Market and Economic Review - Milford Assetmilfordasset.com/.../2020/08/...Report_31_07_2020.pdf ·...

Market and Economic ReviewMilford’s Funds posted another positive month across the board as shares and corporate bonds continue to recover from their March lows.

Over the past few months a few key themes have emerged:

1. Although global unemployment has risen to alarming levels, household incomes have remained largely intact owingto substantial government response measures

2. Global central banks are supporting government spending by keeping interest rates extremely low, buying financialassets (quantitative easing) and thereby facilitating increased government borrowing

3. Consumers initially saved, but very quickly the income support from governments prompted spending.Unsurprisingly, much of this spending was online – US online sales have surged 30% compared to a year ago

4. Changes in consumer spending patterns have benefitted a small handful of high-profile stocks, for example Amazon,Apple and Google. Growth starved investors have bought these company shares, pushing prices to all-time highs.

Quarterly profits announced by the four tech giants (Microsoft, Apple, Alphabet and Amazon) in July exceeded even optimistic investors’ expectations, demonstrating their dominance in this environment. Milford’s Global Equity and equity focussed diversified Funds have held significant holdings in these companies, aiding performance in the month.

The NZ share market was negatively impacted in July by the announcement of the closure of the Tiwai aluminium smelter, sending utility company shares lower. We had reduced our Funds’ holdings in the sector, limiting the impact on our performance.

The Australian share market underperformed last month, likely due to the resurgence of COVID-19 cases in Victoria, tensions with China and a strong Australian dollar making shares look expensive to offshore investors.

Looking ahead, there are several catalysts on the horizon. Company earnings will be released in Australia and NZ in August, revealing how well local companies have fared recently, and view their outlook over the next period of economic disruption. Upcoming elections will come into focus in NZ and a couple of months later in the US. Given the significant role government policy has played in supporting the global economy, these elections will complicate the medium-term transition from government life support to an economy that can get back on its own two feet.

Markets have outperformed our expectations over the past few months, but uncertainty remains high. We continue to focus on identifying the right companies to invest into whilst retaining a mildly defensive position.

Milford Investment Funds Monthly ReviewAugust 2020

Milford Asset ManagementW milfordasset.com

T 0800 662 345E [email protected]

Level 28, 48 Shortland StreetAuckland 1010, New Zealand

PO Box 960, Shortland StreetAuckland 1140, New Zealand

http://milfordasset.com

Milford Investment Funds Monthly Review as at 31 July 2020

Conservative FundPortfolio Manager: Paul Morris

Strong contributions from corporate bonds and global shares drove a strong Fund return of 1.3% in July.Australasian share returns were also generally positive but more moderate than global shares. Australiafaces the headwind of a resurgence of the virus while NZ share returns were negatively impacted byweakness in the NZ electricity sector due to the Tiwai aluminium smelter closure.

During July we further reduced the extent of the Fund’s defensive positioning. This decision was predicatedon (i) increased confidence fiscal and monetary policy makers are committed to unprecedented levels ofsupport, albeit we acknowledge US fiscal negotiations are at time of writing uncertain, (ii) reduced probabilityof nationwide lock downs in reaction to virus surges and (iii) better than anticipated second quarter companyresults. Specifically, the Fund's above long-term neutral allocation to cash was reduced by increasing itsglobal and Australasian share exposures and further increasing its allocation to investment grade corporatebonds.

Looking forward, we believe policy support should underpin Fund returns but given the extent of recentprice appreciation across bonds and shares, near term we may see a period of consolidation which couldtranslate into a moderation of returns. While Fund settings are now less defensive than in recent months,we believe it remains prudent to retain the exposure to shares slightly lower than the long-term neutral.

Actual investment mix 1

Effective Cash# 7.39%

New Zealand FixedInterest 25.42%International FixedInterest 52.20%New Zealand Equities2.29%

Australian Equities2.82%International Equities7.22%Listed Property 2.65%

Other* 0.01%

# The actual cash held by the Fund is 3.90%. EffectiveCash reported above is adjusted to reflect the Fund'snotional positions (e.g. derivatives used to increaseor reduce market exposure).

