28 Oct 2016

Quarter In Review

While we provide this review of activity over the quarter, we must draw your attention to our first article, “Why investing for the long-term works”.  In it we conclude that to invest successfully using a long-term investment philosophy you must accept that you have very little control over short-term performance.  It always feels fairer to remind you of our philosophy when our short-term performance is good rather than use it as a defence when short-term performance is poor. 

The primary driving force for our positive performance over the quarter is the recovery in prices of some of the mining services businesses that we own.  It is our opinion that, while prices are substantially higher than their lows, these companies are still very cheap and will continue to perform well as the outlook for that sector stabilises.  We are still being very selective about the exposure to company and commodity type in this sector as we are still not convinced that we have seen the price bottom for some commodities.

Growth businesses Vista and Corporate Travel also performed strongly over the quarter but the standout company on the quality side was Michael Hill.  We do not place a lot of emphasis on trying to time our investments and it often shows, we were too early investing in mining services companies, but Michael Hill couldn’t have been timed better.  We have watched this company from afar for many years but never gained enough conviction to invest in it.  Positive governance changes and the growth potential from the Emma and Roe roll-out finally convinced us that it was a worthwhile investment.

In the Trans-Tasman strategy, our biggest detractor to performance was our underweight in Fletcher Building as positive momentum in that sector continues. 

There was not a lot of activity in fund positioning this quarter.  Our increased investment in Ive Group being the only material change.

We remain cautious and highly selective with our investments in this environment.  Leaving plenty of dry powder for opportunities that will certainly be presented with the expected future market volatility.