The August Edition of the Generate KiwiSaver Scheme Newsletter.

Welcome to the August edition of the Generate KiwiSaver Scheme Newsletter.

We are proud to relay the great news that our three funds continue to perform very well compared to their peers. More specifically, in the recently released Morningstar KiwiSaver Survey for June 2019 all three funds had podium rankings (top three) over both the 1 and 5 year periods. This is the third quarter in a row that we have attained this feat. For further detail click here.

Global share markets drifted higher in July as trade tensions took a back seat to a Federal Reserve meeting and the US reporting season. These gains saw the NZ, Australian and US share markets all post new all-time highs in July. Our three funds followed suit posting solid gains and setting new unit price record highs.


A quick Survey

How likely would you be to recommend Generate KiwiSaver to others?

1         2         3         4         5         6         7         8         9          10

(Not At All Likely)                                               (Extremely Likely)

Performance of Our Funds

Returns to 31 July 2019 (after fees* and before tax)

  1 Year  3 Year (p.a.) 5 Year (p.a.) Since Inception**(p.a.)
Focused Growth       8.64%  12.08% 12.20% 10.73%
Growth  10.03%  10.51% 11.41% 10.05%
Conservative  8.56%   5.61% 7.28% 6.37%

*except the $3 per member per month fee.
**the funds opened on 16 April 2013
Note: Past performance is not necessarily an indicator of future performance.





In July the Focused Growth Fund was up 1.19%, the Growth Fund returned 0.96%, and the Conservative Fund was up 0.88%.

Alphabet (aka Google) printed surprisingly strong results bettering the most optimistic analyst’s forecasts for the quarter. The good news for shareholders didn’t stop at a strong second-quarter performance, with the company also announcing a US$25 billion buyback of shares. Alphabet shares were up 9% in after-hours trading and the stock managed a double-digit gain for the month. To put this into perspective this represents a US$94 billion increase in Alphabet's market capitalisation during July. This strong performance secured Alphabet the accolade of the strongest performing international equity for the quarter (up 12.5%).

We would be remiss in not noting that Polar Capital Technology Trust also managed a double-digit gain over the month (up 11.5% in local currency). This was partly a function of currency moves but also reflects a very strong month for the Trust’s key holdings. More specifically, the Trust’s largest holdings included Alphabet, Microsoft and Apple, which all generated strong returns in July. Another one of the Trust’s holdings, Advantest, a semi-conductor testing equipment manufacturer, was up an impressive 42% after the company released strong first-quarter results.

Siemens was the weakest performing international equity holding in July (down -5.7%). Weak leading economic indicators for the European region catalysed a sell-off in the company’s share price early in the month as investors worried about the impact on demand for the company’s products. Late in the month, the company’s shares took another leg down when its listed wind turbine subsidiary Siemens Gamesa released weak results with profit margins below previous periods and the market expectations. Management attributed this weakness to execution issues in onshore wind projects in India and Northern Europe, which should be one-off in nature.

The strongest performing property and infrastructure stock in July was Centuria Capital, which was up 10.2%. Centuria Capital is a property funds management company with A$6 billion funds under management, which is spread across two ASX listed trusts (office and industrial) as well as a number of unlisted funds. We recently added Centuria to the portfolio because it offered exposure to good quality property assets as well as the upside of a funds management company.

Contact Energy had the dubious honour of being the weakest performing property and infrastructure company. Interestingly, the monthly operating statistics for June (released in July) were stronger than the market had expected, catalysing a number of upgrades to analysts’ 2019 earnings forecasts. This would typically be associated with strong share price performance, but it seems the stock succumbed to profit-taking during the month after two strong months of gains (9.2% in May and 8.6% in June). The company’s share price declined -2.6%.

The market’s focus shifted back to company fundamentals and away from geopolitical risks in July. The US-China trade talks were scheduled for early August and as a result, no news of any significance was released in July.

A significant proportion of US-listed companies had released their second-quarter financial results by the end of July (77%). FactSet analysis indicated that on balance the results have been positive with 76% of companies reporting earnings that exceeded consensus. Companies tend to low ball analysts and so it not uncommon for them to beat analyst forecasts, but 76% is marginally better than the 5 year average of 72%.

The Federal Open Market Committee met at the end of the month and delivered the first cut to the federal funds target range in 11 years; reducing the range by 0.25% to 2-2.25%. During the month the market started to price in the probability of a 0.5% cut, and so the 0.25% cut did not catalyse a rally in stocks. Instead, stocks sold off when the announcement was released and continued to drift lower during Governor Powell’s press conference.

The US share market marginally outperformed the global average with the S&P500 appreciating 1.4% in July compared to the MSCI World’s 1.2% gain.

European share markets lagged global share markets, increasing just 0.4% in July. German stocks declined over the month (the DAX was off 1.7%) dragged down by weak economic data. This was more than offset by a strong performance by the FTSE (up 2.2%). Ironically fears over Brexit put pressure on the pound which was good news for the multinational companies that dominate the FTSE index. 

The Brexit debacle continued in July but given the time to the next deadline (October 31) was pushed to the side-lines. In July, Boris Johnson was elected British PM and wasted no time in confirming to his European counterparts that he would play hardball, insisting in his inaugural speech that the UK will leave the EU at the end of October “no if’s, no but’s”. There are question marks around Boris’s ability to deliver on this statement. He does not have sufficient support in parliament to force a no-deal Brexit. He will need to either outflank parliament or call an early election to build his majority. Consequently, the likelihood of another extension is rising.

