Milford Investment Funds Monthly Review December 2020 - Milford Asset Management
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Milford Investment Funds Monthly Review December 2020 Market and Economic Review November was a remarkable month for financial markets. The passing of two significant catalysts – the US election and evidence of effective COVID-19 vaccines, answered key questions for investors and set the stage for large share market rallies. Accordingly, Fund returns in November are broadly strong. The US election is largely resolved with a Biden victory, coupled with a likely Republican retention of the Senate (pending two run-off races in Georgia on the 5th Jan). This outcome should deliver reasonable fiscal support policies (e.g. wage subsidies) but importantly, less likelihood of market unfriendly tax policies and increased business regulation. The multiple phase III vaccine trial results released in the month indicate success in finding an effective COVID-19 vaccine. This encouraging news allows investors to focus on a timeline for the global economy to return to normal, breaking the link between virus cases and economic activity. The reduction in uncertainty has emboldened investors to buy shares, sending global sharemarkets up over 12% in the month (MSCI world) – the largest monthly performance in over 40 years. Local sharemarkets also fared well, particularly Australia – up 10.2% and NZ, up 5.7%. Our funds have been fully invested (holding minimal cash balances), helping capture these large upside moves in the month. Contemplating a post-COVID world has seen investors consider what type of companies might perform well during the economic recovery. The funds have been adding to ‘reopening’ stocks for a while and stocks like Kering (global luxury brands company), Safran and Transdigm (aeroplane parts manufacturers) and the Australian banks (particularly NAB) all performed well for our funds last month. Looking ahead, a vaccine enabled recovery is a story for the second half of 2021. Virus impacted economies such as Europe and the US should experience a significant activity boom, driven by pent up demand. However, the short-term picture is less rosy. Rising virus cases have curtailed economic growth in Europe and the US recovery is also at risk. The vaccine allows us to look through these issues, but we look for further fiscal support as well as progress on a global mass vaccination plan to further support investor confidence. Milford Asset Management Level 28, 48 Shortland Street, Auckland, 1010 Phone: 0800 662 345 Email: Info@milfordasset.com milfordasset.com
Milford Investment Funds Monthly Review as at 30 November 2020
Conservative Fund Actual investment mix 1
Portfolio Manager: Paul Morris
The Fund returned 1.4% in November. Positive vaccine news and a market favourable US
election outcome supported investor risk appetite in November. This benefitted the Fund's
increased share exposure, with notable gains from global and Australian shares, with NZ
shares lagging somewhat.
Near term offshore economies need to navigate new lockdowns but looking medium term a
likely vaccine deployment, combined with fiscal and monetary support, gave us confidence
to increase share exposure. The improved outlook was a headwind for government bonds as Effective Cash# 5.93% Australian Equities
4.83%
markets contemplate an eventual, albeit distant, normalisation of monetary policy. New Zealand Fixed
International Equities
Interest 23.88%
7.04%
The Fund's global bonds did however contribute a strong return as the corporate bond focus International Fixed
Listed Property 3.20%
significantly outperformed government bonds. Australian corporate bonds also delivered a Interest 50.62%
New Zealand Equities Other* 1.65%
reasonable return but NZ corporate and government bond prices generally fell as 2.85%
expectations for a negative Official Cash Rate receded. # The actual cash held by the Fund is 4.53%. Effective
Cash reported above is adjusted to reflect the Fund's
Looking forward, the Fund's share exposure complemented by its corporate bond exposure notional positions (e.g. derivatives used to increase
or reduce market exposure).
should support moderate returns but given prevailing valuations we would reiterate these
may be lower than in previous years. Valuations in corporate bonds are arguably fair but we
still see some attractive opportunities, especially in some lower-rated and subordinated
bonds. Valuations in parts of the equity market appear stretched but there remain myriad
sectors (e.g. some income shares) where we believe they remain attractive and likely to
benefit from the vaccine.
Diversified Income Fund
Portfolio Manager: David Lewis
The Fund rose by 3.3% in November and is up by 3.2% in the past year. Returns were very
strong in share markets given positive vaccine news. Corporate bonds saw moderate gains
in the US and Europe (c1-2%), and were close to flat in Australasia.
