Generate Fund Performance - September 2023

Returns to the 30th of September 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 funds opened on 16 April 2013. The Generate Focused Growth Trust opened on 1 November 2019.

***Following the launch of our new funds, the Conservative Fund has been renamed as the Moderate Fund and the Focused Growth Trust has been renamed as the Focused Growth Managed Fund.

^ these funds were established on 16 May 2022

^^ these funds were established on 3 July 2023

Past performance is not necessarily an indicator of future performance. Generate’s fund updates can be found here.

International Equities

Global equity markets fell by more than -4% in September as sticky inflation data, higher oil prices and a hawkish US Fed led to a risk-off investment environment. The US market was one of the worst performers, shedding -4.9% (or -5.7% in NZD), as rising 10 year yields pressured valuations and large cap technology stocks fell victim to profit taking. The only sector that finished in the green was Energy, which has been a significant outperformer over the past three months in line with rising oil prices.

In Generate’s global portfolio, our best performers were mostly defensive names such as health care stocks United Health and McKesson, which have business models that are relatively immune to higher interest rates, as well as energy stocks like BP and Cheniere Energy. Worst performers tended to be more sensitive to the economic cycle, such as luxury goods giant LVMH, homebuilder Pulte Group, and a raft of semiconductor companies like Nvidia, ASML and LAM Research. It is worth noting that all these stocks have had very strong returns in the year-to-date. 

While September returns were disappointing, markets are prone to undergo short term corrections during upswings, and we are not disheartened by the recent dip. The companies we invest in are built for the long term, and in several cases, we have used the price weakness to top up on some of our favourite stocks like Nvidia, LVMH and Visa. 

Higher interest rates are a difficult tide to swim against, but with increasing signs that inflation is beginning to cool around the world, we are cautiously optimistic that the rate outlook will begin to temper over coming months, which should provide a welcome tailwind to stocks as we approach year end. 

New Zealand & Australian equities

The S&P/NZX50 fell in September, retreating -2.2%. This was a better performance than the likes of the S&P500 in the US, largely because the New Zealand market is less dominated by high growth companies that are more sensitive to higher interest rates. Pleasingly, our Australasian equity exposure fared better than the broader market return, in part due to having low or no exposure to some of the worst performing companies. 

During September, we travelled to the United States and Mexico to visit two of our large portfolio holdings in Infratil and Fisher and Paykel Healthcare. One of Infratil’s most exciting and fastest growing portfolio assets is Longroad, which is a large-scale solar generation developer and operator. Longroad’s largest development assets are based in Phoenix, Arizona. Once completed they will generate enough energy to power over 200,000 homes while supporting 1,000 construction jobs in the process. The economics of these projects have become increasingly attractive as the US Inflation Reduction Act targets deploying $400bn into clean energy initiatives. Longroad is well placed to capture these benefits as they have a large development pipeline ready to be executed over the rest of this decade, and beyond. The market reacted well to the new information provided by Infratil and Longroad, with the share price going against the trend of the broader market and rising +1.2%.

Fisher and Paykel Healthcare (FPH)’s site visit included visiting their manufacturing facilities in Tijuana, Mexico, where they have recently completed the third stage of their campus, which at operational capacity will employ up to an additional 1,000 workers. The site has spare land capacity to add another two replica manufacturing sites, demonstrating FPH’s long held strategy of planning for future growth. Mexico currently represents approximately 39% of total manufacturing for the company. Alongside this we had the opportunity to meet with FPH’s North American sales team in California and a collective of hospital physicians who detailed medical use cases for FPH’s hardware and consumable products. While the two days spent with the company were encouraging and demonstrated its high quality, the share price retreated -5% over the month. In part this was due to the aforementioned global sentiment towards growth stocks, and also due to emerging concerns that new weight loss drugs may have a dampening effect on the growth outlook of FPH’s Homecare business growth. We like the long-term growth of FPH’s hospital business but its high valuation means we continue to hold a smaller position in FPH than that of our benchmark index. 

In other areas, underperformance came from the Real Estate Investment Trust (REIT) sector. REIT companies are exposed to interest rates as they generally carry higher amounts of debt which bear the burden of interest costs and have lower-growth long term stable cash flows. The prices of REITs typically behave similarly to those of bonds, which have an inverse relationship to bond yields. Two of our REITs that suffered the largest declines were Mirvac Group and Stride Property Group, falling -13.2% and -8.6% respectively. Mirvac has diversified exposure to the office, industrial and residential sectors in Australia, while Stride has exposure in New Zealand to retail, industrial and office. 

Top Holdings as of the 30th of September 2023

Generate total Funds Under Management (FUM) as of 30th of September 2023: $4,293,422,685