16 Jan 2018

Quarter in review

Hmm … Complacency?  Euphoria?

The S&P 500 posted positive total returns in every month of the calendar year in 2017.  This is the first calendar year without a monthly loss going back 90 years! The S&P/NZ50 also shared this honour for 2017, more on that in our commentaries.

And to top the year off, the major New Zealand, Australian and US equity indices were all up over 5% for the quarter. 

The VIX is at all-time lows.  Leveraged short volatility ETFs and ETF ETFs are growing fast. Bitcoin bubbles.  Probably pays to be a little careful out there. 

However, we are not convinced the bull market is done yet.  See our “Outlook”.

 

Ranger Fund

It was a good quarter for the Ranger Fund, driven by performance in both our Value and Quality categories.  This was particularly pleasing given the high level of cash held by the fund.

Boom Logistics was the standout Value performer.  In December it gave the least pessimistic outlook statement that we have seen since investing, you might even call it optimistic.  Boom is still very cheap, in our opinion, being at a discount to heavily impaired net tangible assets.  Positive contributions were shared in our Quality category by Afterpay, Redbubble, and Kogan.  All are likely to be beneficiaries of what appears to be strong Christmas retail sales.

Wellcom was our largest detractor for the quarter as investors appear to be fixated on a potentially weak earnings result.  If they are, in our opinion, they are missing the fantastic long-term outlook for this business.

There were no additions to the fund this quarter, just a bit of tweaking.  We increased our position in Afterpay as our conviction on the quality of the business increased and reduced our weight in Corporate Travel on price strength.  We still believe Corporate Travel has a bright outlook over the long run.

 

5 Oceans Fund

Our globally diversified 5 Oceans Fund also had a good quarter, posting three solid positive months.

The holding in our Australasian Ranger Fund (discussed above) was the standout for the period.  The Acadian global equity strategy was also a strong contributor, the currency hedging we have in place helped smooth the month to month returns and as the NZD weakened we gradually increased the overall amount of hedging in place.

Both bond managers AMP and Kapstream had uneventful quarters delivering steady returns above cash.

Our tail risk manager Kohinoor, who to recap invest predominantly in long-dated out of the money options, unsurprisingly, had a poor quarter as volatility continued to drive lower.  We continue to see volatility as one, if not the only, global asset class that is actually good value and topped up accordingly. 

 

Trans-Tasman Strategy

It was a good quarter for the Trans-Tasman Strategy, driven by performance in both our Value and Quality categories. 

Positive contributions were shared in our Quality category by Afterpay, Redbubble, and Kogan.  All are likely to be beneficiaries of strong Christmas retail sales.

Boom Logistics was the standout Value performer.  In December it gave the least pessimistic outlook statement that we have seen since investing, you might even call it optimistic.  Boom is still very cheap, in our opinion, being at a discount to heavily impaired net tangible assets.   

There were no major detractors to performance, our underweight in Ryman coming closest.

We increased our position in Afterpay as our conviction on the quality of the business increased and reduced our weight in Corporate Travel on price strength.  We still believe Corporate Travel has a bright outlook over the long run.  We also moved to a small underweight position on Z Energy.  Z Energy is now in our pool of index stock that we use to fund our overweights.  It’s moat characteristics previously exempted it from this pool, but we expect the new government to take a good look at petrol pricing.