Within the share portfolio, we saw very strong gains from a number of companies in the
property and travel sectors that stand to directly benefit from an eventual vaccine rollout. Effective Cash# 5.26% Australian Equities
These included Australian property landlord and developer Mirvac (+22.3%), Sydney Airport New Zealand Fixed
11.96%
International Equities
(+23.1%), Getlink (owner of the Eurotunnel; +20.9%), and Atlas Arteria (owner of toll roads Interest 9.19%
8.40%
International Fixed
mainly in France; +14.9%). On the weaker side, our two holdings in gold miners fell (by 10.3% Interest 41.76%
Listed Property
11.30%
and 16.5%) as investors moved away from perceived safer areas of the market. Together they New Zealand Equities
Other* 1.74%
10.39%
form a modest 0.5% of the Fund.
# The actual cash held by the Fund is 4.30%. Effective
Cash reported above is adjusted to reflect the Fund's
In fixed income, we saw strong gains (3-6%) from European bank hybrids (similar to notional positions (e.g. derivatives used to increase
preference shares), and corporate high yield in the US. Portfolio activity this month included or reduce market exposure).
several changes in our NZ share portfolio (reducing Meridian and Z Energy, while adding
Ryman and a2 Milk), and additions to Telstra, Santos, and European bank hybrids. We remain
active in new issues in the bond market, with new purchases this month including Chorus and
National Australia Bank.
Looking into 2021 the economic growth outlook globally is promising given strong policy
support and the expected vaccines. This suggests a reasonably positive outlook for returns
next year, especially in shares and consistent with the 42.1% exposure to shares in the Fund
currently. The biggest risk next year, which we continue to monitor closely, is an unexpected
jump in interest rates, albeit we currently see this as a low probability.
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.
Milford Investment Funds Monthly Review as at 30 November 2020
Balanced Fund Actual investment mix 1
Portfolio Manager: Mark Riggall
The Fund returned 4.2% in November, bringing one year returns to 8.7%. Events in November
removed two key issues that had kept us from investing more aggressively. The resolution of
the US election and news of an effective COVID-19 vaccine now clears the path to think about
how economies and profits might fare going into next year.
We added to investments over the course of the month to capture this upside, helping deliver
the strong positive returns this month. A vaccine sets the stage for the global economy to
return to normal sometime next year. The outlook for retailers, airlines and tourism stocks Effective Cash# Australian Equities
12.21%
just got a lot brighter. We had considered this outcome ahead of the vaccine news and began 10.98%
International Equities
New Zealand Fixed
investing in 'reopening' beneficiaries such as Spanish airport operator Aena (up 18% in Interest 4.58% 26.91%
Listed Property 7.10%
November). Post the vaccine news, we continue to rotate the Fund to geographies and International Fixed
Interest 22.76%
companies that will benefit. New Zealand
Other* 1.51%
Equities† 13.95%
With a brighter profit outlook, the Fund has been increasing exposure to shares particularly # The actual cash held by the Fund is 7.23%. Effective
in Australia, over bonds and cash. Although the Australian market has been a laggard this Cash reported above is adjusted to reflect the Fund's
notional positions (e.g. derivatives used to increase
year, we like exposure to cyclical companies such as banks and retail REIT's and there are or reduce market exposure).
plenty of high-quality stocks of this type to choose from in that market. With high valuations
and already low interest rates, the longer-term outlook for shares in general is lacklustre.
However, we think careful selection of companies and markets will help deliver reasonable
returns going forward.
Active Growth Fund
Portfolio Manager: Jonathan Windust
The Fund rose 3.9% in November as share markets performed strongly in response to the
Biden presidential win and very positive news around potential vaccines. This news
significantly reduced uncertainty over the outlook for economies and company earnings.
