Generate Newsletters

Performance of the Generate Funds

Returns to 30 April 2021 (after fees* and before tax).

* 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.
Note: Past performance is not necessarily an indicator of future performance. Generate's fund updates can be found here.

Take a quick Survey...

How likely would you be to recommend Generate KiwiSaver to others (1 - Not at all likely, 10 - Extremely Likely)?

The strong returns generated in March continued throughout April. The Focused Growth Fund and Trust returned 2.67% and 2.49% respectively. The Generate Growth Fund returned 2.23%, while the Conservative Fund, with its lower weighting to equities, returned a very pleasing 1.04%.

This positive performance was not concentrated in just a few names but rather, was spread out across many of our positions. That said, there are still a few notable returns worth highlighting. Within the Property and Infrastructure sleeve, our long held position in Arvida Group returned 9.1% as a local investment bank revisited their view on the company and upgraded earnings forecasts materially. At a similar time, another investment bank initiated research coverage on Arvida, and also came out with a positive recommendation. Arvida has long been one of our highest convictions in the aged care sector, and it is pleasing that other market participants are now also recognising the inherent qualities within the business.

Other worthy mentions are Contact Energy, 7.6%, Centuria Capital, 7.7%, and Mirvac Group 7.6%. The long running saga over changes to the way two Clean Energy ETF’s construct their portfolio is now mercifully over, as Blackrock reduced their position in Contact Energy by some 65m shares. With its shares having declined by -13.3% year to date, the market can now get back to focusing squarely on the fundamentals of the business. Meanwhile, Centuria Capital (CNI) had another busy month in April as they announced a merger with Primewest Group, a Perth-based property funds management platform. The deal increases CNI's assets under management by A$3.2 billion to A$15 billion and allows CNI to reach its previously stated growth aspiration target just two months after having set it. Finally, Mirvac (MGR) released its third quarter operating update in April, which was much stronger than expected. MGR upgraded its expectations for earnings by 2.2% and importantly this was against the backdrop of repaying $10m of JobKeeper support (Australia's equivalent of the Covid wage subsidy), and a delay in the sale of a key asset that had previously been incorporated into guidance. Mirvac's high quality management team and assets, which are diversified across office, retail and apartments have proven their resilience in extraordinary times over the last 12 months.

The two worst performers across Property and Infrastructure came in the form of our relatively small holdings in A2 Milk (-11.3%), and Z Energy (ZEL, -5.3%). We’ve discussed these in detail in prior editions and so we'll avoid covering old ground here. Despite the external pressure facing ZEL, the company has a robust medium term cashflow profile which underpins an ability to distribute capital returns to shareholders. Alongside this, there is an interesting angle for a global energy player to acquire ZEL as a way to enhance value across their vertically integrated business model. A2's challenge continues to be their exposure to the key daigou channel, and while this challenge is large and complex to rectify, the market is heavily discounting the company’s ability to return to growth.

Turning to international equities, Alphabet (14.1%) continued its remarkable performance during April and is now up a staggering 34.3% year to date! Alphabet reported its Q1 earnings late in the month, which highlighted strong growth in Google's digital advertising business across both Search and YouTube. Alongside a Cloud profile that continues to be robust, Alphabet reported first-quarter sales of US$55.3 billion, up 34% on the previous year. Alongside this, the company announced plans to repurchase an additional $50 billion in shares, which should help lower some raised eyebrows at cash reserves that continue to swell and currently sit at US$137 billion.

Also in the tech space, Facebook produced a standout Q1 result demonstrating revenue growth of 48% to US$26.2 billion, and beat analyst expectations of $23.7 billion. Facebook sighted strong growth in average price received per advertisement, and the volume of advertisements as a sign of continued high demand for their services. While the company flagged there were potential headwinds to come from changes to Apple's privacy policy, we remain sanguine about the absolute impacts as Facebook has worked to develop ways to mitigate the changes. Facebook rose 10.4% for the month.

Other standouts included Berkshire Hathaway (7.6%) and Microsoft, the latter of which recorded a solid result and gained 7% over the month.

Siemens Energy was the worst performing international equity declining -9.2%. While there was no company specific news, ENR had been caught up in the extreme renewable energy rally which began post President Biden's election, and has subsequently lost its fizz. We exited the position during the month.

New Zealand's S&P/NZX50G index rose 1.4% in April, lagging both the US S&P 500 and the MSCI World which rose 5.3% and 4.7% respectively. That said, the New Zealand dollar strengthened materially over April, meaning that international returns in New Zealand dollars were significantly lower. To see this impact, the US S&P 500 rose just 2.8% in New Zealand dollar terms. It's months like this where our currency hedging strategy really proves its worth.

For much of April there was little (in the context of the last 12 months!) that dominated headlines. Locally, we had the long awaited announcement of the Trans-Tasman bubble that was to begin mid-month. It’s fair to say that while it was a welcomed development, it had been anticipated for some time. This could be seen in the share price reaction of travel-exposed companies such as Auckland Airport and Air New Zealand which returned -3.2% and 1.8% for the month. In Air New Zealand’s case, the announcement allowed them to delay an inevitable equity raise which is required to help repair their COVID-19 impaired balance sheet.

On the topic of COVID-19, it is with sadness that we witness the devastation the disease is causing in India where daily cases have topped 400,000 and the seven-day average remains alarmingly high. It is a stark reminder that globally we are not out of the woods yet. Meanwhile in the United States, coronavirus restrictions are set to lift in the tri-state area of New York, New Jersey and Connecticut. The US vaccination programme continues to rollout successfully with 32% of adults fully vaccinated, and close to half the population having received their first dose. President Biden had a busy month announcing new policies that could cost upwards of $4.1 trillion. Among Biden's intentions are to fund $2.3 trillion in infrastructure spending, and $1.8 trillion in social programmes such as healthcare, childcare and education. Of course, these programmes must be funded from somewhere and unsurprisingly corporate and wealth taxes are back in the spotlight. For now, US markets appear to be relatively relaxed about the impending implementation of higher taxes and their impact on company earnings. However, this is a situation we are watching closely.

As mentioned earlier, the end of the month was a busy period for US corporate earnings releases. According to UBS equity strategists, first quarter earnings are tracking 20% above levels seen in 2019. As at the end of April, 301 S&P 500 companies had reported earnings, with UBS estimating 85% of these companies had beaten consensus analyst expectations. Against the backdrop of fears that analysts' earnings expectation were actually too high, this is a remarkable outcome.

Top Holdings as of 30 April 2021

Please log in to your account to see your full portfolio breakdown.

Knowledge Builder - Geared investments can increase gains AND losses

A 'geared' investment is another way of saying that the amount invested has been ratcheted up by getting a loan. The word 'gearing' can be understood in a similar way to how gears work on a bike - whereby a small effort on the pedal turns into a bigger physical force on the wheel.

Borrowing money will increase the amount you can have invested, and naturally amplifies potential gains as there is more of a capital base on which to earn returns. The flip side of this, of course, is that it can also magnify losses.

Importantly, geared investors can become forced sellers in a declining market when the level of equity in their investment falls below a pre-agreed percentage. Unless they can inject fresh equity they have to sell their investment and crystallise the loss.