The Milford Active Growth Fund Fund Update June 2014 Fund closed to new investors Portfolio Manager Dear Fellow Investors May was a reasonable month for your Fund as it produced a slightly positive return compared with a 1.0% decline in the benchmark NZX50 Gross Index and a 2.3% rise in the ASX200 Accumulation Index, in New Zealand dollar terms. Brian Gaynor ..................................................... Portfolio Mix The domestic sharemarket is impacted by a number of factors at present, particularly high valuations, mixed earnings performances and a large number of IPOs. 17% 6% 50% 15% 8% It was a mixed month for the portfolio with our ten largest listed holdings performing as follows; Fletcher Building -9.1%, Fisher & Paykel Healthcare +12.5%, Air New Zealand +4.3%, The A2 Milk Company -3.7%, Wynyard -2.1%, Kathmandu -1.1%, Summerset +0.3%, Genesis Energy -4.5%, Ebos +1.9% and NZX +7.2%. 4% NZX Listed Companies Global Investments NZ Unlisted Companies ASX listed Companies Bonds Cash The NZX50 Gross Index has appreciated 115% since its global financial crisis low in May 2009. Accordingly, company valuations are stretched as earnings have not risen by the same amount over this five year period. The one year forward price to earnings ratio (P/E) and gross dividend yield of the NZX’s ten largest companies are as follows; Fletcher Building 15 P/E and 5.1% gross dividend yield, Telecom 15 and 8.0%, Ryman Healthcare 32 and 1.6%, Auckland International Airport 28 and 3.8%, Sky Network TV 16 and 6.1%, Fisher & Paykel Healthcare 25 and 3.6%, Xero no earnings or dividends, SkyCity 17 and 6.1%, Contact Energy 19 and 7.8% and Meridian Energy 21 and 9.0%. ................................................... Fund Size $770 million at 31 May 2014. The issue that always holds back the New Zealand sharemarket is the shortage of large companies with high growth opportunities. Only Fletcher Building, Ryman Healthcare, Fisher & Paykel Healthcare and Xero have strong growth prospects amongst the largest ten companies and Fletcher Building has consistently failed to deliver in recent years. ..................................................... Fees 1.05% p.a. capped management fee plus a performance fee equal to 15% of returns above 10% (after fees & before tax). Any international management fees are in addition to any Milford fees. ..................................................... Investment Objective The Fund invests in New Zealand, Australian and global securities and has a target return of 10% (after fees & before tax) over a rolling 12 month period. The problem is that five of the largest ten companies – Telecom, Auckland International Airport, Sky Network TV, Contact Energy and Meridian Energy – are almost totally domestically orientated and this limits their growth potential. With this in mind there is considerable excitement over the large IPO pipeline which includes Gentrack, Serko, Hirepool, Scales Corporation, E-Road, Power by Proxi, Ike GPS, Metro Glass, Vista and Orion Corporation. These IPOs have a negative impact on the market in the short term as investors sell shares in existing companies to purchase shares in newly listed companies. However, these IPOs are very positive for the NZX in the longer term and we are undertaking an in depth analysis of each of these new listings. Brian Gaynor Disclosure of interest: The Gaynor family had $1,317,262.88 invested in the Fund as at 31 May 2014 unit price. In addition Milford and Milford staff had $905,411.96 invested in the Fund as at 31 May 2014 unit price. June 2014 Milford Active Growth Fund Update Performance to 31 May 2014 (after fees and before tax) Past Month Past 1 Year Past 3 Years (p.a) Past 5 Years (p.a) Since Inception 1 October 2007 (p.a) 0.04% 14.23% 16.10% 14.23% 13.11% 0.80% 10.00% 10.00% 10.00% 10.00% (0.76%) +4.23% +6.10% +4.23% +3.11% 0.04% 13.82% 15.95% 14.06% 12.81% (1.04)% 14.79% 13.44% 13.38% 2.90% Milford Active Growth Fund Benchmark Over / Under Benchmark Fund’s after tax return* NZX 50 Gross Index *Estimated return for investors on the top PIR tax rate. Please note past performance is not a guarantee of future returns. .............................................................................................................................................................................. Investment Performance to 31 May 2014 (cumulative returns are since inception, after fees and before tax) 140.0% 120.0% Cumulative Return 100.0% Active Growth Fund +127.3% 80.0% Benchmark return +88.8% 60.0% NZX 50 Gross Index +21.0% 40.0% 20.0% 0.0% -20.0% -40.0% -60.0% Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Dec-12 Sep-12 Jun-12 Mar-12 Dec-11 Sep-11 Jun-11 Mar-11 Dec-10 Sep-10 Jun-10 Mar-10 Dec-09 Sep-09 Jun-09 Mar-09 Dec-08 Sep-08 Jun-08 Mar-08 Dec-07 Oct-07 .............................................................................................................................................................................. Holdings (as at 31 May 2014) NZ Companies Fletcher Building Fisher & Paykel Healthcare Air New Zealand The A2 Milk Company Wynyard Group Kathmandu Holdings Summerset Group Genesis Energy EBOS Group Complectus NZX Tourism Holdings Holding 5.5% 4.0% 2.8% 2.7% 2.5% 2.3% 2.1% 2.0% 1.8% 1.7% 1.7% 1.5% NZ Companies Steel & Tube Restaurant Brands Auckland International Airport Delegat’s Group Xero Contact Energy Skellerup NZ Refining Vend Holding 1.5% 1.4% 1.4% 1.4% 1.3% 0.9% 0.9% 0.9% 0.7% Australian Listed Entities Slater & Gordon Cardno Corporate Travel Management National Storage Vocation Other NZ & Australian Holdings^ Bonds Global Equities Other Unlisted Companies^ Cash ^ Holdings in NZ companies of less than 0.7% and holdings of Australian companies of 0.7% or less have been combined into ‘Other NZ & Australian holdings’ and ‘Other Unlisted Companies’. Holding 1.2% 1.2% 1.1% 0.9% 0.7% 19.4% 5.5% 8.2% 3.6% 17.2%
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