Diversified Income FundPortfolio Manager: David Lewis

The Fund had a strong month in July rising by 1.4%. Key areas of strength were global corporate bonds, andto a lesser extent NZ shares, with weaker returns from our Australian shareholdings following the escalatingvirus outbreak in Victoria.

Highlights in the Fund's share portfolio were Summerset (NZ retirement villages, +21.5%), American Water(water utility, +14.5%), and Goodman Group (global industrial property owner and developer, +14.0%).American Water is the largest of the Fund's global utility/infrastructure holdings. We continue to seeattractive opportunities in these sectors internationally, with our research here supported by last year'sspecialist hire in Sydney (Dan Simmonds). On the negative side, NZ electricity companies were soft followingnews of the Tiwai smelter closure, particularly Contact Energy (-6.7%). Our positioning in this sector hasbeen cautious since last October when a strategic review for the smelter was announced. Over the month,we used weakness as an opportunity to add to holdings in both Contact and Meridian as we believe thatvaluations were attractive relative to medium-term earnings potential.

In fixed income, we continue to see valuations as generally attractive compared to cash and governmentbonds, and hence the Fund made further investments including in Ardagh, a global packaging company,and Societe Generale, a French bank.


New Zealand FixedInterest 13.53%International FixedInterest 46.19%New Zealand Equities8.50%


Other* 0.01%


*Other includes currency derivatives used to manage foreign exchange risk.1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.


Balanced FundPortfolio Manager: Mark Riggall

The Fund continued its run of positive monthly performances, delivering 2.0% in July and taking one yearperformance to 5.2%. Returns in July were driven by strong performance across all underlying Funds.

Global shares had a notably good month, owing to a concentration of positions in the Technology sector.This sector is a beneficiary of the current environment as consumers and businesses operate more in thevirtual space. The NZ and Australian share Funds delivered returns in excess of local market performancedue to holdings such as Summerset (+21.5%) and Mainfreight (+20.4%) in NZ and HUB24 (a wealthmanagement platform, +43.4%) and gold mining stocks in Australia. The income portfolio also had strongreturns in July as corporate bonds continue to recover strongly from their March sell-off.

Finally, the Funds reduced exposure to the US dollar aided performance as the currency weakened sharplyagainst most global currencies. Recent market performance has exceeded our expectations, driven by strongpolicy support in the face of weak economic fundamentals. The Fund has retained a cautious setting throughthis period as risks have remained elevated. However, good stock selection across both shares and bondshas helped deliver strong returns for the Fund. Looking ahead, a mildly cautious approach remainsappropriate given the run in markets and ongoing uncertainty on multiple fronts.


Effective Cash#

15.94%New Zealand FixedInterest 6.37%International FixedInterest 24.75%New Zealand

Equities† 12.72%


Other* 0.71%


Active Growth FundPortfolio Manager: Jonathan Windust

The Fund rose 3.1% in July benefitting from the strong performance of share and fixed income markets.Shares continue to benefit from strong support from governments and central banks to contain the impactsof the virus. Strong retail investor demand and better than expected US company results also boosted shares.The Fund performed ahead of its underlying investment markets due to the strong performance of thecompanies the Fund has invested in.

Key positive company investments during the month were NZ retirement operator Summerset (+21.5%),Gold companies Newcrest (+11.6%) and Newmont Mining (+12.1%), US home builder DR Horton (+19.3%)and US hospital company HCA Healthcare (+30.5%). DR Horton is the US's largest home builder with a focuson affordable homes and is benefitting from strong housing demand as a result of very low interest rates. DRHorton delivered a strong earnings result with profits up 37% on the previous year. Summerset benefittedfrom a strong update on the number of retirement unit sales. Very low interest rates (negative after inflation)and large amounts of money creation helped the gold price and gold companies as investors look for analternative store of wealth.

The Fund remained active during the month with lots of opportunities created by the COVID-19 winnersand losers. During the month we added to healthcare company Thermo Fisher which is a direct beneficiaryin the short-term due to the production of tests, medium-term in the development and production of vaccinesand long-term due to increased healthcare spending. Looking forward we believe markets are likely to remainvolatile given the very uncertain impacts of the virus on economies and company earnings. To dategovernment stimulus has helped cushion impacts on economies and central bank policies, including lowrates and bond buying, have helped support markets. On balance the Fund remains cautious given theuncertain environment and the recent rise in share market valuations. The Fund has a lower than averageallocation to shares of around 72% however, we remain excited that this market will provide opportunitiesfor active management.

