Market commentary: Apr 2022

Portfolio returns

Returns for the year to 30 April are negative. Central banks around the world have increased the cost of borrowing to slow down economies and dampen high inflation. Market participants have priced in expectation of more to come in this regard causing share prices (and bond prices) to fall. The Vanguard World Stock index (USD) fell 13% for the year and 18 % in the last 6 months. To a lesser degree this is reflected in our client portfolios - the weakening NZD has been a help. On a positive note, property and infrastructure produced positive returns.

Rational or emotional?

Market participants react to news and make decisions to buy or sell investments based on expectations of price direction. History has shown that human nature overwhelms rational analysis, and the market cycle of peaks and troughs is actually a roller coaster of market emotions ranging the full spectrum of feelings - euphoria, greed, fear, and panic. The market often overreacts to news. A successful investor regards volatility of the market as background noise and has the discipline, calm and perspective to make decisions based on what is known (and know what is not known) about an investment. As Warren Buffet once said, “Be fearful when others are greedy, and greedy when others are fearful”.

Company in focus: Nestlé

Nestlé is the world’s biggest food and drinks manufacturer and has great ”mega brands”  (e.g., Nescafe, Milo, Purina pet care, and San Pellegrino mineral water). It’s latest innovation and response to consumer demand is a switch into healthier products such as plant-based foods and vegan alternatives. Among these are the Vrimp, an alternative to shrimp, the vEGGie, a vegan egg, and the Vuna a vegan tuna alternative. Sales growth in these areas is strong.

Analysis shows that Nestlé has steady cash flow and earnings streams no matter the state of the economy, and it’s well positioned to achieve its sales growth target of 4% to 6% in coming years. It also has very strong competitive advantage. The rational thinking is that the stock is likely to generate superior returns for investors for a long while yet – a good reason for fund managers to include Nestlé in their portfolios.

Richard Grimes, Director and Financial Adviser