Key positive global companies included those that had been hit by the virus including Virgin
Money (+35.8%), LLoyds (+27.1%) and JP Morgan (+20.2%) and Spanish Airport operator Effective Cash# 4.56% Australian Equities
AENA (+18.2%). Banks benefited from solid earnings results, lower potential bad debts and New Zealand Fixed
15.00%
International Equities
the possibility of restarting dividends. In NZ, Fletcher Building (+36.6%) was a key performer Interest 0.82%
36.04%
International Fixed
with a strong earnings upgrade due to a significant improvement in margins as a result of Interest 11.19%
Listed Property 6.61%
better activity and cost reductions. During the month, we increased investment in New Zealand Other* 1.73%
Equities‡ 24.05%
companies that will benefit from an economic recovery including Australian miner BHP. We
# The actual cash held by the Fund is 4.47%. Effective
believe BHP is attractively valued and will continue to benefit from strong demand and high Cash reported above is adjusted to reflect the Fund's
notional positions (e.g. derivatives used to increase
prices. or reduce market exposure).
Share markets remain supported by very strong stimulus measures from central banks and
governments. Whilst COVID-19 cases remain high, the vaccine news has allowed markets to
look past any short-term economic weakness. The key headwind for shares is high valuations
although relative to low rates these look more attractive. Given reduced uncertainty and
strong stimulus we increased our weight towards shares and reduced cash. The strategy of
the Fund is to remain active to isolate those companies which we believe offer attractive risk
adjusted returns.
Please note this Fund is closed to new investors.
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.
Milford Investment Funds Monthly Review as at 30 November 2020
Australian Absolute Growth Fund Actual investment mix 1
Portfolio Manager: William Curtayne & Wayne Gentle
The Fund had a very strong month as positive vaccine news saw share markets rise sharply.
The Fund’s 4.9% return in November brings the calendar year return to 7.3%.
While our defensive investments such as gold miners and Woolworths had declines over the
month, we made large gains in our cyclical and value investments which included the banks,
Sydney Airport, Sealink Travel and Bluescope.
The positive vaccine news has large implications for our economic and market expectations
Effective Cash# 5.22% International Equities
over the coming few years which has resulted in portfolio changes over the month. Firstly, 1.00%
we materially reduced our gold miners as the improved economic certainty means a large New Zealand Equities Listed Property
10.96% 10.87%
gold hedge is not required. We have retained a smaller position as gold may do well again if Australian Equities Other* 2.44%
inflation concerns flare up during the recovery. We continued to pick up more cyclical and 69.51%
value investments as we see more upside from these companies despite strong gains this # The actual cash held by the Fund is 1.32%. Effective
Cash reported above is adjusted to reflect the Fund's
month. These include Virgin Money UK, insurer IAG, toll road business Atlas Alteria and miners notional positions (e.g. derivatives used to increase
or reduce market exposure).
BHP, RIO and Fortescue Metals. These companies are priced at an attractive discount to our
valuation and we expect this discount to close as the economic recovery progresses.
This results in a more fully invested portfolio weighted toward beneficiaries of the economic
recovery and a cash holding of 5.2%. We are comfortable with this given the improved risk
outlook and investment opportunities available following the vaccine developments.
Trans-Tasman Bond Fund
Portfolio Manager: Paul Morris
Rising Australasian government bond yields (prices lower) were a headwind in the month as
the Fund posted a return of –0.2% in November, broadly in line with its benchmark. NZ
government bonds underperformed Australia as market expectations for a negative Official
Cash Rate diminished post the Reserve Bank of New Zealand’s (RBNZ) Monetary Policy
Statement. This was irrespective of the announcement of the new Funding for Lending
Effective Cash# 6.55%
programme, designed to lower retail bank rates. Other* 0.33%
New Zealand Fixed
The increase in Australian government bond yield was less due to further loosening of Interest 47.18%
International Fixed
monetary policy from the Reserve Bank of Australia, which cut their official cash rate and Interest 45.94%
increased quantitative easing. Positively, the Fund is predominantly exposed to Australasian # The actual cash held by the Fund is 1.75%. Effective
Cash reported above is adjusted to reflect the Fund's
corporate bonds, rather than government bonds, which outperformed on promising notional positions (e.g. derivatives used to increase
announcements from COVID-19 vaccine trials and a more benign US election outcome. We or reduce market exposure).
remain constructive on further outperformance of corporate bonds and participated in new
issuance from Chorus, Bendigo & Adelaide Bank, as well as subordinated issuance from
National Australia Bank and Ampol (Australian fuel & service stations).
