NZ Fund Managers

[Jack]

Would appreciate thoughts / recommendations on NZ Fund managers. Was thinking of Milford but open to helpful comments etc.
Cheers

[Snoopy]

Would appreciate thoughts / recommendations on NZ Fund managers. Was thinking of Milford but open to helpful comments etc.
Cheers

Hi there... I am looking to put some money with a NZ or Australian based fund, but.. i refuse to put my money with some turkey who has his main interest being to ensure he sticks close to index or ensure he doesnt have portfolio position such that he wont be too far out of line with index. I am looking for someone who wants to achieve -absolute returns- for the investor... ie; actually managing it, rather than just accumulating it.. I have no time for someone who charges you for managing your money, then parks it against index, loses some of it, then justifies the losses by saying the index lost money as well -- or even worse ' we are legends because the index lost 10% and we only lost 9%'. I want a proper fund manager who has a set of nuts... If anyone knows of any funds that have a goal of achieving absolute returns I would be interested to hear....
cheers

I am doing my own investigation into NZ based fund managers and find myself thinking along the same lines as GBPNZDBASISTRADER. So I thought I would share some of my thoughts on this thread. Are Milford the answer to Jack's question? They could be.

Milford have three share based funds with a track record:

1/ 'Global Equity Fund'

Investment Theme	Almost entirely invested in non Australasian shares. From the disclosed holdings they are are heavily biased towards the NYSE and the NASDAQ. The only disclosed holding that does not fall under that umbrella is LVMH. 'Moët Hennessy Louis Vuitton', commonly known as LVMH, is a French holding multinational corporation and conglomerate specializing in luxury goods, headquartered in Paris. I have heard of those brands but know nothing about the company. So maybe it is evidence of thinking outside the index box?
Currency Hedging Policy	0%, 50%, 100% (mid figure is neutral exposure)
Principal Holdings	Three of the funds top four holdings (Microsoft, Alphabet (was Google) and Apple) also top the NASDAQ capitalisation list. But absent from a top ten holding position is NASDAQ number 3, Amazon and NASDAQ number 4 Tesla. Those were interesting omissions, I thought.
Distribution over FY2022	None
Total value of fund	@31-03-2022 was $886.0m
Base management fee	= 1.35%
Fund risk rating	'5' (where '1' (Cash) is the least risky and '7' the most risky)

2/ 'Dynamic Fund'

Investment Theme	Australian mid-cap shares
Currency Hedging Policy	-20%, 0%, 50% (mid figure is neutral exposure)
Principal holdings	Collins Foods (A YUM Brands franchisee), Credit Corp Group, Metcash, IPH Limited (deals with legalities of Intellectual Property), Contact Energy (looks like the Aussies have adopted Contact as their own), Seven Group Holdings, Carsales.com and Lifestyle Communities (retirement village owners).
Distribution over FY2022	None
Total value of fund	@31-03-2022 was $778.7m
Base management fee	= 1.35%
Fund risk rating	'6', but is now closed to new investment.

3/ 'Trans-tasman Equity Fund'

Investment Theme	Stock picking across the NZX and the ASX
Currency Hedging Policy	-10%, 0%, 60% (mid figure is neutral exposure)
Principal Holdings	F&P Healthcare, Mainfreight, Ebos, CSL Limited, Infratil, BHP, CBA, NAB, Contact Energy and Auckland International Airport
Distribution over FY2022	3.0cpu (based on a unit price of 3.7875 @05-05-2022 and a tax rate of 28%, this is a gross yield of 1.10%)
Total value of fund	@31-03-2022 was $811.5m
Base management fee	= 1.05%.
Fund risk rating	'5'

-------------------

Miford's statement on Investment Policies and Objectives is here:
https://milfordasset.com/wp-content/...Funds-SIPO.pdf

An omission from the Milford line up is that there is no purely New Zealand based share fund. What does that omission indicate I wonder? (Edit later: In the video presentation below (post 3), it was mentioned that Milford now have too large a quantum of funds to manage to allow them to operate a pure NZ market based share fund).

If I add Milford's 'Investment Leadership Team' to Milford's 'Investment Team' I get a total of 33 people.