Our local share market continued to lead the way in July, managing to outperform all global markets by a healthy margin. A2 Milk can take the credit for the NZ stock exchange’s strong performance; the NZX50 index was up 3.4% over the month, but when A2 performance is excluded the market was only up 1.2%, which is in line with global markets. A mixture of strong Lyttleton port export data (a leading indicator of volume of A2 infant formula sales into China) and a number of sell-side analysts upgrades was enough to push A2 Milk’s share price up 23%. Putting A2 aside NZX listed growth stocks performed well in July (the other NZX50 leading contributors were Ryman, EBOS and Fisher & Paykel Healthcare) and yielding stocks drifted lower (the NZX50 laggards in July included Auckland Airport, Chorus and Contact).

The Australian share market also enjoyed a strong month in July with the ASX 200 index increasing 2.9%. The market’s shift higher had a broader base with no one stock making up more than 15% of the index return (A2 milk made up a staggering 68% of the NZX50 return). The reduction in the overnight cash rate to an all-time low of 1% by the Reserve Bank of Australia in early July and decline in longer maturity interest rates during the month was one of the key drivers for the strong performance. Growth and yield stocks were amongst the leaders and the key laggards for the month were resource stocks and other cyclicals.

Warren Buffett wisdoms

After 50 years at the helm of Berkshire Hathaway (which is currently one of the largest growth investments for all three of our funds), Warren Buffett has become widely regarded as one of the world’s greatest investors. In his annual letters to shareholders, and in various interviews he has given, he has shared many of the lessons he has learned during his career. This month:

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."

It is easy to get excited about investing in an industry that is clearly going to grow rapidly in the years ahead. However, this is far from being a foolproof strategy as demonstrated by the thousands of car manufacturing companies and airlines that have gone belly up since those industries “took off”. Buffett posits that it is far better to find a company with a “moat” around it meaning it can protect itself from competitors and other threats. If that moat happens to be getting wider over time – all the better for it.

Investing 101

Knowledge Builder - Risk versus Return – the Trade Off

The link between risk and return is the most fundamental rule of investing. Low levels of uncertainty (low risk) are associated with stable and low potential returns, whereas high levels of uncertainty (high risk) are associated with high potential – albeit far less predictable - returns.

Because of the risk-return trade off, you should be aware of your personal risk tolerance when making investments and fully understand the inherent riskiness of a particular investment.

Risk can have a negative meaning for some people. But it is not necessarily a bad thing - as long as the degree of risk is well understood.

If an investor has a long-term investment horizon (which is usually the case with KiwiSaver) the risk tolerance will typically be higher as a longer time period gives the investor the ability to “ride out” a downturn in markets.

The goal is to find an appropriate balance - one that generates a satisfactory return in the medium to long term, but still allows you to sleep at night!

Top Holdings as of 31 July 2019

Please log in to your account to see your full portfolio breakdown.

Conservative Fund Growth Fund Focused Growth Fund
International Equities
Berkshire Hathaway Berkshire Hathaway Berkshire Hathaway
Alphabet Magellan Global Fund Magellan Global Fund
Alibaba T Rowe Price Global Equity Fund T Rowe Price Global Equity Fund
Ping An Insurance Platinum International Fund Platinum International Fund
Microsoft Worldwide Healthcare Trust Worldwide Healthcare Trust
Property and Infrastructure
Infratil Infratil Infratil
Contact Energy Contact Energy Contact Energy
Arvida Group Mercury Mercury 
Mercury Z Energy Z Energy
Z Energy Arvida Group Arvida Group
Fixed Income and Cash
Term Deposits Term Deposits Cash & Cash Equivalents
Cash & Cash Equivalents Cash & Cash Equivalents Term Deposits
Vector Bonds Vector Bonds Z Energy Bonds
NAB Hybrids Trustpower Bonds -
TR Group Bonds TR Group Bonds -


Stock Spotlight

Kiwi Property Group

Kiwi Property Trust (Kiwi) directly owns $3.2 billion of New Zealand property, which makes it the largest listed owner of NZ property. Kiwi’s portfolio is spread across retail, mixed-use and office buildings. They also have a funds management business that manages $400 million worth of property on behalf of others.

Kiwi was founded in the early 1990s making it the first entity of its kind in New Zealand. In 2014 the management of the Trust was internalised and the corporate structure changed from a Trust to a company.

The company’s largest investment by a significant margin is Sylvia Park. The mall was initially developed by Kiwi in 2006 and has been expanded and improved and is now one of NZ's largest malls. They recently added a new 10-level office building, and the company has plans for at least one more building that is likely to include office and hotel accommodation. Consequently, the company thinks of this as a mixed-use rather than purely retail asset.

Kiwi also developed the Vero Centre. This office tower was completed in 2000 and is still arguably the best commercial office tower in NZ. The 39 story building generates in excess of $20 million per annum in rent and is valued at a staggering $450 million.

The company have secured a large development site in Drury and have ambitious plans for a development that would make it one of the company’s largest investments. They intend to develop a new town centre for Drury, which would include a mix of retail, office and residential properties.

We like the combination of strong yield combined with growth potential that Kiwi offers and also value the internal management structure, which removes conflicts of interest associated with external management.

Next month:

Port of Napier