OneAnswer KiwiSaver Scheme Australasian Share Fund

• Taking a lead from international counterparts, the New Zealand share market delivered gains over the quarter, with the NZX 50 Index finishing 4.2% higher. However, the market was held back by the prospect of the Reserve Bank of New Zealand (RBNZ) keeping interest rates higher for longer, and as the earnings season delivered a mixed bag, with some companies’ forward guidance being somewhat disappointing.
• The RBNZ remained one of the world’s more hawkish central banks. Following the November meeting, it said it was prepared to move rates higher if needed, to soften stubborn inflationary pressures in the local economy. This weighed on the interest-rate-sensitive share market. However, rate hike expectations were tempered later in the quarter following news the domestic economy shrank in the third quarter. GDP (Gross Domestic Product) data showed that New Zealand’s economy shrank by 0.3% during the three months to end September, with the decline being driven by goods-producing industries. This was well below forecasts, including those of the RBNZ.
• Across the Tasman, the ASX 200 Index outperformed New Zealand’s share market, delivering a return of 8.4%. The real estate, materials and healthcare sectors were among the better performers, while the energy sector underperformed as the price of oil fell. While ‘sticky inflation’ saw the Reserve Bank of Australia surprise the market with a rate hike early in the quarter, expectations for further increases were tempered following the US Federal Reserve’s ‘pivot’ on interest rates later in the period.
• Having the biggest impact on fund performance was its overweight to materials company James Hardie. Shares in the company ended the quarter up nearly 40% after it posted earnings that showed all divisions beat expectations, with North America Fibre Cement (NAFC) delivering volumes above the top end of guidance. More importantly though, the company delivered strong third-quarter guidance, with adjusted net profit after tax of US$165 to $185 million – well ahead of the $138 million consensus. The increase was driven largely by higher-than-expected NAFC volumes and margins.
• A pair of zero-holdings, Heartland Group Holdings and Air New Zealand, were two other contributors to relative fund performance, with their shares falling 16.9% and 13% respectively. They were the two weakest-performing companies in the NZX 50 over the quarter. Heartland Group’s 16.9% decline came on the back of a significant downgrade in FY2024 net profit after tax (NPAT) to $95 million, versus $119 million previously. The downgrade was due to short-term operational challenges, while the impact of its acquisition of Challenger Bank, expected to settle in 2024, also created headwinds.
• Meanwhile, Air New Zealand’s poor performance was also driven by a profit downgrade, with the national carrier dropping its 1H2024 NPAT to the lower end of its guidance range. The airline cited a slowing on domestic travel, particularly in the corporate and government space, while growing competition in the North American market is expected to pose profit headwinds.
• Offsetting some of the good performance were overweight positions to Treasury Wine Estates and Vector. Shares in Treasury Wines fell 11.5%, mostly on the back of its ~US$900 million acquisition of California’s DAOU Vineyards. To fund the purchase, the company undertook a capital raise at $10.80 per share, which represented a ~10% discount to the stock’s close the day before the announcement. Meanwhile, Vector, one of the fund’s largest overweight positions saw its shares fall 5.6% over the quarter.

The fund invests mainly in New Zealand and Australian equities. Investments may include:

• Equities in companies that are listed or intend to list on the New Zealand or Australian stock exchanges
  
• Cash and cash equivalents.

This chart shows the mix of assets that the fund generally intends to invest in – 100% equities.

See the fund's actual investment mix on page 3 of the fund update.