Please note this Fund is closed to new investors.

Effective Cash#

13.55%New Zealand FixedInterest 1.56%International FixedInterest 11.35%New Zealand

Equities‡ 22.76%


Other* 1.40%


†Includes unlisted equity holdings of 0.22% ‡Includes unlisted equity holdings of 1.56% *Other includes currency derivatives used to manage foreign exchange risk.1The actual investment mix incorporates the notional exposure value of equity derivatives and credit default swaps, where applicable.



Effective Cash#

29.39%New Zealand FixedInterest 0.85%International FixedInterest 0.83%New Zealand Equities6.17%


Other* 0%

# The actual cash held by the Fund is 23.56%.Effective Cash reported above is adjusted to reflectthe Fund's notional positions (e.g. derivatives usedto increase or reduce market exposure).

Australian Absolute Growth FundPortfolio Manager: William Curtayne & Wayne Gentle

Despite the latest Melbourne lockdowns and gradual spread of the COVID-19 outbreak to Sydney, domestic equity markets remained robust through July. The Australian Absolute Growth Fund did relatively well, delivering 1.0% in July, outperforming the S&P/ASX200 which returned 0.5% for the month.

Sectors heavily impacted by the Melbourne lockdown such as banks, travel and A-REITs performed poorly over the month while we saw renewed strength in safe-haven companies, such as supermarkets Coles and Woolworths, where the Fund has a significant investment. We had been positioned defensively for the possibility of renewed lockdowns, so as the market moves played out, we adapted our positioning. This involved reducing our supermarket holdings, buying bank shares, and slowly increasing our overall exposure to equities.

Another large contributor to performance was our allocation to gold miners. The gold price in US dollars accelerated its upward trajectory nearly reaching $2,000/oz and eclipsing its previous high of $1,921 reached in 2011. The faltering global economic recovery, and continued money creation by central banks through quantitative easing programs encouraged a new wave of investors in gold bullion. As a result, we took profits on some of our gold mining companies as we believe the gold price now looks somewhat overheated. The Fund still retains a 10% exposure to gold miners.

The focus this month will be company full year result releases and meeting with the management teams from most of our invested companies.

Trans-Tasman Bond FundPortfolio Manager: Paul Morris

Australasian bond yields fell in July, pushing prices higher, contributing to a strong Fund return of 0.9% over the month. Corporate bonds posted another month of outperformance relative to government/government related bonds. In fact, credit spreads (the extra yield of corporate bonds over government’s) of some corporate bond sectors (notably senior bank bonds) are now less than before the COVID-19 crisis, helped by central bank and government policy.

Irrespective of a slightly cautious Fund setting versus its long run history (fewer lower rated bonds, subordinated bonds and offshore bonds of Australasian issuers), the Fund delivered a return 0.2% more than its benchmark. Drivers included a further recovery in many corporate bonds that had lagged the earlier rally, participation in new longer dated NZ and AU government bond issuance which outperformed shorter dated bonds, and strong performance from offshore bonds of Australasian issuers. The Fund also captured value from several new corporate bond issues which performed well, including Amcor (packaging), UBS (Swiss bank) and Port of Brisbane.

Looking forward, recent price appreciation and now lower prevailing market yields may mean a moderation of returns, but policy support should prevent any material weakness. Near term, Fund interest rate exposure is close to neutral, but we have kept exposure to long dated Australasian bonds in anticipation of further outperformance, albeit this is approaching our target.


New Zealand FixedInterest 47.71%International FixedInterest 46.22%

Other* 0%




Global Corporate Bond FundPortfolio Manager: Paul Morris

The Fund posted a strong return of 1.7% in July. Corporate bond yields continued their fall (prices higher),driven by central bank and government policy support, better than anticipated second quarter companyreporting, and reduced new issue bond supply. Global investment grade corporate bond (IG) yields aretesting record low yields while high-yield corporate bond (HY) yields had one of their biggest ever monthlyfalls.

