthcare, on the other hand, is a more significant position and also had a strong month, returning 17.1%. Oceania’s share price had been dragged down by Ryman’s underperformance in December and, as such, January’s bounce back was welcomed. Oceania has a meaningfully sized care business, which has come under pressure due to government funding of the sector lagging well behind the cost increases impacting the business. As a result, the market had deeply discounted the valuation of Oceania’s assets to as low as 55% of total assets during December. Even with January’s rally, this discount has narrowed to approximately 67%, which we still view as too cheap in the context of future cash flows likely to be generated by these assets.
The key detractors to performance in January were Spark and EBOS Group, both on no news. These two companies were strong performers, up 25.3% & 8.9% respectively, over the course of 2022, and potentially fell to the mercy of profit taking as investors looked to shift capital into new positions.