KiwiSaver Monthly Update May 2022

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

What's the latest?

Portfolio Manager Mark Devcich, gives the latest on markets and fund activity this month.

April was a difficult month for markets as technology and consumer discretionary stocks sold off on concerns about high-interest rates affecting valuations and weaker demand. We also had first-quarter results from many companies broadly in line with expectations, but with slowing growth rates. Some storm clouds are gathering as consumers are battling higher inflation initially caused by supply chain disruptions from Covid-19, and now the war in Ukraine and lockdowns in China. Combined with high-interest rates, this is taking the sting out of consumer spending. Furthermore, consumers are now transitioning their spending towards services and away from goods as there is substantial pent-up demand for activities like travel, holidays, concerts, eating out etc. 

A few long-standing portfolio positions, such as EML Payments and Amazon, reported profits below expectations in April. We have sold EML Payments as we are concerned about the significant deterioration in the cash generation from their core business. We have recently transitioned the portfolio into more large-cap defensive names, including Dollar Tree, Equinix and UnitedHealth Group, and had a 10% market hedge on for most of April, which meant our effective equity exposure was at the low end of the range at 70%.

If interest rates continue to climb, asset prices will struggle to perform in the short term but provide a more attractive investment proposition in the long-term.

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A tough April

Founder and CEO Mike Taylor gives the latest on the current climate and the direction JUNO is headed.

The US market had its worst month since October 2008 with the tech heavy Nasdaq down 13%, and it’s the worst start to a year since 1942. So yes, let’s not beat around the bush, this sell-off is not garden variety. The usual safe harbours were in fact the driver of this cruel month. Tech giants Amazon (AMZN), Apple (AAPL), Netflix (NFLX) and Tesla (TSLA), once a place to hide and gloat, fell precipitously during April. The old adage, any port in a storm, failed miserably for bonds too, with the Bloomberg Bond index having its worst month since inception in 1990, down 5.5%. Commodities too retreated from recent highs. 

So what gives? We can’t just hide under a rock, and we can’t just sit in cash when inflation is 8%. Interestingly, on the cash point, Warren Buffett has just been on a spending spree, deploying the most money since 2008. He intimated at his recent AGM (held for the first time in person since 2019, in Omaha, Nebraska) that he’d rather invest in good-quality businesses than hold cash during inflationary times. 

Watch the macro

I’ve managed money through volatile times in the past, and now more than ever you’ve got to watch the macro and follow the signposts. You need caution, to strategise several moves ahead and be looking up all the time, not down in the weeds. In bear markets, I hate to use that term because it attracts so many negative connotations, macro is far more important than micro. I learned that the hard way in 2008. 

What has changed?

Speaking of signposts, you could say that the market sold off in April due to the same worries as previously, but that would be naive, the story has evolved. What’s changed? 

1. There is no safe habour anymore. Previously resilient tech heavyweights AMZN, AAPL and TSLA led the market lower in April. 

2. Bonds had their worst month, everyone hates them. (That makes them interesting to me).

3. Shanghai is in lockdown but Beijing has revealed they will stimulate again. 

4. “Buy the dip” investors are getting run over, from Netflix to Gamestop to Robinhood. In the worst sell-off for tech in 14 years, many investors simply haven’t been through a bear market before.

5. Japan – the yen and the Bank of Japan (BOJ). They’re back on the pump! The BOJ has said it will buy stocks and bonds to cap the Japanese Government Bond 10-year at a mere 0.25%.

6. Consumer sentiment is flashing red.

7. Corporate earnings are starting to feel the pinch of higher costs.

Staying cautious on tech

So what’s our top-down strategy? We’re staying cautious on tech, although noting opportunities are presenting, the preference is to wait until the central bank interest rate strategy changes. We think commodities will stay strong and we expect volatility to remain elevated. We think bonds are now looking more attractive. We see tough times ahead for the consumer. Inflation has probably peaked (absence further escalation with Russia), and green infrastructure will have a massive boom. We think 2-year interest rates have probably moved high enough already this cycle. Finally, we think central banks will blink later this year or earlier next year as either inflation falls or economies slow too rapidly. Therefore we are building portfolios that align with this. 

Going up, going down

Mike Taylor looks at movement of stocks held in the JUNO funds.

Going down: Visa (NYSE: V) (-5.8% for the past month as at 30.4.22)
Visa was slightly down for the month of April, but that was a great result considering that the market was slammed! Visa reported a strong 2Q22 result with a beat on revenue (4.3%) and operating income (9.1%) due to cross-border travel and strong consumer activity, particularly from more affluent consumers.

Visa will continue to benefit from increased travel and is a relatively low-risk reopening play trading on 28x FY22 earnings. Looking further out, the thesis becomes more balanced with technology disruption a greater risk but also a sizeable longer-term opportunity for its B2B payment offerings.

Going down: Amazon (NASDAQGS: AMZN) (-24.0% for the past month as at 30.4.22)
AMZN’s stock price has been under pressure in 2022 and the company is being impacted more than the other large tech players as it has a greater exposure to inflation, both on labour and logistics. We have reduced AMZN recently and our weighting is approximately half the “benchmark” weight. It could take some time for AMZN to see margin leverage from better utilisation of its fixed cost investments and improve worker productivity and there is no catalyst with consumer spend being directed more towards services away from goods. However what AMZN is building are two significant assets (global logistics network and cloud computing infrastructure) which benefit from network effects.

Crazy things in the investment world 

We delve into crazy things that are happening in markets.

The Nasdaq US stock market index is a “tech” heavy market meaning that it is dominated by technology companies like Salesforce, Facebook, Amazon, Apple, Netflix, Microsoft, Google etc. All the big household tech names, and the little ones too that you haven’t heard of. Given technology companies are the stocks getting sold off the most in 2022, it should come as no surprise that the Nasdaq has fallen over 20% year-to-date. What’s crazy though is that, to the end of April, the Nasdaq has been moving plus or minus 1% every day for 83 days. This makes it the most volatile period of trading since 2008/early 2009 during the depths of the GFC!

Information correct as at 30 April 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 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.