Monthly review July 2014

Global equity markets faced a range of headwinds during the month including news that Standard & Poor’s had declared that Argentina was in default and a major Portuguese bank was forced to recapitalise. Also affecting sentiment was news that a Malaysian airliner had been shot down over the Ukraine. In terms of economic news, US growth continues to improve with real GDP for the second quarter reported ahead of expectations at an annual rate of 3.9%, the unemployment rate fell to 6.1% but their housing market remains volatile. The economic data in China is getting better with their industrial production for June growing at a better-than-expected rate of 9.2%. The US S&P500 finished the month down  1.6% while the MSCI European index fell by 3.8%. In Australia the ASX200 finished July up 4.4% while our NZX50 closed 0.5% higher.

The Australian economy has struggled to find traction since the surprisingly austere budget delivered by Tony Abbot in May this year but recent data suggests that confidence across their system is gradually beginning to repair itself. The NAB monthly survey of business conditions improved in June to its highest level since January and the Westpac Consumer Confidence index also improved, up 1.9% over the prior month. Building approvals fell in June and the RBA announced that the cash rate would be kept at 2.5%. This is the 11th month in a row that Governor Glenn Stevens has left rates unchanged, noting that the economy is slowly responding to their accommodative monetary policy and that the downside risk to the Australian Dollar remains significant. The best performing Australian equity sector over the month was Metals & Mining which rallied in accordance with commodity prices and pro-growth policy announcements in China. In corporate news the most significant events included a takeover bid by US-based Expedia Group for and another major downgrade being issued by the QBE Insurance Group.

In New Zealand there is evidence that our recent strong growth momentum is losing steam. During the month business sentiment eased further and the second quarter inflation number came in slightly below expectations. The RBNZ delivered its fourth consecutive 0.25% hike in the cash rate however the accompanying remarks were more dovish than expected with Graeme Wheeler highlighting that the economy appears to be responding to the recent tightening of monetary policy and that our currency is unjustifiably high. Of particular interest was the recent falls that have occurred in both our dairy and timber prices. Fonterra announced it had reduced its forecast  farm gate milk price to $6.00/kgMS for the 2014/15 season, down from the $8.40/kgMS last season resulting in billions of dollars being cut from New Zealand dairy farmer incomes.


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To 31 Jul 2014 3 mths % 6 mths % 1 yr % 2 yr p.a. % 3 yr p.a. %
Alpha Fund* 2.26 8.02 27.62 28.94 20.18
Australian Fund* 5.56 13.64 20.69 17.35 13.28
Equity Income Fund* 4.53 14.77 20.68 - -
Trans-Tasman Fund* 3.78 11.34 24.08 22.49 16.56
O.C.R. 0.80 1.47 2.74 2.62 2.58
ASX200G NZD 5.18 12.67 13.25 10.45 8.42
Trans Tasman Index Hedged 1.15 8.48 15.21 - -
Trans Tasman Index Unhedged 1.97 9.34 13.57 15.60 11.72

* Fund returns are before all fees and expenses, and before tax which varies by investor.

Past performance is not a guarantee of future returns.