Generate Fund Performance - June 2023

Returns to the 30th of June 2023 

(after fees* and before tax) 

Generate KiwiSaver Funds:

Generate Managed Funds:

• *Except the $3 per member per month administration expense that is charged to KiwiSaver members.  
• ** The Generate KiwiSaver Scheme Focused Growth, Growth and Moderate funds opened on 16 April 2013. The Balanced, Conservative and Defensive Funds launched on 16 May 2022.
  The Generate Focused Growth Managed Fund opened on 1 November 2019. The Balanced and Conservative funds opened on 16 May 2022. 
  ^Following the launch of our new funds on 16 May 2022, the Conservative Fund was renamed as the Moderate Fund and the Focused Growth Trust was renamed as the Focused Growth Managed Fund. 
• Past performance is not necessarily an indicator of future performance. Generate’s fund updates can be found here.

International equities update

Global equity markets continued their strong start to the year in June, rising 4.9% in USD terms and 3.6% in NZD terms. This performance was driven by further easing of economic concerns – at least for the US – and good news on the fight against inflation. The current Atlanta Fed "GDPNow" estimate is for 2.0% real economic growth in the US during Q2'23, which is far from the recession-like readings that many feared. Furthermore, inflation is easing with the latest reading for core CPI inflation at 5.3%, continuing to fall from the 6.6% peak in September 2022.

During June we saw the equity rally broaden beyond the largest tech names, with value stocks and small & mid-cap stocks all slightly outperforming the Nasdaq 100 index of large tech businesses. We saw this breadth in our portfolios too, with the strongest performances coming from construction and electrical supplies business Atkore (+31.3%), gas producer EQT
(+16.5%), homebuilder Pulte Homes (+15.7%), and aesthetic medical device supplier InMode (+14.9%). None of these businesses had clear catalysts during the month; their performance was more driven by the smaller stocks in the market catching up to the performance that had previously been driven by the larger tech companies.

Our weakest performers during June were our investments in gold companies. The gold price often acts as a defensive asset, and it slipped during the month as the stronger economic news was reported. Franco-Nevada fell 7.3% in June, with Agnico Eagle (-5.6%) and Wheaton Precious Metals (-4.4%) close behind. We continue to believe in the long-term merits of these investments and, having trimmed these positions during April at higher levels, we took the opportunity to add back some of the shares that we previously sold.

New Zealand & Australian equities update

The S&P/NZX 50 Index generated solid, but not spectacular, results in June, rising 0.9% over the month. Local markets failed to keep up with strong global markets for the second month in a row.

Arvida was one of the strongest performing contributors, increasing 7.1% for the month. In the first quarter of the year, Arvida was battered by a perfect storm of weak housing markets and inadequate funding for care beds, leading to underperformance. However, commentators have recently started questioning whether NZ’s housing market has reached the bottom of the cycle, alleviating concerns about any further weakening in Arvida’s value. During June, it also became apparent the sector would receive an approximate 10% increase in reimbursement rates for care beds at the start of July. Arvida’s share price recovered as headwinds eased.

Precinct was also a strong performer in June, appreciating 7.1% for the month. This result was somewhat surprising given the swift increase in interest rates over the month, which usually drives property shares down (the yield on the 10-year NZ government bond increased 0.4% over the month to 4.6%). However, we suspect investors are slowly reversing their pessimism on Precinct’s growth prospects. Some commercial property investors are concerned by events in the US market where many office buildings are unlikely to attract new office tenants when the current tenants’ leases expire. This risk does not seem to apply to Precinct because it owns several well-located, premium buildings where tenant demand remains strong. It also seems that some NZ employers are actually upgrading their office space to entice employees back to the office. We suspect Precinct’s strong monthly performance was driven by an attractive yield and growing evidence that tenant demand remains robust.

Medical distribution company EBOS was the Australasian portfolio’s weakest performer in June, declining -13%. One of its fastest-growing customers, Chemist Warehouse, announced that it was replacing EBOS with a competitor brand, Sigma. We believe Sigma lured the key account from EBOS through a combination of very sharp pricing and free equity offerings.
This loss is likely to reduce 2025 financial year earnings by about 10%.

We were aware of this risk and reduced our position in EBOS ahead of the announcement, but we still retained some EBOS shares because we did not see EBOS losing the Chemist Warehouse account as the most likely outcome. We have used the share price weakness to buy back some shares at more attractive prices.

Top Holdings as of the 30th of June 2023

Generate total Funds Under Management (FUM) as at 30th of June 2023: $4,133,823,499