Looking forward, monetary policy will likely remain accommodative but incremental support
will depend on the path of the economy. We are less confident of material falls in interest
rates near term and instead believe interest rates will remain range bound, and support more
moderate returns.
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.Milford Investment Funds Monthly Review as at 30 November 2020
Global Corporate Bond Fund Actual investment mix 1
Portfolio Manager: Paul Morris
The Fund posted a return of 1.7% in November, broadly in line with its benchmark. While
government bond yields were higher (prices lower), the Fund benefitted from its exposure
to corporate bonds. Corporate bonds outperformed governments as promising
announcements from COVID-19 vaccine trials and a more benign outcome from the US
election supported market sentiment.
The Fund’s performance was close to its benchmark despite a small underweight to high yield
(HY) bonds which performed particularly strongly on the improving outlook. The Fund took Effective Cash# 2.44%
Other* 4.81%
profit on some of its low-risk investment grade (IG) bonds where we saw less upside, New Zealand Fixed
however, it retains an overweight exposure to IG. Amongst others, the Fund participated in Interest 1.34%
International Fixed
new IG issuance from Verizon (US telco). We continue to see value in the subordinated bonds Interest 91.41%
of IG corporates and better capitalised banks and also participated in subordinated issuance # The actual cash held by the Fund is 0.02%. Effective
Cash reported above is adjusted to reflect the Fund's
from Natwest (UK bank) and Ampol (Australian fuel & service stations), as well as BP plc in notional positions (e.g. derivatives used to increase
or reduce market exposure).
the secondary market.
Looking forward, while valuations cannot be considered cheap; monetary and fiscal policy
support, combined with lower levels of issuance, should help deliver moderate medium-term
corporate bond returns.
Cash Fund
Portfolio Manager: Paul Morris
November’s Reserve Bank of New Zealand (RBNZ) Monetary Policy Statement (MPS) saw
the much-anticipated unveiling of its Funding for Lending Programme (FLP). The objective
of the FLP is to lower retail bank lending rates through reducing the need for banks to retain
more expensive forms of funding, namely term deposits and wholesale market funding. The
expectation of the FLP had already seen many banks reduce their term deposit rates but we
Effective Cash#
expect this trend to continue. 19.29% Other* 0%
New Zealand Fixed
The other note from the MPS was a downplaying of the probability the RBNZ will cut the Interest 80.71%
Official Cash Rate (OCR) into negative territory next year. This combined with better than # The actual cash held by the Fund is 19.29%.
Effective Cash reported above is adjusted to reflect
expected local economic outcomes (including a surging housing market) saw us change our the Fund's notional positions (e.g. derivatives used
base case for the OCR next year to unchanged. If realised that should protect the Fund’s to increase or reduce market exposure).
absolute return, however, we would still expect the impact of the FLP and large cash balances
in the banking system to mean a lot of money will be chasing short-dated assets. This is likely
to further diminish the excess return over the OCR the Fund can generate medium term.
We would however reiterate that these developments have not changed the portfolio
management of the Fund which remains focussed on maintaining a low-risk strategy, built on
a diversified portfolio of cash, short-dated debt securities and term deposits, to protect
capital.
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.Milford Investment Funds Monthly Review as at 30 November 2020
Global Equity Fund Actual investment mix 1
Portfolio Manager: Felix Fok
The Fund rose 5.1% in November but lagged the index, as more economically sensitive
companies like banks and energy companies rallied hard.
Key positive contributors included Indian private bank HDFC Bank (+20.1%), backing up the
strong gains in October. The economic backdrop in India has improved materially with some
economists now expecting double digit economic growth in 2021. Given its strong
management, robust balance sheet, and technology leadership, we believe HDFC is well
positioned to continue taking market share and sustaining growth. French aerospace Effective Cash# 2.47% Listed Property 2.19%
company Safran (+35.1%) was another stand out, as positive news on a COVID-19 vaccine Other* 0.76%
International Equities
increases the likelihood of a gradual return to leisure and business travel sometime in 2021. 94.58%
US diversified industrial conglomerate Ametek posted strong gains (+20.7%) and continues # The actual cash held by the Fund is 1.93%. Effective
Cash reported above is adjusted to reflect the Fund's
to offer exposure to the expected ongoing industrial recovery. notional positions (e.g. derivatives used to increase
or reduce market exposure).