During the month we progressively reduced the Fund’s cautious positioning by increasing the overweightexposure to IG and reducing the extent of the underweight to HY. Combined with security selection andactive management this helped deliver a Fund return in excess of the benchmark, even as HY outperformedIG. With respect to the Fund’s HY exposure it remains focussed in higher rated bonds of lower risk sectorsand to subordinated bonds of IG rated companies, such as Vodafone’s capital notes. We believe suchexposure offers a better risk adjusted return in the uncertain backdrop and should benefit in many casesfrom eligibility for US central bank bond buying.

We were very active in the month, including adding bonds from Bayer (German pharma), VMWare (UStechnology), Ardagh (packaging), AT&T (US telco) and Verisure (EU security). Looking forward, we believepolicy support should underpin corporate bonds but given the extent of the recent price moves, near termmay see a period of consolidation which may translate into a moderation of returns.



New Zealand FixedInterest 0.89%International FixedInterest 95.28%

Other* 0%


Cash FundPortfolio Manager: Paul Morris

Short-dated NZ dollar bank bills, a reflection of interbank funding levels, were close to unchanged in July.The market focus remains on the next Reserve Bank of New Zealand (RBNZ) Official Cash Rate (OCR) decisionin mid-August.

Market pricing suggests no change in the OCR at this meeting. However the focus will also be on any RBNZguidance to its medium-term policy preferences, i.e. whether a negative OCR, more quantitative easing (apossibility for this meeting), yield curve control, forward guidance on the OCR or other tools are more likelyto be deployed in the future.

The portfolio management of the Fund remains focussed on maintaining its low risk strategy which is builton a diversified portfolio of cash, short-dated debt securities and term deposits, so as to protect capital. Webelieve this should be an attractive, tax efficient (as a PIE vehicle), liquid (meaning investors have access tofunds on request, unlike term deposits) and low risk alternative to bank term deposits. Medium term, webelieve that even if there was to be a lower or negative OCR, the Fund should still be able to deliver a positiveand low risk return.

Effective Cash#

30.51%New Zealand FixedInterest 69.49%

Other* 0%






International Equities93.33%

Listed Property 3.74%

Other* 2.48%


Global Equity FundPortfolio Manager: Felix Fok

Global Equity rose 3.7% in July. The Fund outperformed the market by 1.5% last month.

Key positive contributors in July included Taiwan Semiconductor Manufacturing Company (TSMC, +39.0%performance in USD), the world’s largest contract manufacturer of computing chips. The company reported strong results driven by spending on 5G telecommunication networks and data centres, trends that will carry on for some time.

Apple (+16.5% in local currency), which is a large customer of TSMC, reported surprisingly strong second quarter sales and earnings as consumers and businesses kitted out to Work-From-Home. Apple has significant brand power which helps it sell phones and devices at a premium. The 11% sales growth was impressive given the company had to close stores due to the pandemic.

Detractors from performance included Korean video game developer NCSoft (-9.0%), and cleaning and sanitation company Ecolab (-6.0%). The latter fell on results weighed down by closures at its hotel and restaurant customers. Ecolab is a Covid recovery play that also benefits from its expertise in hygiene and sanitation. The Fund is maintaining its position. Despite its fall last month, NCSoft is up 49.9% year to date.

The economic backdrop remains uncertain. The portfolio remains focused on our key investment themes and dominant companies.

Trans-Tasman Equity FundPortfolio Manager: Sam Trethewey & Wayne Gentle

The Fund returned 2.2% in the month, with a more subdued performance from the ASX 200 index (+0.5%) offsetting a stronger New Zealand market (NZX 50 index +2.4%).

The spread of COVID-19 in Victoria weighed on the Australian market as investors anticipate the impact on company earnings and balance sheets. Despite this, the Fund had some strong performers from its Australian holdings. In particular, HUB24, a specialist wealth management platform, was a standout following its announcement of solid business growth through the June quarter illustrating the structural drivers of its business remain intact. Elsewhere, Mainfreight was another strong performer following an exceptional trading update at its AGM with net profit before tax nearly 20% ahead of 2019 for the first 4 months of the financial year, despite disruption from lockdowns over the period.

