OneAnswer KiwiSaver Scheme International Share Fund

• International share markets finished the fourth quarter higher, with the MSCI All Country World Index returning 9.0% (in local currency terms). The main driver was signs of a continued easing in inflationary pressures, suggesting that most of the world’s major central banks are finished with interest rate hikes, while falling bond yields were also supportive of share market valuations.
• In the US, the S&P 500 Index gained 11.7%, edging closer to an all-time high, as markets were buoyed by the prospect of rate cuts by the US Federal Reserve in 2024. Meanwhile, the tech-heavy NASDAQ 100 Index extended its gains by 13.8%, hitting an all-time high in the process. Most other markets took their lead from the US; the Euro Stoxx 50 Index was 8.6% higher and, while Japan’s Nikkei 225 Index underperformed other major markets, it still gained 5.2% as the market hit a new 33-year high in November.
• A key laggard was the UK, gaining only 1.6% given its significant exposure to energy companies, which struggled as oil prices fell. However, the key underperformer was China. The Shanghai Composite Index finished the quarter down 4.2%, as a lack of action from the central bank there to stimulate its sluggish economy weighed on sentiment.
• The fund delivered a solid return in the fourth quarter, benefiting from the strong absolute returns of international share markets. While three out of four of the fund’s underlying managers underperformed the market, the fund was slightly ahead of its benchmark over the quarter, thanks to the strong relative performance of its growth manager, Franklin.
• At a sector level, although the fund was underweight to the strong-performing technology sector, some strong stock selection mitigated part of the relative underperformance, including overweight positions to Zscaler and Shopify. Shopify saw its shares rise more than 40% over the quarter after the company reported third-quarter revenue of US$1.7 billion. This was ahead of most forecasts and represented a ~25% increase from the same period a year ago. Meanwhile, Zscaler shares also rose more than 40%, as their quarterly earnings exceeded consensus expectations, with revenues surging significantly relative to the same period last year. Offsetting some of these gains was an underweight position to Microsoft, with shares in the technology giant rising nearly 20% over the quarter.
• Elsewhere, underweight positions to the oil majors, such as Chevron, BP and ExxonMobil, were another contributor to relative performance. In particular, shares in the latter fell about 20% over the quarter. The weakness in the sector came after the price of oil fell, as rising gasoline inventory pointed to a slowing in demand.
• In the consumer discretionary sector, the fund’s long-standing holding of Planet Fitness saw its shares stage a turnaround, which also contributed to relative performance. After falling more than 25% during the third quarter of the year, its shares bounced back to rise 50% over the final quarter after it delivered some positive earnings numbers, including the addition of 100,000 new members during the third quarter.
• Offsetting some of these gains was a pair of overweight positions to poor-performing industrials companies, Paycom Software and Rentokil Initial. Paycom shares fell 20.3% after the company downgraded its sales outlook, while Rentokil shares ended the quarter down 27.3%.

The fund invests mainly in international equities. Investments may include:

• Equities in companies that are listed or are soon to be listed on a stock exchange
  
• 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.