Software resurgence
Global shares made a strong start to August and largely held their gains through the month, helping Milford’s growth funds deliver positive performance. Bond markets, by contrast, continued to struggle in August amid elevated inflation and renewed expectations of rate hikes. Our lower-risk fund performance was broadly flat.
Technology companies led global shares higher again. Notably, the rally broadened beyond semiconductors to software stocks, as investors re-evaluated how these companies might make money from artificial intelligence (AI). Our key holding Microsoft was a strong contributor, up 9.4%. Some technology hardware stocks also performed well, particularly Nvidia which rallied 10% on strong results and revised growth forecasts. However, not all technology names participated — Amazon and Google gave back ground, falling 4.3% and 6% respectively.
Encouragingly, New Zealand and Australian shares also delivered modestly positive performance, though the gains were far from broad-based. In New Zealand, Fisher & Paykel Healthcare rallied 9.1% on strong earnings, while in Australia, BHP rose 9.8% on continued optimism around commodity demand. Our Dynamic Fund benefited from the strong performance of small cap Australian gold miners.
Bond yields drifted gradually higher again in August, resulting in bond underperformance that was cushioned by the interest earned on our holdings. As a result, our bond funds were broadly unchanged over the month. Sticky inflation and investor repricing of further central bank hikes continue to weigh on bonds, compounded by substantial bond issuance from technology companies. As yields rise, we are becoming more constructive on the outlook for bonds — particularly in New Zealand, where we continue to focus our fixed income investments.
Looking ahead, strong global growth and company earnings continue to provide a solid backdrop for shares. Against that, rising bond yields and central bank rate rises remain a headwind, and shares and bonds face growing issuance from technology companies funding their growth ambitions. Consequently, we are wary of some near-term choppiness in markets as they absorb the additional supply. Our funds remain well diversified, and we will look to take advantage of any opportunities this volatility creates.
