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A solid year of outperformance for Kiwi Wealth Global Thematic strategy

January 25, 2019


Nathan Field

Written by Nathan Field

Portfolio manager Global Thematic at Kiwi Wealth


Here’s how we kept our head above the water in 2018, despite a volatile year for sharemarkets.

Solid performance despite backdrop

The Global Thematic strategy (formerly Satellite) had a solid year of outperformance amid a tumultuous 2018, returning -0.3% in NZD versus the benchmark MSCI AC which fell 3.4%. While the absolute return was disappointingly flat, it was nevertheless satisfying to see the strategy adding value over the index against a backdrop of falling share prices, building on its five-year track record of outperformance when global shares have been rising.

Technology was a top performing category

Among the list of outperformers for the year was one of our long-term holdings, Amazon. The technology giant dominates a number of our key investment themes, including the growth of cloud-based services and the continued rise of e-commerce. Despite a sharp fourth quarter sell-off, the stock managed to post a 28% gain for the year.

Another technology name that enjoyed a strong 2018 was Netflix, which climbed 40% on the back of surging subscriber numbers, particularly outside the US. We view Netflix as the gold standard for TV streaming services, and we expect its international subscriber base to continue to grow in 2019 and beyond.

Companies exposed to our growth themes of electronic payments (Visa, Mastercard), software-as-a-service (Salesforce, Microsoft), rising healthcare demands (United Health, Abbott Laboratories), and value dining franchises (Dominos Pizza, McDonalds) also made positive contributions to portfolio returns.

European banks and China plays proved premature

On the negative side of the ledger, our investment in European banks like Danske and ING, which we estimated had seen the worst of downward earnings revisions, proved premature. Also, some of our key China plays like Tencent and Ping An had difficult years due to a combination of government interference and a slowing Chinese economy. While we have exited most of our European bank positions, we believe the growth stories for Ping An and Tencent remain intact in spite of the macroeconomic headwinds.

Technology and healthcare will be of interest in 2019

Looking into 2019, we have confidence that our big themes in technology and healthcare will continue to pay off, albeit with a few more bumps along the way. The combination of an uncertain macro environment, increased volatility and clear signs of slowing earnings momentum will make outsized share price gains much harder to come by.

Of course, the silver lining from a period of heightened volatility and lower returns is that valuations may become more attractive. If 2019 proves to be as choppy as 2018, we anticipate a number of bargains will emerge, and we are willing to take on some near-term risk to gain a foothold in stocks that have multiple growth drivers over the long term. Already the sell-off has thrown up a number of fresh buying opportunities, with innovative chipmaker Nvidia, technology giant Samsung Electronics, and video game company Activision Blizzard falling into this camp.

Staying the course is essential

So while 2019 is already shaping up to be year characterised by slowing economic momentum and heightened political risks, we would recommend investors tune out the noise as much as possible and not become too fixated with monthly returns. Focusing on a longer term time horizon will not only help you sleep better at night, it should help you avoid a potentially costly timing error.

This is intended as general information only. It does not take into account your financial situation and goals and is not personalised advice. For advice about your particular circumstances please see your financial adviser.

 

Tags: Economy, Investing

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