With the August reporting season nearly upon us, the portfolio remains focussed in companies with strong competitive positions and medium-term growth prospects, while avoiding those where we see stretched balance sheets, earnings or valuation risk. While we are more likely to see some optimism from New Zealand companies than their Australian counterparts, the outlook remains highly uncertain and we expect an overall cautious tone to outlook statements. In Australia, we expect the impact of broader lockdown measures will be a focus and well as the anticipation of further equity raises from businesses less prepared for a second wave of disruption.


New Zealand Equities47.25%Australian Equities43.59%

Listed Property 4.25%

Other* 0%




Dynamic FundPortfolio Manager: William Curtayne & Michael Higgins

Domestic equity markets remained robust through July, despite the renewed Melbourne lockdown andgradual spread of the outbreak to Sydney. The Dynamic Fund returned 3.0%, outperforming the S&P/ASXSmall Ordinaries benchmark by 1.5% for the month.

Performance was led by independent investment platform HUB24 (+43.4%) which closed FY20 with $17.2bnin Funds Under Administration, up 14% for the quarter and 34% on the previous period. HUB24 is a beneficiaryfrom the structural migration of advisors away from the major banks and AMP into more nimble independentgroups which favour superior technology platforms. Gold miners Saracen (+10.7%) and Evolution (+4.1%)performed strongly driven by continued quantitative easing programs conducted by Central Banks and safe-haven demand in an uncertain economic environment. While we took the opportunity to take some profitsacross a number of gold miners in the portfolio, we still retain a significant exposure at ~12% of totalassets.

Detractors included retirement community developer Lifestyle Communities (-8.6%) and transit anddomestic tourism operator SeaLink (-4.8%) – we retain a longer-term positive view on both companies. Theinevitable volatility created with the upcoming August results season will be sure to provide someopportunities to deploy capital into oversold companies and reassess the investment thesis in our coreholdings.