SNOOPY

[Snoopy]

I am doing my own investigation into NZ based fund managers and find myself thinking along the same lines as GBPNZDBASISTRADER. So I thought I would share some of my thoughts on this thread. Are Milford the answer to Jack's question? They could be.

Interesting Q&A session video from Milford here from June 2021.

https://www.youtube.com/watch?v=jPu8RXF47gU

At 8.5minutes Felix Fok (Global Asset Manager) talks about selecting companies that go into the Active Growth Fund. The key points articulated are:

1/ Look for upside and opportunity for earnings growth.
2/ Look for companies where customers and strong and in a favourable spot in the economic cycle.
3/ Ask yourself a basic question: Why does this company exist? What is the job this company is doing for its customers?
4/ Check who are the competitors.
5/ How are the shares priced in terms of valuation, compared to other parts of the market? Then make a risk/reward judgement.
6/ Direct investments towards companies not so affected by rising interest rates (e.g. banks).
7/ Integrate ESG (Environmental, Social and Governance) into every investment decision: Consider emissions, and social responsibility across supply chains. ESG risks do not have to be eliminated, but do have to be managed well. Will not invest in tobacco manufacturers, companies involved in a broad range of weaponry or the processing of whale meat. Disclosure within companies is very important.
8/ Risk is measured by 'valuation of shares' (current value verses long run estimates) 'sentiment' (are investors getting carried away) and what are the 'catalysts on the horizon' (what will cause people to change their mind). E.G. took some money off table in January and February 2020 when the Covid-19 catalyst appeared and before the market dipped.

Other comments of note:

9/ Struggling to invest meaningful amounts in NZ companies due to growing size of Milford. Australia now thought of as a 'home market'.
10/ Overexposed (deliberately) to technology companies in Global Equities, based on expected value at a future date. Technology is 'fundamentally exciting'.
11/ Think traditional ICE vehicle makers will have a tough time. Investing in semiconductors as some of the fundamental building blocks of EVs. Also keen on autonomy. Not picking Tesla specifically, as not sure which of the car makers will come out in front. Have a minimum market cap for investment, so can't invest in very small start ups.
12/ Bitcoin and other cryptocurrencies intriguing, but Milford at the 'continue to monitor' stage. Has too many unknowns and question marks. Cryptocurrencies can also be emissions intensive, as computers mine the pure data. Invested in Paypal that allows investors to pay for items in cryptocurrency via a Paypal wallet. Also invested in 'Intercontinental Exchange' in the USA, which has a subsidiary providing futures trading and options in cryptocurrency. Invested in 'Taiwan semiconductor' which helps manufacture specific cryptocurrency mining chips.
13/ Regard the retirement sector as a proxy for investing in the NZ property market. Have reduced exposure in this sector in anticipation of a moderating property market.

SNOOPY

[Muse]

Interesting Q&A session video from Milford here from June 2021.

https://www.youtube.com/watch?v=jPu8RXF47gU

At 8.5minutes Felix Fok (Global Asset Manager) talks about selecting companies that go into the Active Growth Fund. The key points articulated are:

1/ Look for upside and opportunity for earnings growth.
2/ Customers and strong and in a favourable spot in the economic cycle.
3/ Ask yourself a basic question: Why does this company exist? What is the job this company is doing for its customers?
4/ Check who are the competitors.
5/ How are the shares priced in terms of valuation, compared to other parts of the market? Then make a risk/reward judgement.
6/ Direct investments towards companies not so affected by rising interest rates (e.g. banks).
7/ Integrate ESG (Environmental, Social and Governance) into every investment decision they make: Emissions, social responsibility across supply chains. ESG risks do not have to be eliminated but do have to be managed well. Will not invest in tobacco manufacturers, companies involved in a broad range of weaponry or the processing of whale meat. Disclosure is very important.
8/ Risk is measured by 'valuation of shares' (current value verses long run estimates) 'sentiment' (are investors getting carried away) and what are the 'catalysts on the horizon' (what will cause people to change their mind). E.G. took some money off table in January and February 2020 when the Covid-19 catalyst appeared and before the market dipped.