Detractors from performance included Alibaba (-13.6%), giving back recent gains on
disappointment over the suspension of the Ant Group IPO and the potential for new
regulations for platform companies like Alibaba. The rotation away from quality businesses
into more cyclical companies led to weakness in healthcare companies Danaher (-2.1%) and
Thermo Fisher Scientific (-1.7%). Despite the short-term weakness, the long-term outlook for
both companies remains favourable. We are more optimistic on the outlook given the positive
vaccine developments, which provide light at the end of the tunnel.
Trans-Tasman Equity Fund
Portfolio Manager: Sam Trethewey
November was a very strong month for the Fund and the local markets given the US election
outcome and positive COVID-19 vaccine announcements. The Fund returned 7.5% in
November compared to a 5.7% return the NZX50 index and 10.2% return for the ASX200
index. The ASX200 outperformed NZX50 due to its composition. The ASX200 is far more
exposed to cyclical or value stocks which were sought by investors following the vaccine
Effective Cash# 4.40% Listed Property 4.25%
announcements.
New Zealand Equities Other* 1.22%
Key contributors included Mainfreight (+15.6%), energy exposure Santos (+30.2%) and Xero 43.66%
(+20.3%). Mainfreight confirmed a strong first half result; the company grew profits 23.4% Australian Equities
46.47%
despite the impact of COVID-19 and management spoke positively about current trading # The actual cash held by the Fund is 6.02%. Effective
conditions. Xero was added to a large global index and received significant new buying Cash reported above is adjusted to reflect the Fund's
notional positions (e.g. derivatives used to increase
interest; we reduced our position into the share price strength. Elsewhere we added to our or reduce market exposure).
holdings in the Australian banks and rotated our exposure in the Gentailers; trimming
Meridian Energy and adding to Contact Energy and Mercury. The Fund’s investable universe
increased this month with the news that an effective COVID-19 vaccine is likely. Prior to this
there was a risk the companies may not have returned to normal. In the medium-term, the
outlook of many companies will still be determined by the impact of COVID-19, in both a
health and economic sense, over the coming year. Irrespective of short-term market
performance, long-term returns will be heavily influenced by our stock selection.
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.Milford Investment Funds Monthly Review as at 30 November 2020
Dynamic Fund Actual investment mix 1
Portfolio Manager: William Curtayne & Michael Higgins
Small capitalisation companies rallied strongly in November as the market gained confidence
following promising vaccine news combined with favourable policy conditions. The Fund
returned 5.9% for the month which lagged the ASX/S&P Small Ordinaries benchmark return
of 10.1%.
We were very pleased with our strong absolute performance given the rotation away from
the winners from prior months into the laggards. Performance was led by Sealink (+21.9%),
video equipment manufacturer Atomos (58.3%) and payments provider EML Payments Effective Cash# 6.96% Listed Property
(+23.9%). Sealinks Marine and Tourism segment is exposed to in-demand island tourist New Zealand Equities
14.51%
Other* 1.32%
destinations such as Rottnest, Magnet and Fraser Islands. Both anecdotal and industry 12.03%
Australian Equities
feedback suggests that tourism volumes have been strengthening despite international 65.18%
borders remaining closed. Detractors included gold companies Evolution (-10.3%) and # The actual cash held by the Fund is 6.96%. Effective
Cash reported above is adjusted to reflect the Fund's
Saracen (-16.5%) as the vaccine developments changed investors’ risk appetite. notional positions (e.g. derivatives used to increase
or reduce market exposure).
As a potential vaccine also reduces the tail risk of a severe economic outcome, we took the
opportunity to trim some of our gold exposure. We continue to adapt the portfolio by
increasing our exposure to recovery stocks where we can identify relative value. Our target
is to achieve a better balance given the broad array of economic uncertainties and scenarios
in the months ahead.
