KiwiSaver Monthly Update July 2022

Welcome to the KiwiSaver Monthly Update for the month ending 30 June 2022

What's the latest? 

Guy Thornewill, JUNO’s Head of Global Research based in London, gives the latest on markets this month and activity within the JUNO funds. 

June was another brutal month in markets as recession fears dominated and central banks continued to hike rates aggressively to combat inflation. In fact, in falling 20.5% in the first half of the year, the S&P500 index had its worst start to a year since 1970. There really was nowhere to hide in June. Even energy stocks which had outperformed so far this year sold off about 20%. Many commodities fell sharply, and travel stocks were also hit hard despite the current high demand for travel services. The Ukraine war continues to generate high levels of uncertainty, and Putin recently ramped this up by starting to restrict gas supplies to Europe, a clear threat to industrial companies as well as consumers.

With this backdrop, we do expect the upcoming second-quarter earnings season to lead to substantial earnings downgrades across markets. However, JUNO maintains a high cash level, has been increasing its weightings in bonds where yields now look more attractive, and has continued to reduce exposure to smaller more illiquid holdings, or to positions where we believe there is greater earnings risk. Overall, we are staying cautious, and will gradually deploy more cash only if markets fall further or central banks pivot away from rate hikes.

JUNO’s exposure to the renewables theme was a positive during the month, as these stocks held up well. The fund’s healthcare exposure, via holdings such as UnitedHealth and Novo Nordisk, which both registered positive returns, also helped performance. JUNO’s best-performing stock in June was Naspers, which rose 38% after the company announced it would be repurchasing stock, funded by selling Tencent shares, in order to reduce the current large discount to net asset value. This is a catalyst we have been waiting for, and the holding is the second largest in the fund.

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The halfway point for 2022

CEO + Founder Mike Taylor discusses the changing investment landscape and what could be on the horizon.

We’re at the halfway point for 2022. So let’s take a look at the scores on the doors. It has been the worst start to the year for equities since 1970. It has been the worst start for a balanced portfolio since, well, ever. The superlatives keep piling up. US$23t of value has been lost in stocks and bonds, dwarfing the US$9t of losses in the Global Financial Crisis (GFC). And I hear what you are saying, the world economy was smaller back then. Yes, it was, but the GFC hit what was 13% of global GDP. 2022 = 27%, in six months! Tech has been decimated. 

Here is a list of household names and their performance in 2022:
Coinbase: -81%
Shopify: -77%
Netflix: -71% 
Etsy: -67% 
Paypal: -63%
Bitcoin: -60%
Meta: -52%

And the list goes on and on. So what is going on? Covid-19, the Ukraine-Russia war, inflation, supply and labour challenges, weak consumer confidence, and rate hikes. That’s the backdrop and that’s why we are where we are. What do the next six months look like? Will any of those problems resolve themselves by the end of 2022? Let’s take a quick look.

Covid-19: I think the impact of Covid by year-end, absent a new deadly strain, will be muted.

Ukraine/Russia war: I’d like to think this will have been resolved, but Putin is a dictator, so anything is possible.

Inflation: If oil stays where it is or even falls, I think inflation will be heading rapidly lower and some parts of the economy will be experiencing deflation.

Supply chains: I’m picking these will be resolved.

Weak consumer confidence: Not resolved. I think this remains weak as the economy slows.

Interest rate hikes: Central banks over-stimulated and now I think they will tighten too aggressively. They will not come to the aid of the markets in 2022. Rhetoric has been inflation first, then growth and employment. However, I think by year-end the market will be pricing cuts in 2023.

The key in all of this? Watch the Fed and don’t fight the Fed. We will be retaining our cash and remaining defensive until the Fed pivots. In addition, I will utilise shorting again to hedge the equity exposure when appropriate.

The bubble that existed in asset prices, from stimulus and low rates, has well and truly deflated, just take a look at the ARK Innovation ETF. Now earnings are the focus, and they are the key for Pie’s portfolio managers and analysts. While I cover the macro, the rest of the team is focused on bottom-up stock picking and constantly reviewing our holdings to assess what is at risk.

These conditions are testing my skills to the limit, but I am relishing the opportunity to dive deep to understand market dynamics so I can provide the best possible outcome for our members.  I’m working now as hard as I have ever done in my career to test, probe, and anticipate what might be next to, above all, protect your investments. As they say, the proverbial is on the line here and if markets remain against us, rest assured I will be focused on capital preservation as much as I am on ensuring we capture the eventual recovery.


Environmental, Social and Governance (ESG) update

In light of some of the challenges facing Europe at the moment, namely the transition to clean energy (with Putin threatening to shut off the gas before they have transitioned), this month I’ve been listening on Audible to “A Life on Our Planet” by David Attenborough.

For those of you who have grown up listening to his soothing, familiar and trusting narration, the message he has for the world is quite stark. If we don’t do something now about climate change, in 20 years it might be too late. What I found interesting was that it doesn’t take much of a change in annual temperature to destabilise the planet and, combined with the damage that we have already done to our flora and fauna, we are on a trajectory to the extinction of the human race as we know it. 

What can we do about this at JUNO? We have recently hired an ESG analyst and will be putting more emphasis on providing capital to those companies that can help accelerate the move to clean energy, as well as businesses in general that operate with good governance and a social conscience. You can read more about our ESG direction here.

EDP Renewables and NextEra Energy Partners are two examples of renewable energy companies JUNO holds, with EDP in Europe and NextEra in the US. As CEO of JUNO, I feel compelled to be doing something with the capital we have to try and make a difference. But we’ve all got to do something, right now, today, if we want to avoid a catastrophe.


Going up, going down

Mike Taylor looks at one stock that has gone up, and one stock that has gone down.

Going up: Naspers (JSE:NPN) (38.11% for the past month at 30.06.22)
Naspers (NPN) was up 38.11% during the month. Naspers is a multinational holding company headquartered in Cape Town, South Africa, with interests in online retail, publishing and venture capital investment. Their largest investment is Tencent. The stock has always traded at a big discount to net asset value (NAV). In June, to help close the gap, the board agreed to sell some of their position in Tencent and use that to buy back shares.

Going down: Airbnb (NASDAQ: ABNB) (-26.30% for the past month at 30.06.22)
Airbnb (ABNB) fell -26.30% during the month as investors fretted that an upcoming recession may temper demand for global travel. We own ABNB because we believe it will continue to take market share and the travel recovery will continue, even with a recession, due to years of pent-up demand from Covid-19.


Crazy things in the investment world

Mike Taylor delves into crazy things that are happening in markets. 

I think by far and away the craziest thing in June was an 18.3% fall for the Australian Emerging Companies Index, which comes hot on the heels of an 8% fall in May. Ouch. What caused this? There are a number of factors which led to this but here are the main culprits.

  1. Sharp rise in Australian interest rates affecting valuations.
  2. Tax-loss selling. Aussies have to pay capital gains and the financial year-end is 30 June, so they sell the poor-performing stock to recognise any losses.
  3. Global markets had a rough month.
  4. Commodity prices for the likes of oil, copper, lithium, gold, corn and grain all fell in June and Australia has a lot of listed companies in the commodity space.



Information correct as at 30 June 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 guarantee 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.