Other comments of note:

9/ Struggling to invest meaningful amounts in NZ companies due to growing size of Milford. Australia now thought of as a 'home market'.
10/ Overexposed (deliberately) to technology companies in Global Equities, based on expected value at a future date. Technology is 'fundamentally exciting'.
11/ Think traditional ICE vehicle makers will have a tough time. In vesting in semiconductors as some of the fundamental building blocks of EVs. Also keen on autonomy. Not picking Tesla specifically as not sure which of the car makers will come out in front. Have a minimum market cap for investment, so can't invest in very small start ups.
12/ Bitcoin and other cryptocurrencies intriguing but Milford at the 'continue to monitor stage. Has too many unknowns and question marks. Cryptocurrencies can also be emissions intensive, as computers mine the pure data. Invested in Paypal that allows investors to pay for items in cryptocurrency via a Paypal wallet. Also invested in 'Intercontinental Exchange' in the USA, which has a subsidiary providing futures trading and options in cryptocurrency. Invested in 'Taiwan semiconductor' which helps manufacture specific cryptocurrency mining chips.
13/ Regard the retirement sector as a proxy for investing in the NZ property market. Have reduced exposure in this sector in anticipation of a moderating property market.

SNOOPY

interesting - and thanks for sumarising that.
Not with milford or any of their peers but always have regarded them fairly well.
I'd rather invest in milford itself. fund manager economics - particularly those exposed to & able to retain default kiwisaver status - are sublime.

[Snoopy]

10/ Overexposed (deliberately) to technology companies in Global Equities, based on expected value at a future date. Technology is 'fundamentally exciting'.

There is a price to pay for 'excitement'.

	Share Price 28-04-2022	PE ratio	Price Change 01-012022 to 28-04-2022
Microsoft	$282.33	30.13	-15.4%
Alphabet	$2,285.89	20.37	-21.2%
Apple	$156.57	25.99	-14.0%

These are big hits for three of the four largest investments in the Milford Global Equity Fund, representing 12.27% of the fund. as at 31-03-2021. Although I do note that the whole NASDAQ index is down 21.12% from the start of the year. I don't follow any of these shares. But those PE ratios are historical, and forward forecast PEs are likely higher. So I don't see Microsoft, Alphabet or Apple as 'cheap' - even now.

Annual return to 31-03-2022 was 5.66% after fees and taxes, down from 24.14% just 3 months earlier! Clearly the first quarter has been unkind to Milford Global Equities! Rising interest rates can deal a double blow to growth stocks, firstly due to a present day reduction of earnings, and secondly due to a rising discount rate affecting the present value of future earnings.

The fund rocketed by 37.36% over YE31-03-2021, against a long term average growth rate of 10.88% p.a.. So I don't think it is out of line to say that a correction is overdue. But is the correction finished?

SNOOPY

[Snoopy]

There is a price to pay for 'excitement'.

	Share Price 28-04-2022	PE ratio	Price Change 01-012022 to 28-04-2022
Microsoft	$282.33	30.13	-15.4%
Alphabet	$2,285.89	20.37	-21.2%
Apple	$156.57	25.99	-14.0%

These are big hits for three of the four largest investments in the Milford Global Equity Fund, representing 12.27% of the fund. as at 31-03-2021. Although I do note that the whole NASDAQ index is down 21.12% from the start of the year. I don't follow any of these shares. But those PE ratios are historical, and forward forecast PEs are likely higher. So I don't see Microsoft, Alphabet or Apple as 'cheap' - even now.

Annual return to 31-03-2022 was 5.66% after fees and taxes, down from 24.14% just 3 months earlier! Clearly the first quarter has been unkind to Milford Global Equities! Rising interest rates can deal a double blow to growth stocks, firstly due to a present day reduction of earnings, and secondly due to a rising discount rate affecting the present value of future earnings.

The fund rocketed by 37.36% over YE31-03-2021, against a long term average growth rate of 10.88% p.a.. So I don't think it is out of line to say that a correction is overdue. But is the correction finished?

A weeks or so on, and how is the correction at Milford going?

	Share Price 05-05-2022	PE ratio	Price Change 01-012022 to 05-05-2022
Microsoft	$277.35	28.93	-17.15%
Alphabet	$2,330.11	21.07	-19.65%
Apple	$156.77	25.48	-13.87%

Is this what they call a double bottom?

SNOOPY

[Snoopy]

I have just noticed that one of my like with like comparisons is not as 'like with like' as it could have been.