Upcoming Distributions Target Payment Date
Conservative Fund 0.5 cents (Quarterly) 21/01/2021
Diversified Income Fund 1.1 cents (Quarterly) 18/02/2021
Trans-Tasman Bond Fund 0.45 cents (Quarterly) 17/12/2020
Global Corporate Bond Fund 0.45 cents (Quarterly) 17/12/2020
Trans-Tasman Equity Fund 1.5 cents (Biannually) 18/03/2021
*Other includes currency derivatives used to manage foreign exchange risk.
1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.Milford Investment Funds Monthly Review as at 30 November 2020
Fund Performance
Since Fund
Past month 1 year 3 years (p.a.) 5 years (p.a.) Unit price $ Fund size $
inception (p.a.)
Multi-Asset Funds
Conservative Fund* 1.43% 5.37% 5.81% 6.63% 6.57% 1.2259 551.6 M
Diversified Income Fund* 3.31% 3.21% 6.90% 8.65% 10.74% 1.8290 2,431.7 M
Balanced Fund 4.16% 8.66% 8.57% 9.05% 9.99% 2.6559 1,026.8 M
Active Growth Fund# 3.87% 9.38% 10.35% 10.59% 12.46% 4.3766 1,357.0 M
Australian Absolute Growth Fund 4.91% 6.31% — — 8.08% 1.2339 229.5 M
Cash and Fixed Income Funds
Trans-Tasman Bond Fund*^ -0.24% 5.00% 5.10% 5.14% 5.62% 1.2154 824.7 M
Global Corporate Bond Fund*^ 1.68% 5.39% 4.58% — 5.31% 1.1097 808.2 M
Cash Fund 0.04% 0.75% — — 1.23% 1.0217 111.0 M
Equity Funds
Global Equity Fund† 5.13% 18.34% 11.19% 9.30% 9.86% 2.0300 946.0 M
Trans-Tasman Equity Fund* 7.50% 13.91% 14.92% 15.62% 12.10% 3.6271 640.8 M
Dynamic Fund 5.90% 13.98% 13.30% 13.59% 13.67% 2.4760 459.8 M
For details of how investment performance is calculated, and returns at each PIR please see www.milfordasset.com/funds-performance/view-performance#tab-
performance.
Performance figures are after total Fund charges have been deducted and at 0% PIR.
Please note past performance is not a guarantee of future returns.
Inception dates for the Funds: Active Growth Fund: 1 October 2007, Trans-Tasman Equity Fund: 1 October 2007, Balanced Fund: 1 April 2010, Diversified Income Fund:
1 April 2010, Global Equity Fund: 12 April 2013, Dynamic Fund: 1 October 2013, Trans-Tasman Bond Fund: 2 December 2013, Conservative Fund: 1 September 2015, Global
Corporate Bond Fund: 1 February 2017, Australian Absolute Growth Fund: 1 March 2018, Cash Fund: 1 March 2019.
*Performance figures include the reinvestment of the Funds' distribution.
^Returns prior to 1 March 2018 are from when the Fund was previously offered to wholesale investors only and have been adjusted for current Fund charges.
†Returns prior to 1 October 2018 are from when the Fund was structured to achieve an absolute return.
#The Active Growth Fund is closed to new investors.
Key Market Indices
Past month 1 year 3 years (p.a.) 5 years (p.a.) 7 years (p.a.)
