26 Apr 2018

March 2018 - Quarter in review

The much-anticipated market correction arrived at the end of January. 

We wrote about the potential for this in our commentary last quarter.  It was our opinion then, as it is now, that a correction was due, but that it may not necessarily signal the end of this long equity bull market.  We are smart enough, however, to know that we are not smart enough to know for sure. 

The current correction is ongoing and is worth further monitoring, but we are optimistic that global shares may yet make fresh record highs.  The resilience of equity markets is quite frankly astounding given the geopolitical curve-balls being currently thrown at it.  While some large leveraged volatility funds blew up during the volatility spike, there doesn’t appear to be any resulting financial market domino effects.

And volatility creates opportunity … provided you are ready for it.

Ranger Fund

Despite the market entering a correction phase the Ranger Fund had a strong quarter, albeit returning some gains in the last month.  Kogan.com, A2 Milk and Australian Vintage were the strongest performers, while our investments in mining service providers were generally detractors.

We were pretty active by our standards.  We sold A2 Milk, its price having reached a point where further upside will be hard won.  More on that in our commentary “Fund activity!” below.  We also exited Millennium & Copthorne Hotels, its price having reached our target.

We reduced our exposures to Kogan.com, and Afterpay Touch after strong price rises.  While long-term value remains, the large recent increases in prices of both means a lower exposure is warranted.

It wasn’t all selling.  We increased our exposure to Wellcom on conviction over its long-term prospects, reasonable price and conservative balance sheet.

As a result of these changes our exposure to cash has risen, giving us plenty of dry powder to take advantage of any further volatility.

5 Oceans Fund

The 5 Oceans Fund faced its first real test of difficult markets during the first quarter of 2018. Equity markets fell both globally and locally and global bonds also had a difficult first two months before bouncing back in March to finish flat for the quarter. Given these are the predominant exposures for balanced funds it was no surprise that the median NZ balanced fund was negative for the quarter (source: AON survey). We were therefore pleased that the 5 Oceans Fund posted a positive, albeit modest, return for the quarter reflecting its focus on protecting capital as well as delivering returns.

We have undertaken numerous manager research meetings and trips in the last 12 months and have some more coming up in the near future. On the back of this work we are looking to introduce some new strategies into the defensive side of the portfolio over the next few months and are continuing to investigate some very interesting growth strategies that we feel would complement the existing managers. We will update on this further once these have been implemented.  

Trans-Tasman Strategy

The Trans-Tasman had a strong quarter, carding a positive result, despite its benchmark, the NZX 50 being down.

Kogan.com, A2 Milk and Australian Vintage were the strongest performers, while our investments in mining service providers were generally detractors.

We moved A2 Milk to neutral having been overweight for some time. Its price has reached a point where further upside will be hard won.  We also exited Millennium & Copthorne Hotels, its price having reached our target.

We reduced our exposures to Kogan.com, and Afterpay Touch and Redbubble after strong price rises.  While long-term value remains, the large recent increases in prices of both means a lower exposure is warranted.

On the buy side, we went neutral Fletcher Building, having been underweight.  This is more a reflection of our view that the upside/downside scenarios are more balanced than a bullish view on the company.