I was looking at the "Kiwi Wealth KiwiSaver Scheme - Growth Fund"
https://www.kiwiwealth.co.nz/assets/...-June-2021.pdf

When I might have been better to consider the "Kiwi Wealth Managed Funds - Growth Fund"
https://www.kiwiwealth.co.nz/assets/...-June-2021.pdf

What is the difference between the two? Apart from the first being part of the Kiwisaver scheme and the other not (meaning you can withdraw your funds from that second entity at any time)? The top ten constituents (as at 30th June 2021) line up alongside each other as follows:

	Kiwiwealth Kiwisaver Scheme Growth Fund	KiwiiWealth Growth Fund
Microsoft Corp	2.78%	3.31%
Apple Inc	2.50%	2.95%
Westpac NZD cash account	2.37%	2.07%
Alphabet Inc	1.89%	2.26%
Amazon.com Inc	1.86%	2.22%
Two Trees Global Macro UCITS	1.52%	?%
GMO Systematic Global macro Trust	1.50%	?%
facebook Inc	1.20%	1.45%
ISAM Systematic Trend Q-Sep19	0.98%	?%
ASML Holding NV	0.91%	1.11%
Nestle SA	?%	0.98%
Visa Inc	?%	0.92%
United Health Group	?%	0.91%

Observations

1/ If we follow down each list top to bottom, then the individual international stocks held rank in the same order (from higher percentage held to lower percentage held).
2/ The Kiwiwealth Kiwisaver Growth Fund held a slightly higher holding of cash at the comparison date.
3/ The Kiwiwealth Kiwisaver Growth Fund held three hedge funds in their top ten holdings, while the straight 'Growth Fund' held none in their top ten holdings.

Discussion

New Zealand managed investments are rated on a 1 to 7 scale. A fund rated '1' carries the least risk while a fund rated '7' carries the most. A hedge fund on its own would normally be seen as the most risky class of investment of all (class 7). 'Cash in the bank' gives an entirely predictable return (class 1). Superficially then, it seems odd that the fund with the highest declared holdings of hedge funds (Kiwisaver) has a lower risk profile of 'Class 4', compared to the fund with no declared hedge fund holdings (Managed Growth) with a 'Class 5' risk profile. One explanation of this could be hedge funds and ordinary share funds tend to operate in negatively correlated cycles. This means it can be good news for a hedge fund when markets go down, whereas clearly this is not good news for a fund that holds only company stocks. That in turn means that 'taken together', the volatility of a managed fund that includes hedge fund components may be less than the volatility of a fund that holds only shares.

What actually happened to returns over the years ended 30th June 2021 and 30th June 2022?:

Returns	Year Ended 30th June 2021	Year Ended 30th June 2022
KiwiWealth Kiwisaver Growth (after tax & fees)	23.91%	-10.80%
KiwiWealth Kiwisaver Growth fees	1.11%	1.12%
KiwiWealth Managed Growth (after tax & fees)	28.10%	-11.10%
KiwiWealth Managed Growth fees	0.95%	0.96%

This is pretty much as expected. The fund with the most hedging produced a moderated annual return in good times. But when market conditions turned sharply negative, the losses on the annual return were also moderated.

SNOOPY

[Snoopy]

There is a price to pay for 'excitement'.

	Share Price 28-04-2022	PE ratio	Price Change 01-012022 to 28-04-2022
Microsoft	$282.33	30.13	-15.4%
Alphabet	$2,285.89	20.37	-21.2%
Apple	$156.57	25.99	-14.0%

These are big hits for three of the four largest investments in the Milford Global Equity Fund, representing 12.27% of the fund. as at 31-03-2021. Although I do note that the whole NASDAQ index is down 21.12% from the start of the year. I don't follow any of these shares. But those PE ratios are historical, and forward forecast PEs are likely higher. So I don't see Microsoft, Alphabet or Apple as 'cheap' - even now.

Annual return to 31-03-2022 was 5.66% after fees and taxes, down from 24.14% just 3 months earlier! Clearly the first quarter has been unkind to Milford Global Equities! Rising interest rates can deal a double blow to growth stocks, firstly due to a present day reduction of earnings, and secondly due to a rising discount rate affecting the present value of future earnings.