S&P/NZX 50 Gross Index (with imputation credits) 5.68% 13.52% 16.98% 17.10% 16.29%
S&P/ASX 200 Accumulation Index (AUD) 10.21% -1.98% 6.94% 9.05% 7.31%
S&P/ASX 200 Accumulation Index (NZD) 8.69% -2.51% 5.03% 8.01% 6.31%
MSCI World Index (local currency)* 11.97% 12.13% 9.34% 10.32% 9.69%
MSCI World Index (NZD)* 6.06% 4.60% 8.65% 9.45% 11.21%
S&P/NZX 90-Day Bank Bill Rate 0.03% 0.74% 1.48% 1.81% 2.25%
Bloomberg Barclays Global Agg. Bond (USD-Hedged) 0.57% 5.04% 5.12% 4.36% 4.29%
S&P/NZX NZ Government Bond Index -1.79% 4.38% 5.43% 4.97% 5.53%
*With net dividends reinvestedMilford Investment Funds Monthly Review as at 30 November 2020
Top Security Holdings (as a percentage of the Fund’s Net Asset Value)
Multi-Asset Funds
Australian Absolute
Conservative Fund Diversified Income Fund Balanced Fund Active Growth Fund
Growth Fund
Scentre Group 5.125% Contact Energy 2.47% Fisher & Paykel Healthcare Fisher & Paykel Healthcare National Australia Bank
2080 1.44% 2.26% 4.81% 6.53%
NZLGFA 1.5% 2029 1.17% Spark New Zealand 2.27% Spark New Zealand 1.85% Spark New Zealand 3.81% BHP Group 5.49%
Housing NZ 3.36% 2025 Scentre Group 5.125% Contact Energy 1.52% Summerset Group Fisher & Paykel Healthcare
1.14% 2080 2.18% Holdings 2.64% 5.00%
NAB Float 2030 1.11% Woolworths 1.64% a2 Milk Company 1.19% a2 Milk Company 2.07% Woolworths 4.63%
NZLGFA 3.5% 2033 1.07% Transurban Group 1.64% Scentre Group 5.125% Dr Horton 1.99% IAG 3.89%
2080 1.18%
Westpac 2.22% 2024 Goodman Group 1.62% Alphabet 1.06% Contact Energy 1.80% ANZ Banking Group 3.69%
1.06%
IBRD 0.625% 2027 0.99% Telstra Corp 1.53% Microsoft Corp 0.97% EBOS Group 1.72% Telstra Corp 3.45%
AusNet Float 2080 0.95% Wesfarmers 1.53% Woolworths 0.94% Scentre Group 5.125% Charter Hall Retail 3.00%
2080 1.55%
Transpower 1.735% 2025 Meridian Energy 1.39% Telstra Corp 0.93% Alphabet 1.48% Wesfarmers 2.91%
0.92%
ASB Bank 1.83% 2024 Coles Group 1.37% Amazon 0.90% Kiwi Property Group 1.42% CSL 2.79%
0.91%
Note: Fixed interest securities are reported in the following format: Issuer name, interest (coupon) rate, maturity year, size of fund holding (as % of total portfolio).
Cash and Fixed Income Funds
Trans-Tasman Bond Fund Global Corporate Bond Fund Cash Fund
Housing NZ 3.36% 2025 2.54% Seagate 4.091% 2029 1.73% Westpac 32 Day CMD 2020 10.46%
NZLGFA 1.5% 2029 2.52% American Tower 3.8% 2029 1.65% Kiwibank 0.6% 2021 8.56%
NZLGFA 3.5% 2033 2.39% Kerry Group 0.625% 2029 1.64% Meridian CD 2021 6.03%
Westpac 2.22% 2024 2.37% Danaher Corp 0.45% 2028 1.56% ANZ 1.15% 2020 4.51%
IBRD 0.625% 2027 2.21% Scentre Group 5.125% 2080 1.56% Port of Tauranga CD 2020 4.50%
Transpower 1.735% 2025 2.06% NXP BV 4.3% 2029 1.48% NZLGFA 0% 2021 4.50%
ASB Bank 1.83% 2024 2.03% McDonald's 3% 2024 1.46% Genesis Energy 0% 2021 4.50%
ANZ Bank Float 2024 1.91% NAB Float 2030 1.40% Contact CD 2021 4.50%
Macquarie Group Float 2025 1.81% Crown Castle 2.25% 2031 1.38% ANZ 0.45% 2021 3.60%
Ausgrid Finance 1.814% 2027 1.69% John Deere 1.75% 2024 1.36% Housing NZ 0% 2020 3.60%
Note: Fixed interest securities are reported in the following format: Issuer name, interest (coupon) rate, maturity year, size of fund holding (as % of total portfolio).Milford Investment Funds Monthly Review as at 30 November 2020 Top Security Holdings (as a percentage of the Fund’s Net Asset Value) Equity Funds Global Equity Fund Trans-Tasman Equity Fund Dynamic Fund Alphabet 3.78% Fisher & Paykel Healthcare 8.20% Sealink Travel Group 4.42% Amazon 3.57% a2 Milk Company 5.21% Fisher & Paykel Healthcare 4.28% Microsoft Corp 3.38% Mainfreight 4.13% EML Payments 3.42% Apple 3.11% Commonwealth Bank 3.54% Collins Foods 3.38% Intercontinental Exchange 2.86% BHP Group 3.41% Seven Group Holdings 3.05% HDFC Bank 2.72% CSL 3.40% Bapcor 3.02% Transunion 2.48% Infratil 2.95% CSR 2.87% Paypal Holdings 2.41% Xero 2.78% Lifestyle Communities 2.85% Danaher 2.34% Auckland Airport 2.74% IPH 2.78% CX Corporation 2.27% Ryman Healthcare 2.60% EQT Holdings 2.71% Note: Fixed interest securities are reported in the following format: Issuer name, interest (coupon) rate, maturity year, size of fund holding (as % of total portfolio).
