Generate Fund Performance - May 2023

Returns to 31 May 2023 

(after fees* and before tax) 

Generate KiwiSaver Funds:

Generate Managed Funds:

• *Except the $3 per member per month administration expense that is charged to KiwiSaver members.  
• ** The Generate KiwiSaver Scheme Focused Growth, Growth and Moderate funds opened on 16 April 2013. The Balanced, Conservative and Defensive Funds launched on 16 May 2022.
  The Generate Focused Growth Managed Fund opened on 1 November 2019. The Balanced and Conservative funds opened on 16 May 2022. 
  ^Following the launch of our new funds on 16 May 2022, the Conservative Fund was renamed as the Moderate Fund and the Focused Growth Trust was renamed as the Focused Growth Managed Fund. 
• Past performance is not necessarily an indicator of future performance. Generate’s fund updates can be found here.

International equities update

Global equity markets, as measured by MSCI All Country World Index, fell -1.3% in May as investors digested a generally robust corporate earnings season with mixed global economic data and jitters over the US debt ceiling. The dip was softened by a sharp fall in the NZD, which meant local currency returns for global shares were +1.9%.

While global equities weakened, there were pockets of strength under the hood, particularly in companies exposed to the artificial intelligence (AI) arms race. The AI theme gathered pace in mid-May when Nvidia delivered a quarterly earnings report that blew away analyst expectations. Nvidia, the world’s leading AI chip company, gave an upbeat forecast of future demand for its chips, setting off a rally in companies with links to AI, from software names like Microsoft and ServiceNow, to leading chip equipment companies. 

While Nvidia topped our list of outperformers with a monthly gain of +36%, our chip equipment companies (ASML, LAM) and security software stocks (Fortinet, Palo Alto) also posted double-digit gains. Outside of technology, pharma giant Eli Lilly continued its strong recent run with an +8.5% gain in May, buoyed by encouraging trial results from its treatment for Alzheimer’s disease.

Detracting from performance were life sciences stocks such as Thermo Fisher Scientific and Danaher which have suffered from negative sentiment towards the bioprocessing industry. While there are short-term inventory issues to be worked through, we remain positive on the long-term outlook for cell and gene therapies, as well as general biopharmaceutical research, which will ultimately underpin demand. 

New Zealand & Australian equities update

Perhaps unsurprisingly, given the artificial intelligence-led optimism that swept US markets in May, the New Zealand market underperformed against US benchmarks and declined -1.7% as measured by the S&P/NZX50.

Our local market included some key companies reporting their annual results for the year to March 2023. The heavyweights among these companies included Fisher and Paykel Healthcare, Infratil, and Mainfreight. Three of the four major retirement village operators also reported. Last, but not least, we also had a number of releases in the real estate investment trust (REIT) sector, including Stride Property Group, Investore Property, Goodman Property Trust & Kiwi Property Group. 

Turning first to Fisher and Paykel Healthcare, the company reported a solid set of results for the financial year which had recently concluded. However, the company’s outlook for FY24 disappointed the market, which had become overly optimistic of a return to previously seen levels of profitability. While revenue growth guidance of 7% was in line with analyst expectations, management also guided to 12% operating expense growth which was attributed to inflationary pressures in the supply chain, an expanding labour force, and lingering manufacturing inefficiencies. The market did not anticipate expenses growing faster than revenues and drove the stock down -16% over the month, with a little more than half of this decline occurring post the release of their earnings. The Australasian fund holds an “underweight” position in Fisher & Paykel, which means that through our active management the performance of the fund was less impacted than the benchmark index was. 

Infratil, on the other hand, produced a set of results which were well received by the market with the stock returning a positive +6.5% over the month. The company delivered earnings (before interest, tax, depreciation and amortisation) of $531.5m, which was slightly better than analyst expectations and at the upper end of previously advised guidance. This result was anchored by One NZ (formerly Vodafone) which delivered better than expected earnings, driven by strong price growth and cost control. Infratil’s cash war-chest increased to approximately $1.5bn which it expects to deploy across its wide range of portfolio growth opportunities including a renewable energy development pipeline in the US, an emerging pipeline across Europe and Asia, and a growing Digital platform. Meanwhile, Infratil’s large investment in Canberra Data Centres continued to deliver in line with expectations, recording a 33% jump in earnings, and forecasting a further 23% growth in the coming financial year. 

Finally, Oceania Healthcare and Arvida Group had stellar returns over the month recording +21.7% and +15.4% respectively. As we have discussed in our newsletters over the last few months, these companies have been facing headwinds driven by macro-economic conditions (namely interest rates and house prices) and access to nurses alongside restricted government funding of those nurses. Both companies reported their results in May which highlighted that notwithstanding these challenges, the businesses are well managed and unlike what their larger peer - Ryman Healthcare - recently endured, there are no immediate debt stresses. 

Top Holdings as of 31st May 2023

Generate total Funds Under Management (FUM) as at 31 May 2023: $3,999,971,023