The fund rocketed by 37.36% over YE31-03-2021, against a long term average growth rate of 10.88% p.a.. So I don't think it is out of line to say that a correction is overdue. But is the correction finished?

The 'excitement' continues.

	Share Price 09-12-2022	PE ratio	Price Change 01-012022 to 09-12-2022
Microsoft	$247.40	26.77	-26.1%
Alphabet	$93.71	18.97	-35.4%
Apple	$156.57	23.33	-21.6%

Notes

1/ Alphabet underwent a 20:1 share split on 18th July 2022. The beginning of year share price was adjusted accordingly for comparison purposes.
2/ Those PE ratios are historical,

-------

The hits for two of the five largest investments in the Milford Global Equity Fund (Microsoft and Alphabet) have got bigger. Apple, the largest company on the NASDAQ has fallen out of Milford's top ten holdings. To give a sense of context, the entire NASDAQ has fallen by 30.01% year to date as I write this.

The top three constituents of the Milford Global Equity Fund are now Elevance Health Inc (a US based NYSE listed medical insurance provider), Boston Scientific (a US based NYSE listed manufacturer of medical devices) and HCA Holdings (a US based NYSE listed owner of hospitals)

"Technology stocks have been weak this year and our decision to reduce exposure to companies such as Amazon (-9.3%) and Alphabet (-1.5%) was validated as earnings released from these companies in the month disappointed expectations."

For the active growth fund the unit price at the start of the year was $5.26. As at the end of October it was $4.75. This represents a unit price loss of 10%.

Annual return for the fund to 31-10-2022 was -7.32% after fees and taxes.

It is never good to lose money on the markets. But in relative terms, looking at what has happened in other markets, this result doesn't look too bad!

SNOOPY

[Snoopy]

Finding Opportunities Amongst the Volatility

https://milfordasset.com.au/insights...he-volatility/

Notes I have made from the above webinar are below:

How Macro Views Influence Portfolio Positioning William Curtayne, Co-Portfolio Manager of the Milford Australian Absolute Growth Fund

1/ We are the most cautious we have been on USA and NZ equities. Australia is somewhat cushioned by strong commodity prices (wheat, coal, iron ore (prices on iron ore higher in the cycle than other commodities) , LNG, oil) copper lithium). In the US those in the bottom quintile of earnings have lost by far the highest proportion of their purchasing power, due to interest rates rising, and the loss of stimulus cheque payments. Wage increases are not compensating for this. The purchasing power of consumers has begun to weaken around the world and this will eventually flow into equity prices over the next 12 to 18 months.

2/ Companies will be paying more for labour and cost inputs. Given the pressure on consumers it is going to be hard to pass these costs on. Inflation is increasing the cost of necessities (energy prices and food in supermarkets)

3/ We talk about the USA because they are probably at the forefront of facing these pressures. Australian consumers are relatively better placed.

4/ Auckland New Zealand is at the forefront of the world in the housing market, because interest rates started to go up earlier in New Zealand than in any other developed nation. We believe house prices will go down at least 20% in Auckland. (House prices would have to decline 30% to get back to where they were pre-Covid. We believe there would be some kind of government policy intervention if things got that bad.) At the 20% equity lost point, the wealthier parts of the economy are going to feel a bit of 'negative equity effects' and tighten their belts. The NZ economy is our 'crash dummy' for what may occur in the rest of the world.

Why Australia Looks better than NZ or the USA Regan van Berlo - Head of Distribution -Milford Australia,

5/ The Russian crisis is creating a safe haven status for Australian equities (CBA bank and BHP being prime examples). We ourselves have bought more energy positions (Santos a key pick) and miners, particularly gold miners, and have stuck with them. We believe the Russian crisis will play out for a bit longer than expected (simply because three out of the five military commentators we have talked to say that - we are not geopolitical experts ourselves). We think a lot of the energy companies and gold miners are well priced even without the war.

6/ Australia is delayed with inflation w.r.t. the rest of the world. The labour market in Australia is not quite as tight as in NZ and the USA. Good crop yields and lots of rainfall has made fresh food prices weaker. There is also a delay in forcing through imported food price rises because of contract structures.

7/ Lagging inflation has allowed the Reserve Bank of Australia to be the most dovish central bank in the world. That flows thorough to property prices not falling as they are in NZ, and the consequent wealth effects on the consumer.

