Generate Newsletters
Welcome to the January 2021 edition of the Generate KiwiSaver Scheme Newsletter.
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Welcome to the January edition of the Generate Member Newsletter. We hope you have had or (even better) are still having a great break and wish you well for 2021. The team at Generate rounded out 2020 with a company-wide seminar at the new and improved Akarana Yacht Club in Auckland. It wasn’t all work though as we managed to take in some of the America’s Cup action and reflect on the crazy year that was 2020 later in the day. We also took the opportunity to have a team photo - and as you can see below the photographer had to get creative to fit us all in! |
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December saw share markets move higher which rounded out a very strong quarter for equities around the world. More on this later in the newsletter. Looking ahead we are cautiously optimistic that share markets will end 2021 higher than where we are today. Although global growth will likely dip in the first half of the year there are reasons why it could be turbo-charged in the second half and beyond. This hinges on developed countries (initially) successfully rolling out vaccination programmes so that social distancing restrictions can be eased. This should trigger a wave of spending as locked up consumers and cautious businesses have the freedom and confidence to spend. In the meantime, we expect a volatile 1st quarter of the year which we will try to take advantage of. |
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Performance of the Generate Funds Returns to 31 December 2020 (after fees* and before tax).
*except the $3 per member per month administration expense that is charged to KiwiSaver members.
Note: Past performance is not necessarily an indicator of future performance. Generate’s fund updates can be found here |
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December was an excellent month for the Generate funds with potential mergers and acquisition activity helping drive the funds’ unit prices higher. The Focused Growth, Growth and Conservative funds returned 3.12%, 3.70% and 1.58% respectively whilst the Focused Growth Trust returned 2.87%. The stand-out performer for the funds in December was Tilt Renewables with the stock returning a staggering 60.9%. Early in December the majority owner of Tilt – Infratil – announced that it intends to undertake a strategic review of its shareholding. Infratil remains committed to deploying capital in renewable energy globally but because they have received a number of inquiries regarding their shareholding in Tilt, they decided to undertake the strategic review. This set a fire under the Tilt share price. It pushed even higher when only two days later Infratil (whose share price shot up 22.7% in December) announced that AustralianSuper has made a $5.4 billion non-binding, indicative offer to acquire Infratil. These announcements are symbolic of the huge global demand for high quality infrastructure assets - in particular renewable energy assets. This has been a very helpful development for the Generate funds given their ownership of some of these assets. For example, the share price returns for Tilt, Meridian, Infratil (the Funds’ largest property and infrastructure holding) and Contact have all been remarkable in the last quarter of 2020 returning 72.2%, 49.9%, 48.3% and 34.0% respectively. We have taken the opportunity to do some selling into this strength and in fact have now exited our position in Meridian. We think the share price has reached an unjustifiably high level, especially in-light-of the risk that the Tiwai Point smelter shuts down. Given Meridian is a high-quality company with great assets we hope to buy back in at lower prices in the future. The weakest Australasian equities stock in December was A2 Milk with a fall of -18.2%. Mid-way through the month the company downgraded its revenue and earnings margin forecasts for FY21. This announcement follows on from the disappointing trading update provided by the company in September and was poorly received by the market. The top performing international equities holding was Siemens Energy with a 20.0% return in December. The company was split out of industrials giant Siemens last year and has performed strongly since. Siemens Energy holds a 67% stake in Siemens Gamesa which is a world leader in the production and servicing of wind turbines. As mentioned above renewable energy is red hot at present with Siemens Gamesa rallying 43.3% in the December quarter which gave Siemens Energy a strong tailwind (no pun intended) during the month. For the second month in a row Alibaba was the worst-performing international equities investment. Last month we wrote how a speech by Alibaba’s founder, Jack Ma, questioning financial market regulation in China looked to have catalysed a coordinated campaign to reduce his influence. Jack has “gone to ground” since his ill-conceived speech which even had some in the market wondering whether he was in Chinese custody. This did nothing to help sentiment for the stock last month. Despite recent confirmation that Jack has not been taken into custody we do not expect a turnaround in sentiment towards Alibaba stock any time soon. However, our base case is that a company of Alibaba’s quality will eventually get through these regulatory challenges without too many scars and continue to prosper alongside China’s swelling middle class. |
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Share markets around the world were stronger in December - adding to the spectacular gains notched up in November. The MSCI World Index gained 3.6% (in local currencies). The USD continued its move lower which is helpful for Emerging Market (EM) economies as large proportions of their debt tends to be denominated in USD. In this risk on environment, alongside a lower USD, it was no surprise to see EM lead from the front in December – with the MSCI EM Index rallying 5.9% (in local currencies). The US also made solid gains with the S&P500 rounding out the year with a 3.8% return. Investors continued to set aside concerns about surging COVID-19 cases in the US and Europe. Instead, they appeared to be focused on the immunisation programmes being rolled out and the potential for a return to normal in the second half of 2021. There was much speculation as to whether-or-not another large fiscal package in the US would be signed into law prior to year-end. Late in the month, a $900 billion stimulus bill was passed by Congress and signed by President Trump despite him initially saying the bill was a “disgrace.” The relief package casts a wide net with a variety of measures to assist millions of Americans, including those who have lost their jobs, as well as small businesses, nursing homes, universities and schools. The package extends some provisions of the original stimulus package that was passed earlier last year, while adding new measures to help working families who have continued to suffer amid the pandemic. Back home and the NZ50G also chalked up a positive month returning 2.5% taking the gain for the year to 13.9%. Back in March when share markets the world over were tanking, not many pundits would have predicted this sort of calendar year return; and it just goes to show the importance of riding out share market volatility. |
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Top Holdings as of 31 December 2020 Please log in to your account to see your full portfolio breakdown.
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