Milford Investment Funds Monthly Review
Investment Highlight - Atlas Arteria
Australian investors have two domestic stocks available to them in the
toll-road sector. Transurban (TCL) is a market darling with a market cap
of A$40bn, that owns roads in Sydney, Melbourne, Brisbane, and North
America. The other is the less familiar Atlas Arteria (ALX), with a market
cap of A$6bn, with roads in France, Germany, and the US. ALX has a raft of
complexities that make analysis difficult, but we believe this complexity
plus a COVID-19 overhang, has created an attractive investment
opportunity.
ALX is less well known than TCL in part because of its size, but also
Dan Simmonds because it has no Australian assets, meaning domestic investors have less
Portfolio Manager “road-feel” for the assets. ALX’s main asset is APRR in France, a 2,318km
road network connecting Paris to Lyon, which we estimate makes up ~90%
of the intrinsic value of its share price.
With France returning to lockdown, traffic levels are tracking down 40% November vs. last year. We have
seen that traffic levels are quick to recover post lockdowns, e.g. traffic was down 80% for APRR in March/
April but recovered to flat vs. 2019 in the summer months. So, there is a light at the end of the tunnel.
Some further complexity is added through the ALX ownership structure. ALX owns 31.14% of APRR and the
asset is therefore not consolidated in ALX’s financial accounts. Further, a dividend paid by APRR must pass
through several trust entities with layers of debt, interest and management fees paid along the way, before
ALX are paid their share.
While still complex, CEO Graeme Bevans has made significant improvements to the holding structure since he
joined in April 2019. ALX raised equity of A$1.35bn in Nov 2019 and A$495m in May 2020, with the funds used to
remove fee leakage paid to external consultants, improve governance and pay down A$603m of debt.
With regards to valuation, ALX has a 2022 consensus dividend yield of 6.1%, while TCL’s equivalent yield is
3.7%. But this is not comparing apples with apples, since ALX has a longer license to operate the roads and
tolls than TCL. We estimate that ALX offers a high single digit internal rate of return which we see as attractive.
There may also be upside from concession re-negotiations with the French government and from the US asset
Dulles Greenway.
ALX is an example of the type of company we find attractive in the global real asset space. A high-quality
monopolistic asset with stable future cashflows, that is currently trad ing at a d epressed share price. The
complexity of the organisation makes the stock somewhat difficult to understand but the steps the CEO is
taking to simplify the structure should help to add value over the long term.
Disclaimer: This article is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as
investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser. Past performance is not a guarantee of future performance.Disclaimer: The Milford Monthly Review has been prepared by Milford Funds Limited. It is based on information believed to be accurate and reliable although no guarantee can be given that this is the case. No reproduction of any material either in part or in full is permitted without prior permission. For more information about the Funds please refer to the Product Disclosure Statement or the latest Quarterly Fund Update.
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