Generate Fund Performance - July 2022


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The Focused Growth Fund gained 5.91%, the Focused Growth Managed Fund gained 5.94%, the Growth Fund gained 5.30%, and the Moderate Fund gained 3.42% in July.

International Equities

Global equities rebounded strongly in July, rising 8.0% in local currencies and 7.6% in NZD.

These market gains contrast against much weaker periods in prior months, and were most likely caused, we believe, by some unwinding of the negative sentiment that dominated markets for the first half of the year. We continue to consider high inflation, and the significantly tighter monetary policy to rein it in , as material headwinds to the market’s progress in the months ahead. Therefore we are maintaining a more defensive stance than normal in our global investments.

Last month we wrote: “While we anticipate this financial market volatility may continue in the months ahead, we’re confident that the companies we own will continue to prosper and create lasting value for their shareholders, including Generate members, over the medium and longer terms.” This was a long-term prediction, but it is always nice to get off to a good start, as we did in July. was our strongest performer during the month, rising 27.1% and contributing 1.6% of gains to our global portfolio, as the company delivered better revenue growth and cost control than the market had been anticipating. Uber (+14.6%) and Mastercard (+12.3%) also delivered strong gains in percentage terms, while our larger holdings in Berkshire Hathaway (+10.1%), Microsoft (+9.3%) and Alphabet (+6.8%) each contributed at least 0.5% of gains to the global portfolio.

Most stocks thrived in these market conditions, with our poorer performers producing little drag on the better performers’ results. Ping An fell -13.4% (-0.06% contribution) on China’s macroeconomic concerns, and Merck fell -2.0% (-0.10%, which was the portfolio’s most negative contributor) as market flows shifted from defensive businesses like Merck to higher risk alternatives.

New Zealand & Australian equities

The New Zealand equity market had a stellar month in July, returning 5.7% as measured by the S&P/NZX50. The Australian equity market also returned 5.7% (in local currency) as measured by the S&P/ASX200. In this context, we were pleased with the performance of our Australasian portfolio, which outperformed the benchmark and returned 6.95%.

Among the strongest contributors to the portfolio’s performance were Vector Energy (up 11.5% in July) and Chorus (up 10.7%). These two companies were both beneficiaries of investors' increasing appetite for hard-to-replace infrastructure assets, which continue to attract premium valuations as seen by recent private capital transactions. Two of these transactions occurred over the past month involving companies that our Australasian equities portfolio owns. Spark and Vodafone (part-owned by Infratil) each sold a partial stake in their respective cellular tower assets to consortiums of private equity and offshore pension funds. Through this process, Spark realised a gain on sale of $900m by selling a 70% stake in their towers, while Vodafone realised a gain on sale of $1.7bn by selling a 100% stake, with Infratil reinvesting some of their returns to maintain a 20% holding.

Centuria Capital was another notable contributor to our portfolio’s performance, gaining 14.9% after the stock rallied in sympathy with the broader Australian Real Estate sector. This gain recovered some ground after being sold off heavily in June.

On the negative side of the ledger, My Food Bag (down -4.8%) continued to be out of favour with investors, who are cautious about companies that have exposure to consumer retail. Meanwhile, Arvida (+1.4%) underperformed the broader market due to waning sentiment in the housing market, ongoing nursing shortages and persistent government funding issues