Global share markets have continued to bounce back from the big sell off in March, as investors started looking ahead to the gradual lifting of restrictions around the world. Booster’s range of diversified funds have delivered moderate returns over the last 12 months – a positive result considering the volatility we’ve experienced recently. While it’s still too early to consider ourselves ‘out of the woods’ yet, the recent market recovery highlights the importance of having a solid investment plan and sticking with it, even when times are tough.
While the overall news of a market recovery is welcome, it’s important to note that the recovery is not spread evenly across industry sectors. Businesses that a more vulnerable to market disruptions such as tourism and hospitality, have been some of the hardest hit, both in their day-to-day business and share prices. Our active investment choices into sectors such as healthcare and a focus on our global shares in companies with solid cash income has helped to support returns for our investors during this time. Selectively supporting New Zealand companies who were raising capital through new share issues has also provided opportunities at attractive prices.
We remain focused on being flexible and adapting to what’s happening in the markets as governments around the world tackle the balance between the ongoing disruption to their economies with the pace of easing their lockdown measures and the depth of financial support they need to provide to get their economies back on its feet.
One of the most important principles of investment is diversification or ‘not putting all your eggs in one basket’.
In practice, diversification is holding a mix of shares and other investments such as fixed interest and property. If the eggs in the share’s ‘basket’ drops in value (as it has recently and does from time to time), the eggs being held in the fixed interest ‘basket’ will help to reduce the extent of the drop in the overall investment portfolio.
You can also dig a bit deeper into the idea of diversification within the share’s basket. The eggs being held in the share’s basket can also be spread across (diversified) a range of different companies operating in different industry sectors, so when some aren’t performing well, it’s likely there are others that may be performing better. This helps to reduce the extent of the share’s basket fall in value.
Over the past three years, we’ve deliberately strengthened the diversification within our funds by including direct investments into successful, unlisted New Zealand businesses (ones not listed on the stock exchange) through our Booster ‘Tahi’ Fund. This decision has been vindicated as during the recent volatility these unlisted businesses continued to deliver solid outcomes for investors. Diversification is also evident within the Tahi Fund itself through investments in the Booster Wine Group, Sunchaser Avocados and Dodson Motorsport.
The Booster Wine Group brings together winery businesses from across New Zealand and includes iconic brands Sileni in the Hawkes Bay, Waimea Estate and Mahana in Nelson, and the Awatere River Wine Company in Marlborough. The Booster Wine Group produces over 6 million litres of wine per year.
New Zealand’s wine industry was designated an ‘essential service’ which allowed these businesses to continue operating during lockdown and work through a bumper 2019/20 grape harvest. Booster Wine Group has continued to see solid international sales and growth in demand from supermarkets, which helped offset lower recent sales to restaurants and bars.
Sunchaser grows avocados on Motiti Island in the Bay of Plenty. Sunchaser’s harvest volumes over the last year were lower than forecast due to poor avocado tree flowering conditions.
They have however just begun a new harvest and demand for their fruit is expected to hold up given that they mainly sell to the New Zealand market, which is demonstrating strong demand for locally grown produce. Sunchaser is well positioned to supply this demand as its avocados are first to market every year due to its northerly aspect and microclimate.
Dodson Motorsport manufactures transmission parts for high-end sportscars, sold around the world. Unlike Booster Wine Group, Dodson was not deemed an essential service and had to close during alert level 4, before opening again under level 3.
The effect of the closure was mitigated by a large spike in orders just prior to level 4 coupled with a fall in the New Zealand dollar which increased the value of overseas earnings. Additional new orders have been solid since reopening and Dodson’s also has a promising future pipeline driven by the development of after-market parts for the new Chevrolet Corvette.
While Booster’s funds exposure to Tahi is relatively small, it constitutes an important and growing part of our investors’ wider portfolios and alongside other New Zealand and international investments adds to our diversification.
We are really proud of our Tahi investments. Tahi helps these New Zealand businesses develop their products, often to be sold on the world stage. And because these companies are not listed on the New Zealand stock exchange, they are unique investment opportunities available only to Booster members. Tahi makes sense for us, for them and for you, our investors.