International Equities

August was a volatile month for global equity markets. The MSCI World Index had fallen by as much as -7% in early August as fears of an impending recession spread through the market. The World Index then rallied 10% as those fears abated, finishing the month 2.64% higher in USD terms. 

The NZ Dollar also had a volatile month with the rising 5.0% against the USD. Combined, the aforementioned moves meant that world equity markets fell -2.2% in August in NZD terms. 

We believe that trying to adjust our portfolios to reflect these short-term moves is counterproductive, and that we can generate better long-term investment performance by focusing on owning high quality, growing businesses whose stocks are trading at reasonable valuations. 

With that in mind, it was pleasing to see that several of our stocks delivered strong performances during the month. Weight-loss drug manufacturer Eli Lilly gained +19.5%, Uber gained +13.4% and Walmart gained +12.8% after each company delivered strong earnings for shareholders. 

On the other hand, pharmaceutical distributor McKesson had a tougher result, reporting disappointing earnings after several months of strong performance. This led the stock to fall -9.0% during the month. We continue to believe McKesson offers very good value and we have increased the size of our investment during what we believe is an unjustified selloff. 

New Zealand & Australian equities

Companies across New Zealand and Australia began delivering their latest round of earnings reports in August, giving us a chance to assess their performance in the current economic environment.  

So far, a broad range of results have unfolded leading the S&P/NZX50 to rise only 0.3%, in aggregate, over the month. On one hand, Kathmandu rose 28.1% after posting better-than-expected results, surprising the market with increasing sales momentum. On the other hand, A2 Milk dropped -23.3% after reporting a decline in profit margins (more on this below).  

The Australian market was remarkably similar to the NZ market, rising 0.5% over the month. 

Some of the strongest performing stocks in the portfolio came from the Real Estate Investment Trust (REIT) sector, which rose 7.2% for the month - the largest one month gain since last December. This positive return was driven by the Reserve Bank’s cut in the Official Cash Rate (OCR), signaling the potential for a new phase in the interest rate cycle. REIT’s are interest rate sensitive investments, so the OCR cut was a welcome relief for the sector. Precinct, which is mostly an office landlord, rose 10.7%, and Stride, a diversified property manager, rose 14.1%. Meanwhile, Chorus, which owns and operates New Zealand’s largest fibre internet network, increased 8% after posting solid results and offering a material increase in dividend returns. 

Spark produced an underwhelming set of results, missing their earnings guidance set in May, and underdelivering against the market’s expectations. Spark cited the weak economy and the Government’s spending cuts as the primary reasons for their earnings miss. The market is now questioning Spark’s ability to maintain its dividends as the company’s cashflow is currently insufficient to support further dividend growth.  

A2 Milk crashed back to earth, falling -23.3% in August (but the stock is still up 33% year to date). The company provided a softer earnings outlook for 2025, driven by lower birth rates in China, and supply chain issues at Synlait’s Auckland plant, which diluted profit margins. 

Returns to the 31st of August 2024 

(after fees* and before tax) 

Generate KiwiSaver Funds:

Generate Managed Funds:

Except for the $3 per member per month administration expense that is charged to KiwiSaver members.

** The Generate KiwiSaver Scheme funds opened on 16 April 2013. The Generate Focused Growth Trust opened on 1 November 2019.

***Following the launch of new funds in May 2022, our original Conservative Fund was renamed as the Moderate Fund and the Focused Growth Trust has been renamed as the Focused Growth Managed Fund.

^ these funds were established on 16 May 2022

^^ these funds were established on 3 July 2023

Past performance is not necessarily an indicator of future performance.

Generate’s fund updates can be found here.

Top Holdings as of the 31st of August 2024

Generate total Funds Under Management (FUM) as of 31st of August 2024: $6,022,264,576.70

International Equities

Global equities gained +1.7% in September with most major regions finishing in the green on expectations of looser monetary policy and resilient labour markets. China stole the headlines in the middle of the month when it announced a surprise stimulus package aimed at lowering borrowing costs and boosting credit demand. The news was well received by the market, with Chinese equities rising +22% and Hong Kong equities up +18% over the month. It remains to be seen whether these latest stimulus measures will re-ignite the Chinese economy, but with the Chinese share market still -22% below its 2021 highs, a lot of pessimism is arguably baked in.

Generate’s global shares modestly outperformed the index in September. Once again, amongst the best performers were stocks exposed to the ramp in AI investment, such as datacentre services and infrastructure company, Vertiv Holdings, and semiconductor companies, Broadcom and Advanced Micro Devices. Travel companies also bounced back on stronger economic news, with Delta Airlines and Royal Caribbean Cruises both enjoying healthy gains.

At the other end of the scale, healthcare stocks performed poorly in September, with stock-specific issues hurting sentiment towards pharmaceutical companies like Merck and Regeneron. Despite the negative short term price action, we have confidence in the durability of both companies’ franchises.

A rising NZ dollar dampened the returns of our offshore holdings.

New Zealand & Australian equities

The local market gave back some of its August gains over the month of September, with the broad market (S&P/NZX 50) index declining -0.2%. Domestic property stocks in particular have endured a wild ride; after a very strong August, they gave back more than half that in September, dropping -4.4% (measured by the S&P/NZX Property Index).

In a weak month, the Australasian stocks held by the funds generally performed well. The highlights were Manawa Energy (+26%) and Infratil (+11%), both of which benefitted from Contact Energy's takeover offer for Manawa. Manawa Energy owns 26 small hydroelectric schemes scattered around the country. These schemes produce more electricity in winter, making them valuable to Contact Energy whose hydroelectricity facilities have a summer bias. Infratil shares appreciated on the news because it owns just over half of Manawa Energy.

On the negative side of the ledger, Spark continued to perform poorly. Following a disappointing result in August, market participants started speculating that it could exit the all-important MSCI World Index. This would see all of the passive funds that follow the index sell their Spark shares. We generally see such events as an opportunity. We like to take advantage of passive managers' indiscriminate buying or selling by focusing on the long-term fundamentals of the business and taking advantage of temporary pricing anomalies.

Returns to the 30th of September 2024 

(after fees* and before tax) 

Generate KiwiSaver Funds:

Generate Managed Funds:

Except for the $3 per member per month administration expense that is charged to KiwiSaver members.

** The Generate KiwiSaver Scheme funds opened on 16 April 2013. The Generate Focused Growth Trust opened on 1 November 2019.

***Following the launch of new funds in May 2022, our original Conservative Fund was renamed as the Moderate Fund and the Focused Growth Trust has been renamed as the Focused Growth Managed Fund.

^ these funds were established on 16 May 2022

^^ these funds were established on 3 July 2023

Past performance is not necessarily an indicator of future performance.

Generate’s fund updates can be found here for KiwiSaver Funds and here for Managed Funds.

Top Holdings as of the 30th of September 2024

Generate total Funds Under Management (FUM) as of 30th of September 2024: $6,146,284,953.20