When ‘dull’ becomes high praise indeed
In these times of uncertainty, boring shares are the ones that have the edge
Here’s the word on the sharemarket: Dare to be dull. Despite all the volatility on world markets, the local exchange has performed admirably, in no small part because of gains in companies deemed to be not all that exciting.
Since late June — when anxiety about runaway inflation was at its worst — the NZX50 Index has gained 11.5 per cent.
Bond yields spiked higher in June but they have since receded, giving the yield-sensitive New Zealand market a breather.
“We have seen bond yields hit highs and come back, and that process has allowed the stock market to rally,” said Harbour Asset Management portfolio manager Shane Solly.
In the US, the yield curve has gone sharply inverse — with short-term interest rates exceeding long rates — thereby offering a sign that the American economy is about to enter a recession.
In New Zealand the curve is also negative, but not to the same degree.
Solly says the shape of the local yield curve is more consistent with a slowdown, and not necessarily a recession.
Central banks have got to keep tightening monetary conditions to win the race against inflation, but the fact that long-term yields have stopped going up has taken the valuation pressure off stocks, Solly says.
Now, investors are focusing on the degree of slowdown — will it be a soft landing or a hard recession?
The upshot of all this is that investors are now focused on what Solly calls the “high-certainty” stocks — the ones they can rely on to deliver earnings through the economic cycle — or ones that can even grow through the cycle.
In other words, stocks with high pricing power, that aren’t cyclical, nor exposed to discretionary spending.
“The electricity generators and
retailers really shone through this period of time and they are getting earnings upgrades,” Solly said.
Full hydro lakes and wholesale price growth have also aided earnings.
The broader market has been supported by those dare-to-be-dull stocks which most likely form the base of many a Kiwisaver account.
Since mid to late June, Mercury’s share price has gained 23.5 per cent, Meridian’s 21 per cent, Genesis’ 23 per cent and Contact’s is up by 10 per cent.
All four are set to report their annual results this month.
The telcos have also been wellsupported, boosted in part by higherthan-expected prices for their respective cellphone tower networks.
Spark has gained 14 per cent since June and Infratil, which owns Spark’s main competitor Vodaphone NZ, has rallied by 19.5 per cent.
All up, not a bad performance for a market on the verge of an economic downturn.
Mint loses CIO
Fund manager Mint is set to lose its chief investment officer at the end of this month, the second departure of a key staff member in the last year.
Anthony Halls will step down from the role on August 31 and will take an extended period out of the industry due to a medical incident in his family, the company said in a team update this week.
Halls has been with Mint for nine years and before that was manager of the investment analysis team at the New Zealand Superannuation Fund.
His departure follows that of fund manager Carlie Eve. Eve left the firm at the end of last year but remains a shareholder. Halls will also remain a shareholder.
Mint itself underwent a shareholder change last year which saw its ownership come under a holding company called Amplifi Group.
Founder and major shareholder Rebecca Thomas reduced her stake from 80 per cent to 53 per cent while
Australian private investor Ascentro bought a 30 per cent stake in Amplifi.
Halls owns 4.55 per cent and Eve has a 3.89 per cent share with Anthony Olliff and David Cranefield.
Mint has managed money on behalf of the New Zealand Superannuation Fund since 2015 and last year received another $220 million allocation from the fund to bring it up to $675m.
A change in key personnel can often trigger a review by asset managers, especially when it comes alongside poorer performance.
Mint’s flagship Australasian Equity Fund has had a poor run of late.
Figures from Smart Investor show the fund has averaged 6.43 per cent a year over the past five years, below the average of 6.6 per cent for aggressive managed funds.
In the year to March 31, 2022 it was down 4.26 per cent compared to the average for the sector which was up 3.71 per cent. And in 2021 it was up 20.25 per cent compared to the average return of 35.59 per cent.
NZ Super Fund spokesman Conor Roberts said it took a long-term view on performance.
“Mint has performed well since the fund first invested with it in 2015. Anthony Halls’ departure will, in line with our usual manager monitoring processes, prompt us to engage with Mint to discuss their resourcing and capability plans going forward.
“Mint continues to manage $675m on behalf of the NZ Super Fund, including a $220m allocation in 2021 — this mandate remains in place. We look forward to continuing to work with the team.”
Thomas said she was sad to see Halls leave but the investment team remained in very good shape.
“In a testament to Mint’s team approach and depth, the wider investment team will pick up Anthony’s responsibilities seamlessly.”
Michael Kenealy will take over as portfolio manager of the Mint Australasian Property Fund, previously led by Halls, from September 1.
Mint has also hired Ryan Falls as a senior analyst and is looking for another analyst to join its Australasian equity team.
Construction cools
The construction sector looks to be cooling, if the latest statistics on ready-mixed concrete are anything to go by.
In seasonally-adjusted terms, the volume of ready-mixed concrete fell 1.8 per cent in the June 2022 quarter, following a 3.0 per cent fall in the March quarter, Stats NZ said.
In the year ended June 2022,
4.59 million cubic metres of readymixed concrete was produced, up
1.1 per cent compared with the year ended June 2021.
The actual volume of ready-mixed concrete produced was 1.2 million cubic metres, up 0.4 per cent compared with the June 2021 quarter.