Video by Stephanie Batchelor
Article by Frances Sweetman
The politics behind performance
The performance of global share markets diverged in June as global politics dominated the headlines and investors weighed a raft of economic data and central bank decisions. Milford funds delivered mixed returns for the month, underpinned by US shares and a solid performance from bond holdings, which benefited from lower market interest rates.
The Funds’ exposure to European investments was a source of weakness. The French President called a snap election following the success of the far-right National Rally in the EU Parliamentary elections early in the month. This caused a sell-off in European markets, as political risk weighed on investor sentiment towards the region. This is creating attractive valuations for quality holdings like Renault (-10.7%) and telecommunication company Cellnex Telecom (-9.4%) however, the team is being patient with uncertainty remaining.
Conversely, US markets continued to perform, a source of strength for the Milford funds as we have concentrated our exposures in the region, attracted to its superior economic growth. Investments such as Uber (+13.9%) and Microsoft (+9.0%) continue to outperform. US economic data was more mixed during the month, reflecting the impact on the real economy of the realisation that the US Federal Funds Rate will remain higher for longer than expected at the start of the year. However, the US Federal Reserve confirmed at its June meeting that it expects to cut US rates materially in 2025, providing support to the US economic outlook. US markets are not immune to political risk however, with the Presidential debate between the Republican and Democrat nominees on the last day of the month creating volatility in the share prices of companies exposed to the specific policies of both parties.
The New Zealand share market was once again lacklustre, with the NZX 50 index delivering a -1.3% return in June. We remain focused on selective opportunities in New Zealand, and participated in a capital raise by infrastructure company Infratil, a significant holding for a number of Milford funds. The company raised money to fund future investment opportunities in data centres and renewable energy generation, and the share price ended the month 10.3% above the issue price.
Careful stock selection will be key in coming months. While our base case for a soft economic landing is a constructive backdrop for investment returns, the UK, French and US elections will likely drive uncertainty that could impact markets in the short-term. These risks will also create opportunities, and the funds are well placed to take advantage of attractive company-level opportunities, while protecting performance from any market volatility driven by these events.