8/ We have avoided a lot of the pain in the IT sector, and also trimmed quality growth stocks that are not necessarily IT. like 'James Hardie', REA, Carsales.com and Goodman Group on the assumption that interest rates would be stickier and go up. But we have remained defensive by maintaining big supermarket exposures (a big inflation beneficiary with margins expanding because of inflation). We are investing in Metcash, Coles and Woolworths to varying degrees.

9/ Earnings strength seen in financials. Have trimmed the big banks somewhat, but are into 'Virgin Money, ticker VUK' (should do well as UK interest rates spike). NAB is our key banking stock as it adopts technology, catching up with CBA in this space. Technology means quick approval of mortgages. if you don't have that, you have to compete on price - which is not good for margins, or you compete on asset quality by giving looser credit terms (not good either). NAB sets the standard on SME lending as well.

10/ Healthcare company valuations are improving a bit (CSL).

11/ Valuation of Real Estate Investment Trusts REITs. Over 6% dividend yield is attractive like charter hall (CQR), and they also offer inflation protection.

12/ Favorite in the supermarket sector is 'Metcash'. Wholesaler to independent grocery retailers and now 50% of business is tools and hardware. High fixed cost base but inflation allows one to leverage this. More people working from home after Covid-19 means more people shopping locally at small independent supermarkets. At 15x earnings verses Woolworths on 28 and Coles on 22, Metcash looks like the value investors choice.

13/ The relative underinvestment in iron ore. China, the biggest market for commodities has some positives and negatives. China is determined not to go back to the old world of stimulating property. Demographics mean property construction is in decline anyway. China wants better technology and to be less reliant on overseas goods, and less reliance on Australian iron ore in the future. Consequently we expect iron ore prices to decline in the medium term, and we have been taking profits while the iron ore futures price has been bid up by speculators. Omicron in China and the associated lock downs cools the short term demand picture for construction and iron ore.

Nevertheless the remilitarization of the world's forces does require steel (raw material iron ore) and 3% of the world's iron ore supply does come out of the Ukraine. But the market is more positive for other metals, Nickel, Copper , Energy (LNG, Oil and coal).

14/ BHP and Rio Tinto are the go to investments for global fund managers who find themselves short on exposure to commodities.

---------------------

My comments

This investment management style at Milford is very different to Fishers. There is a clear aim to 'catch the mood of the market' at Milford, with less attachment to their long term favourites. it is interesting that from a more international perspective that these guys based in Australia take, they don't fancy investment in New Zealand at all (the one exception being Contact Energy which falls under their energy sector preference and has a superior dividend yield). The NZ market is seen as a 'crash dummy' for the rest of the world's bourses. Is it time to tighten our seat belts?

SNOOPY

[Snoopy]

1/ 'The 'Global Equity Fund' which is almost entirely invested in non Australasian shares. Base management fee is 1.35%.

2/ 'Dynamic Fund' concentrates on Australian mid-cap shares. Base management fee is 1.35%.

3/ 'Trans-tasman Equity Fund'. Base management fee is 1.05%.

I am having a hard time chasing down what the performance fees are for the above three Milford funds. I found the document below, which is a few years old.

https://milfordasset.com/wp-content/...-Statement.pdf

My reference page is page 15 of the above document.

It looks like for the 'global equity fund', the hurdle is now the MCSI world index, with net dividends reinvested. Gains must be adjusted assuming the currency is 50% hedged to the New Zealand Dollar. Anything achieved above that hurdle and 15% of the over-achievement goes to the manager. There is no upper dollar limit on the size of the bonus.

For the Dynamic fund, the bonus performance hurdle is set at the ASX small industrial accumulation index, with gains hedged 100% to the New Zealand Dollar. Anything achieved above that hurdle and 15% of the over-achievement goes to the manager. There is no upper dollar limit on the size of the bonus.

For the trans Tasman Equity Fund, the hurdle is a mixture of the NZX50 gross index (50%) and the ASX200 accumulation index 100% NZD hedged (50%,). Anything achieved above that hurdle and 15% of the over-achievement goes to the manager. There is no upper dollar limit on the size of the bonus.

This reference document was downloaded as a link of the Milford website, so I assume the reference numbers have not changed since July 2018.

SNOOPY