A bumper crop
March saw another very solid month of returns for the funds, helped by strong performances from our stock holdings. As expected, the upward momentum in shares continued last month, and was complemented by positive returns from our bonds. Over the past couple of months we have seen a notable broadening in share markets, a key change from last year where only a small handful of large companies were driving gains in share markets.
There is an ongoing divergence in the fate of global economies, driven largely by their sensitivity to interest rates. US economic growth continues to be very strong, and inflation is showing short term signs of rising again. Meanwhile, other parts of the world including Europe, UK and New Zealand have struggled under higher rates, and inflation has taken longer to fall. Some of these economies are finally seeing a drop in inflation and a modest improvement in growth. Global central banks appear keen to cut interest rates despite higher than target inflation, and this is creating a sense that the global economy is more likely to “run hot” over coming quarters. This is a favourable backdrop for shares but less favourable for long-term bonds.
Stronger than expected global growth has helped fuel a broader rally in shares. Last month saw many of our key holdings deliver gains of well over 5%, building on even stronger advances over the past three months. This list includes hospital operator HCA Healthcare, Contact Energy, payments company Fiserv, Goodman Group, Bank of Ireland, NatWest Group and US homebuilder PulteGroup. Standout performer for the month was our semi-conductor play Micron Technologies, up 30% on the back of solid results and guidance.
Over the past few months, improving fundamentals have driven a steady increase in our exposure to global shares and a reduction in bond exposure. From here, valuations are increasingly reflecting a consensus of strong economic growth and falling interest rates. This augurs for a tactical approach to exposures across bonds and shares as the outlook and prices change. Meanwhile, our shorter-term bonds provide a solid income cushion, and we think the broadening out in share market performance can continue.
