Insights
Market commentary February 2025
Financial analysis on the global and local markets from our investment team
"February was akin to sailing a boat in a tropical storm" Mike Kenealy
While the weather during February felt pleasant, being a fund manager was akin to sailing a boat in a tropical storm. Trump’s first few months at the helm delivered 100 or so Executive Orders and consequently, market turmoil. The rejigging of the global world order, slowing economic data and the Federal Reserve going "on pause" was a lot more than usual to digest.
Markets generally don’t like uncertainty. You may have noticed the consequences of this locally with New Zealand markets down -3% and Australia markets down -4.2%. We’ll unpack some of the reasons for this, and their relevance to ethical investing, below.
Global order has started to change
The US has essentially sent the signal they are no longer the "police of the free world” as the appear to be considering backing out of a 1994 protection deal. Closer to home, a quarrel between Australia and China unfolded after the former was criticised for flying military aircraft in Chinese airspace. And the latter conducted live fire drills not far from Sydney, forcing commercial flights to divert to safer airways. Behaving as though their “global law enforcement” days are behind them, the US is calling for Europe to spend more on defence, sending defence stocks up like rockets. Governments are urgently having to assess if their security and defence strategies are still fit for purpose and must consider how to fund any shortfalls.
In this seemingly more fractured world, Governments are increasingly thinking about areas of self-reliance and supporting local re-industrialisation efforts. This aligns with our Deglobalisation Theme where we have been seeking assets that continue to perform in domestic markets across key sectors such as infrastructure, industrials, technology and automation. For example, we expect to benefit from the growing demand for cyber security and have invested in Palo Alto and Fortinet, as well as Microsoft, which we think are well positioned to provide protection in an increasingly digital world.
Green economy under fire?
The US Federal Reserve chose to hold rates steady during February, signalling it would wait to see more data on growth and inflation, as well as the impacts from Trump’s policy agenda. As expected, policies include actions to slow the adoption of green(er) energy. A potential motivation for this is the US spending $7 trillion while taxing $5 trillion - an unsustainable mismatch. Reducing Government spending is good for the deficit but bad for jobs and growth.
We wrestled with the tension of thinking solar and wind stocks would suffer if Trump repealed the Inflation Reduction Act after winning the election, whilst also taking a longer-term view to invest in the “world we want” which is less reliant on fossil fuels. To balance these, we gradually reduced and diversified green energy manufacturer investments, while adding more renewable energy producers like Meridian and Mercury in New Zealand. And we’ve topped up our investment in Lodestone, a Kiwi solar energy company.
Closer to home: Improving with age
Ryman Healthcare is well-known as a leader in the retirement and aged care sector with facilities specifically designed for elderly. They also consider the social needs of people now living alone, who may be slowly losing independence, who seek social connection, or who want the peace of mind of having a trained helper a button’s push away. We support their improved governance, having appointed a new Chair to the board and well-regarded new CEO, and how they're building new product, at large scale, that meets a social need. This offers an alignment of incentives to maintain their social licence to operate and get return on capital.
Although they have had a tough few years, due to some costly mistakes, they have made changes for the better. Pathfinder invested with them in 2024, only after they addressed their issues by making meaningful leadership changes and achieving a major capital raise. They raised $1 billion enabling them to manage debt more effectively and current leadership is taking less risk in an effort to rebuild trust, which is beneficial for shareholders like us.
It’s 5 o'clock at Ryman: from an ethical screening point of view Ryman screens for selling alcohol. While the revenue threshold (of alcohol) fits our policy we did double check by going on investor tours of the villages. The team have seen encouraging social interactions over lawn bowls, cinema nights, daily outings and a glass of wine during happy hour.
Performance
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by Michael Kenealy
Portfolio Manager
Michael joined us in 2023 after being a Portfolio Manager at Mint Asset Management and prior to that at Salt Funds Management. He also spent three years as an Investment Analyst in Peru working for a Philanthropic fund and has worked for Goldman Sachs and JBWere after graduating with 1st Class Honours from Auckland University (BCom Hons Finance and Economic). Michael is a CFA Charterholder.
