REPORT TO THE UNIT HOLDERS IN THE ASPIRING FUND FOR THE QUARTER ENDED 31 DECEMBER 2011
| Aspiring Fund | NZ50G | ALL Ords
Accumulation
Index (rebased
in NZ$) |
| Month December | -0.89% | 0.14% | -2.11% |
| Quarter | 5.45% | -2.05% | 5.29% |
| Last 12 Months | 1.43% | -1.04% | -11.29% |
| Financial Year to Date | 0.77% | -4.80% | -16.58% |
| Annualised since PIE (1/10/07) | 7.99% | -6.05% | -4.01% |
The Unit Price as at 1st January 2012 was $1.6521
The performance for the month of December was -0.89% after all expenses.
Our asset allocation at the end of the month was approximately:
| New Zealand Equities | 26.7% |
| Australian Equities | 33.9% |
| Global Equities | 2.2% |
| Corporate Credit/Bonds | 17.0% |
| Cash | 20.2% |
The Net Asset Value of the fund as at 1st January 2012 was approximately $93,800,000
December was another tricky month for investors with Australia, in particular, providing a number of potential potholes. We hit only a few minor ones and the performance of -0.89% is pretty much in line with the average of the two markets in which we predominantly invest.
Our quarterly performance of 5.45 % was better than Australasian markets over that period due to a number of small gains. Over the year our return was a modest 1.43 %, but, given the global turmoil, we are reasonably happy to have kept our capital intact and outperformed the average of the Australian and New Zealand markets by 7.6%. Outside of a flat US market, there was significant carnage in many major global markets. World markets as measured by the MSCI fell 7.6%, with Australia worse than that at -10.5% in its own currency.
During December major discretionary retailers JB Hi-Fi, Billabong and Kathmandu all issued profit downgrades and saw 27%, 52% and 30 % price declines respectively. Other retailers got caught in the downdraft as investors assumed consumer tightfistedness would be broad-based. Our portfolio was moderately affected by the 5% decline in Super Retail Group. While part of this retail weakness is clearly attributable to consumer caution the stunning success of the Trade Me IPO is evidence of the vulnerability of many traditional bricks and mortar retailers to new business models. When looking at retailers we are very conscious of the importance of a business model which cannot be undermined by the internet.
The same reluctance to spend on consumption goods has been evident in the housing market for a number of months, with new building and renovation work at very low levels on both sides of the Tasman. The Australian property companies with building arms such as Stockland, Mirvac and Australand all had poor months. Locally this trend has contributed to building related stocks such as Cavalier, Methven and Fletcher Building issuing profit warnings or disappointing guidance in recent months.
The anecdotal evidence of cautious consumer behaviour was also backed up by the Australian index of consumer confidence declining 8.3% in November. Australians appear to be at adopting a savings ethic with some vigour. This is not helping their market in the short term, but must be beneficial in the long term (interestingly the reverse is happening in the US where the savings rate is dropping but increased consumption is helping reduce unemployment and has arguably aided their stock market).
With the market fretting about a global recession in 2012 and in particular the outlook for China, investors also avoided resource shares, leaving defensively orientated large caps as the only game in town. This saw the telecommunications sector of the Australian market (mainly Telstra) up 5.1% and the utilities sector 3.8% -significant outperformance of a weak market.
Following a year-long outperformance defensive shares are now somewhat expensive relative to historic norms, although the yield they provide relative to the unprecedented low rates available on fixed interest instruments continues to be alluring.
We believe for the mean time defensive yield is probably going to continue to be one of the best places to invest, but eventually these stocks will be in danger of mean reversion.
The exception to the strong performance in the utility/telecommunications space was Chorus which lost 5% in the month. Given the complete absence of any company specific news we suspect this was due to selling by index-aware funds reacting to the company's exclusion from a couple of key market indices. We used this weakness to accumulate a reasonable position in the company.
Other activity in the fund was moderate with a discounted placement in Skellerup allowing us to add to this high conviction bet at reasonable levels.
Many commentators, funds and economists take the opportunity around the new year of making predictions for the 12 months ahead. To us the world and markets look as opaque and testing as ever. The global economy is arguably worse-placed than a year ago, but then again share prices are lower in most markets and borrowing/funding rates for credit worthy borrowers have taken a big leg down over the same time frame. We remain cautious but cognisant that times of gloom often present the best buying opportunities.
| TOP 10 HOLDINGS AS AT 31 DECEMBER 2011 |
| Skellerup Holdings | 5.6% |
| Chorus | 5.0% |
| Genesis Capital Bonds | 4.9% |
| Transpacific Step Up Hybrids | 4.0% |
| Super Retail Group | 3.9% |
| BHP | 3.9% |
| GPG Capital notes | 3.8% |
| Transpacific Industries | 3.5% |
| Mainfreight | 3.1% |
| EBOS | 2.4% |
Aspiring Asset Management Limited
http://www.aaml.co.nz