Monthly review February 2014
Equity markets delivered strong returns during February with the US S&P 500 rallying 4.3% and the UK’s FTSE 100 closing up 4.6%. These returns were achieved despite a softening in global economic data as investors turned their focus to corporate profit results which broadly impressed. In the US over 60% of companies that reported their fourth-quarter 2013 results beat consensus expectations and the S&P500 now appears on track to deliver EPS growth above 8% over the next 12-months. Towards month-end, attention turned to the escalation of tensions in Ukraine and Russia’s military operations in the Crimea. Although it remains unclear how this situation will develop this heightened level of geopolitical uncertainty will remain a focus for markets.
Local market performance was also impressive with the ASX200 and NZX50 Indexes delivering February returns of 5.0% (3.6% in NZD) and 2.4% respectively. In Australia these returns have been achieved despite economic conditions remaining variable. Although business confidence improved, the Westpac consumer confidence index declined for its third consecutive month and building approvals were reported as having fallen 2.9% in December. The RBA kept rates on hold at 2.5% for the seventh consecutive meeting but their commentary had a slightly more hawkish tone to it than many had expected, identifying that “the most prudent course is likely to be a period of stability in interest rates”. The key focus for investors during the month was the corporate earnings season. Given the sluggish domestic demand environment that many companies have been operating in, expectations were that top line growth would be hard to achieve. This proved to be the case but Australian management teams have done a very good job in recent years of re-engineering their businesses for lower costs and improved operating margins. Across the different sectors it was the Miners who were most accomplished at this with stocks such as BHP Billiton and Rio Tinto leading the way. The recent depreciation of the Australian Dollar was also influential in driving improved profitability across many sectors. Earnings growth forecasts for Australia over the next 12-months now sit at 13%. In New Zealand the reporting season delivered a set of results which were broadly in line with expectations. The local economy continues to gain momentum and this was evident across many results with cyclical companies such as Air New Zealand and Fletcher Building beneficiaries.
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|To 28 Feb 2014||3 mths %||6 mths %||1 yr %||2 yr p.a. %||3 yr p.a. %|
|Equity Income Fund*||3.58||7.03||12.35||-||-|
|Trans Tasman Index Hedged||3.33||8.74||13.07||-||-|
|Trans Tasman Index Unhedged||0.84||4.70||5.47||14.71||7.13|
* Fund returns are before all fees and expenses, and before tax which varies by investor.
Past performance is not a guarantee of future returns.