Equity markets continued their strong growth in May, up around 4.5% for the the month in local currency and 2.8% in NZ dollars (as the NZ dollar appreciated versus the US dollar and all other major currencies). Bond markets also had a positive month in May, although they remain volatile. The New Zealand bond market was particularly strong, up around 1%, while global markets were up 0.5%.

Japan was the strongest developed market globally, on the back of growing hopes for a resolution to the conflict in the Middle East, which underpinned investor sentiment. Earnings announcements began the fiscal year in earnest. This was led by AI and semiconductor-related names. The US market was also particularly strong, notably the technology stocks. Again, a reduction in perceived geopolitical risks encouraged investors to rotate towards growth-oriented sectors.  Expectations for a controlled slowdown strengthened as concerns about energy-driven inflation eased and confidence grew that economic activity would slow without slipping into recession. Information Technology was the best-performing sector by a considerable margin. Strong earnings reports and upbeat outlooks from major technology firms reinforced expectations that AI-driven capital spending is still in its early stages and will continue to bring substantial gains for chipmakers and AI-related tech companies.

Emerging market equities delivered strong gains in May, outperforming the developed markets index. Performance was led by index heavyweights Korea and Taiwan amid strong gains in memory and semiconductor stocks from continued AI demand.

US Treasuries lagged other government bond markets given the robust economic backdrop as investors brought forward expectations for interest rate hikes. German government bond yields ended the month lower, with peripheral markets outperforming. In the UK, the market expects the Bank of England base rate to be held when the committee next meets in June. This helped support an outperformance of UK government bonds. 

Corporate bonds generated positive total returns and outperformed government bond markets. New Zealand was particularly strong, outperforming the major developed bond markets. 

The World Equity Portfolio returned 3.11% for May, and an impressive 23.99% for the last twelve months. The catalyst for the impressive return has been the Technology sector and Emerging Markets. The US IT sector was up 16% for the month and 56% for the year. The Fund has benefited from this, as it has over 30% exposure to the Technology sector and just under 70% of the geographical exposure to the US. Standouts within the Fund for May have been Samsung 40%, Cisco 29%, Eli Lilly 16%, Apple 13%, ASML 10%, RBOT ETF 9%, DGTL ETF 8% and 2 newcomers Micron Technology and Palo Alto Networks. Over the year we had Samsung return 438%, Caterpillar 153%, Alphabet 121%, ASML 120%, Taiwan Semiconductors 118%, and Cisco 95%. 

The Fund has over 7% exposure to emerging markets, through the Schroder Global Emerging Markets Fund. This returned 8.5% for May and 52.5% for the last year. 

The Australasian Equity Portfolio returned 1.63% for May. The New Zealand stock market led the way, up 2.6%, with the larger cap stocks and the smaller cap stocks outperforming the mid cap stocks. Top performer was Infratil with 26.4%, on the back of contract signings for large investment in data centres. Others to perform well were Mainfreight 9.7%, Freightways 7.4%, and Mercury 3.9%. 

The Australian market was up 1.15%, although a weaker AUD reduced this by 1.6%. Materials was the standout sector in Australia, while small caps outperformed large caps. At the other end, Healthcare, Utilities and Energy were very weak in May down 5-10%. Within the Portfolio (in NZD terms) Fortescue Metals added 11.9%, Wesfarmers 7.3%, Goodman Group 5.4%, and Transurban 5.3%. Performance was dragged back from Healthcare companies CSL and EBOS Group, Banks CBA and Westpac, and Communication Services companies Spark and Telstra.

The World Bond Portfolio had a good month, returning +0.54%. The immediate outlook for rising bond rates and inflation fears subsided during May. The Fund is just over 80% invested in longer dated bonds, which benefit more from falling rates. Just under 20% is in shorter dated bonds, which offer investors some protection against market volatility.

The New Zealand Bond Portfolio returned an impressive +1.16% for the month with the government stock component of the fund performing extremely strongly. Government Stock makes up around 2/3rd of the Fund’s holdings. Within the credit component, the Fund is overweight Financials, Utilities, Property, and Corporates. For the last twelve months the Fund returned 4.67%. and is up 5.44% per annum over the last three years. 

The Investment Strategies had strong results for the month of the back of the positive returns in all the underlying Investment Funds – returns ranged from +2.74% to 1.35%. The performance of the strategies has also been strong for the last twelve months. The High Growth Strategy returned 19.30% for the year, Growth 15.89%, Balanced 12.52% and even Conservative produced a strong 7.50%.