Welcome to the JUNO Market Update.
In this video, Gordon Gomes from the Client Services team speaks to CEO + Founder Mike Taylor.
• How long could the bear market last?
• In JUNO’s funds, the investment team has been adding or increasing exposure to consumer discretionary companies. Mike gives more details on this.
• How might the strong US dollar impact company earnings?
• Travel stocks have rebounded since the pandemic. What could happen in this space in the next 12 months?
We have also provided a transcript.
Thanks for watching.
JUNO Market Update July 2022 from JUNO Funds on Vimeo.
Gordon Gomes: Hi everyone and welcome to the JUNO monthly market update. My name is Gordon Gomes and with me today is Founder and CEO Mike Taylor. Hi Mike and thank you to everyone for joining us.
Mike, as you’ve mentioned before, we are now officially in a bear market. Do you have any indications on how long you think this bear market will last?
Mike Taylor: Well the first thing Gordon I guess is that July has been a lot better than the first half of this year. So it's really nice to see a bit of a bounce, but of course you can get big bounces within bear markets. As to the question as to how long it will last, no I don't know the answer to that, unfortunately. But I can say that the market will bottom long before the consequences in the real economy have been felt. So even if you felt like the worst of the economic news was going to be early next year, the market will probably bottom three to six months before, that’s kind of a general rule.
But certainly there are a couple of indicators that I probably am looking at at the moment. One would be when interest rates stop going up. Another would be when inflation starts coming back down. I'm also looking at sentiment as to the sentiment of, not only consumers, but also investors like me, because typically when investors get very pessimistic, it's often a market bottom.
GG: Right. Now over to the JUNO funds. Let's talk a bit about the consumer discretionary sector. This is a sector that provides goods and services that people buy that might be considered non-essential spending. Some stocks in this area now look very oversold and JUNO has been adding or increasing its exposure to this area. The companies Crocs and Yeti are good examples of this. Are you able to go into a bit more detail about that?
MT: Yeah, sure. I mean, those two companies, people might be, should be, pretty familiar with them. They’re US businesses but they operate globally. And we'd noticed that the stock prices had fallen sort of 50%-60%, in fact I think Crocs was down 70% when we started looking at it only a couple of months ago. Now, many of these consumer companies had been pandemic winners. So Crocs, believe it or not, but people were buying them because everyone was at home. And you want to have something comfortable to wear around the house. So their sales were really booming. But because of the change in interest rates and the pandemic winners getting sold off, I mentioned before that stock had fallen 70% so it came on our radar as something to look at. We did some analysis, spoke with the company, got quite comfortable with the investment and took a position in that about six weeks ago.
So the other stock we mentioned there was Yeti. So Yeti is a company that makes chilly bins, water coolers, bags, and other sort of outdoor equipment for camping and the like. We had owned them from last year, and again that stock had fallen significantly, about 60%, but we’ve started adding some more because we feel really that the valuation that it’s at, it's just too cheap and it has been overdone. So one of those instances with baby out with the bathwater. Nothing wrong with the business, we’ve just seen a significant repricing with the bear market this year and we felt comfortable to add to that position.
GG: Interesting. Thanks Mike. Now over to a very strong US dollar. What's your view on the current situation and how might a strong US dollar impact company earnings?
MT: So currency movements will have different effects depending on where your company is domiciled, or the country that you're in, for example. So if you're in New Zealand, and the US dollar is strong and the New Zealand dollar is weak, that's really good for exporting businesses. So our exporting companies here would increase their profits. The same maybe if you're based in Europe or the UK, and you've got a lot of US business, then you would perform well. The reverse is true if you have a US company and you're earning your money in foreign currency then you're going to be getting less profits back. So we have seen in this reporting season in the US, some of the US companies reporting slightly lower profits as a result of currency movements. Conversely, the flip side for other countries around the world.
GG: Thanks for that. And finally, one more question around travel stocks. These have rebounded since the pandemic as more people start travelling again and, in fact, if you've been to the airport recently, you've definitely seen queues out the door in some instances. So what do you think could happen in this space over the next 12 months or so?
MT: Yes, we've got exposure to the travel industry, mainly through Airbnb. That's our main exposure for all the JUNO funds. And we think that travel is a sector that's going to keep coming back. We don't think it's going to slow down, partly because everyone hasn't had the opportunity to go overseas for the last couple of years. It's very hard to get flights at the moment and people are prepared to pay quite a premium to get flights and travel. So we think that that trend and the demand for travel is going to be sustained, and the recovery for travel will continue. Also Airbnb as a stock had fallen quite a lot. At one point it was down quite similar to the others I've mentioned, maybe down 50%. So we thought it was a good opportunity to hold the stock. There are other travel names in the sector we’re looking at as well, so it's not the only one.
GG: Thanks, Mike for the great insights as always and thank you everyone at home for watching. We'll see you again soon for the next JUNO market update.
MT: Thanks Gordon and it’s really pleasing to be able to report some decent numbers for July for all our KiwiSaver members.
Information correct as at 1 August 2022. Pie Funds Management Limited is the issuer and manager of the JUNO KiwiSaver Scheme. Click here for our Product Disclosure Statement. Any advice is given by Pie Funds Management Limited, and is general only. It relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees if you act on any advice. As manager of the Scheme we receive monthly fees that are determined by your balance and whether you are 13 years or over. We will benefit financially if you invest in our products. We manage any conflicts of interest via an internal compliance framework designed to ensure we meet our duties to you. For information about the advice we can provide, our duties and complaint process and how disputes can be resolved, visit www.junofunds.co.nz. All content is correct at time of publication date, unless otherwise indicated. Past performance is not a reliable indicator of future returns. Returns can be negative as well as positive and returns over different periods may vary. Please let us know if you would like a hard copy of this disclosure information.