Fund watch

How has the fund performed?

Performance as at 31 March 2024	3 months (%)	1 year (%)	3 years (% p.a.)	5 years (% p.a.)	10 years (% p.a.)
MFL Mutual Fund	2.19%	11.11%	0.22%	3.84%	7.18%

Performance is after the annual fund charge and before tax.

The New Zealand listed property sector returned 0.1%, struggling against the backdrop of higher bond yields. Rising bond yields tend to hamper the performance of the listed property sector, as it reduces the attractiveness of investing in the sector relative to other high yielding alternatives and impacts underlying property valuations. Of the ten companies that make up the property index, half delivered a positive return, with the best performing ones being NZ Rural Land Company and Property for Industry. It was a much better story in Australia, with the listed property index rising 16.8%, helped in part by a softening of inflation, which suggested interest rates there may have peaked.

Economic data during the quarter highlighted some of the challenges facing the New Zealand economy at present. Inflation showed that consumer prices rose at an annual pace of 4.7% in the fourth quarter of 2023. While it was the smallest annual rise in over two years, non-tradeable inflation (domestically generated) remained worryingly high, at 5.9%.

Perhaps the biggest news however was confirmation that the New Zealand economy entered a recession in the final quarter of 2023, contracting 0.1% over the three months ending December 2023, and marking the second consecutive quarter of negative economic growth. On a per capita basis the economy fared even worse, shrinking 0.7% over the quarter.

The MFL Property Fund returned 2.19% over the quarter.

Benefiting relative performance over the quarter were the fund’s holdings in Australian listed property companies, given the strong performance of this sector. It included the fund’s positions in Goodman Group, Scentre Group and Charter Hall Group, which were three of the better-performing companies, which saw their share prices up 35%, 17% and 15% respectively.

Meanwhile, in New Zealand, relative performance was also helped by the fund’s strategic underweight positions to Goodman Property Trust Units, Argosy Property Limited and Precinct Properties New Zealand Limited. Although Goodman and Argosy both delivered small positive returns, they were behind the benchmark, while shares in Precinct ended the quarter with a loss. Precinct struggled after it reported earnings on the softer side with rental income and management fees offset by higher tax costs and higher interest costs.

The fund’s exposure to international listed property was also beneficial, given strong performances from some of its holdings in this space. Most notable were a couple of the fund’s Japanese holdings, Mitsui Fudosan Co Ltd and Mitsubishi Estate Comp, which got a lift from the exceptionally strong performance of the broad Japanese share market – which hit a 34-year high during the quarter. A number of its long-standing retail holdings also did well, as did its exposure to data centres, which continued to do well on the back of strong demand driven by growth in artificial intelligence (AI).

Having a detrimental impact on relative performance however and offsetting the positives were overweight positions in two poor-performing retirement sector companies in New Zealand, Ryman Healthcare Limited and Oceania Healthcare Limited, with shares in each ending the quarter down 22.8% and 17.1% respectively. Ryman shares fell sharply over the quarter as it issued a disappointing FY24 downgrade, with underlying profit guidance lowered about 13% to a midpoint of $275 million, while Oceania’s decline saw its share price reach its lowest level since the pandemic sell-off in 2020 on concerns the company would struggle to sell new units given softer housing market turnover.

This article has been prepared by ANZ New Zealand Investments Limited (‘ANZ Investments’) for information purposes only and it should not be treated as financial advice.

MFL Mutual Fund Limited is the issuer and manager of the MFL Mutual Fund. ANZ Investments is the investment and administration manager. ANZ Investments is not an authorised deposit taking institution (ADI) under Australian law and investments in the scheme aren’t deposits in or liabilities of ANZ Bank New Zealand Limited, Australia and New Zealand Banking Group Limited, or their subsidiaries (together ‘ANZ Group’). ANZ Group doesn’t stand behind or guarantee ANZ Investments. Investments in the scheme are subject to investment risk, including possible delays in repayment, and loss of income and principal invested. ANZ Group won’t be liable to you for the capital value or performance of your investment.

Past performance does not indicate future performance, and performance can be negative as well as positive. This material is for information purposes only. We recommend seeking financial advice about your situation and goals before getting a financial product.

Investment and administration manager: ANZ New Zealand Investments Limited.