Effective Cash#

10.42%

New Zealand Equities12.11%Australian Equities65.51%

Listed Property11.96%

Other* 0%


Upcoming Distributions Target Payment Date

Conservative Fund 0.5 cents (Quarterly) 22/10/2020

Diversified Income Fund 1.1 cents (Quarterly) 20/08/2020

Trans-Tasman Bond Fund 0.45 cents (Quarterly) 17/09/2020

Global Corporate Bond Fund 0.45 cents (Quarterly) 17/09/2020

Trans-Tasman Equity Fund 1.5 cents (Biannually) 17/09/2020



Fund PerformancePast month 1 year 3 years (p.a.) 5 years (p.a.) Since Fund

inception (p.a.) Unit price $ Fund size $

Multi-Asset Funds

Conservative Fund* 1.34% 3.96% 5.89% — 6.33% 1.1923 444.8 M

Diversified Income Fund* 1.43% 0.36% 6.55% 8.01% 10.55% 1.7585 2,300.3 M

Balanced Fund 1.96% 5.21% 8.25% 7.85% 9.63% 2.4873 835.2 M

Active Growth Fund# 3.07% 5.97% 10.23% 9.91% 12.19% 4.0822 1,233.4 M

Australian Absolute Growth

Fund0.97% 3.35% — — 6.61% 1.1635 211.1 M

Cash and Fixed Income Funds

Trans-Tasman Bond Fund*^ 0.87% 4.41% 5.31% 4.93% 5.65% 1.2003 776.3 M

Global Corporate Bond Fund*^ 1.65% 4.50% 4.43% — 5.10% 1.0874 754.3 M

Cash Fund 0.02% 1.14% — — 1.42% 1.0202 127.3 M

Equity Funds

Global Equity Fund† 3.75% 15.33% 11.65% 7.55% 9.23% 1.8866 779.3 M

Trans-Tasman Equity Fund* 2.20% 6.70% 14.32% 13.19% 11.50% 3.2771 493.5 M

Dynamic Fund 2.97% 6.34% 12.54% 10.64% 11.98% 2.1435 350.3 M

For details of how investment performance is calculated, and returns at each PIR please see www.milfordasset.com/funds-performance/view-performance#tab-performance.Performance figures are after total Fund charges have been deducted and at 0% PIR. Please note past performance is not a guarantee of future returns.Inception dates for the Funds: Active Growth Fund: 1 October 2007, Trans-Tasman Equity Fund: 1 October 2007, Balanced Fund: 1 April 2010, Diversified Income Fund: 1 April 2010,Global Equity Fund: 12 April 2013, Dynamic Fund: 1 October 2013, Trans-Tasman Bond Fund: 2 December 2013, Conservative Fund: 1 September 2015, Global Corporate Bond Fund:1 February 2017, Australian Absolute Growth Fund: 1 March 2018, Cash Fund: 1 March 2019.*Performance figures include the reinvestment of the Funds' distribution.^Returns prior to 1 March 2018 are from when the Fund was previously offered to wholesale investors only and have been adjusted for current Fund charges.†Returns prior to 1 October 2018 are from when the Fund was structured to achieve an absolute return.#The Active Growth Fund is closed to new investors.

Key Market IndicesPast month 1 year 3 years (p.a.) 5 years (p.a.) 7 years (p.a.)

S&P/NZX 50 Gross Index (with imputation credits) 2.45% 8.84% 16.21% 15.89% 15.85%

S&P/ASX 200 Accumulation Index (AUD) 0.50% -9.87% 5.37% 5.15% 6.78%

S&P/ASX 200 Accumulation Index (NZD) 1.14% -7.10% 5.75% 4.59% 6.08%

MSCI World Index (local currency)* 3.39% 5.55% 7.59% 7.35% 9.11%

MSCI World Index (NZD)* 1.26% 6.24% 11.85% 7.46% 11.10%

S&P/NZX 90-Day Bank Bill Rate 0.03% 1.07% 1.66% 1.99% 2.36%

Bloomberg Barclays Global Aggregate Bond (USD-Hedged) 1.09% 6.39% 5.41% 4.46% 4.44%

S&P/NZX NZ Government Bond Index 0.94% 5.91% 6.22% 5.10% 5.42%

*With net dividends reinvested


Top Security Holdings (as a percentage of the Fund’s Net Asset Value)

Multi-Asset Funds

Conservative Fund Diversified Income Fund Balanced Fund Active Growth Fund Australian AbsoluteGrowth Fund

NZLGFA 1.5% 2029 1.47% Spark New Zealand 2.14% Fisher & Paykel Healthcare1.89%

Fisher & Paykel Healthcare4.10%

Woolworths 5.96%

Housing NZ 3.36% 2025 1.27% Contact Energy 2.02% Spark New Zealand 1.87% Spark New Zealand 3.86% Telstra Corp 4.74%

NZLGFA 3.5% 2033 1.15% Transurban Group 1.96% a2 Milk Company 1.60% a2 Milk Company 2.96% National Australia Bank 4.22%

Westpac 2.22% 2024 1.13% Woolworths 1.71% Microsoft Corp 1.24% Summerset Group Holdings2.16%

Transurban Group 3.18%

ASB Bank 1.83% 2024 1.12% NZ Government Bond 2.75%2025 1.54%

Contact Energy 1.22% Contact Energy 1.97% BHP Group 3.13%

ANZ Bank 3.03% 2024 1.02% Telstra Corp 1.44% Apple 1.11% Newmont Mining 1.96% Rio Tinto 2.84%

Commonwealth of Australia1.75% 2051 1.01%

NZLGFA 1.5% 2026 1.38% Alphabet 1.09% Microsoft Corp 1.94% CSL 2.75%

ING Group 1.45% 2024 1.00% Mirvac Group 1.12% Amazon 1.06% Thermo Fisher Scientific 1.79% Newmont Mining 2.54%

UBS Float 2025 1.00% JPMorgan 1.09% 2027 1.12% Woolworths 1.04% Electronic Arts 1.51% IAG 2.51%

NZLGFA 1.5% 2026 0.95% Mirvac Group 3.625% 20271.08%

Transurban Group 0.98% Alphabet 1.42% Coles Group 2.21%

Note: Fixed interest securities are reported in the following format: Issuer name, interest (coupon) rate, maturity year, size of fund holding (as % of total portfolio).

Cash and Fixed Income Funds

Trans-Tasman Bond Fund Global Corporate Bond Fund Cash Fund

NZLGFA 1.5% 2029 3.13% Seagate 4.091% 2029 1.87% Westpac 32 Day CMD 2020 9.09%

Housing NZ 3.36% 2025 2.69% Kerry Group 0.625% 2029 1.77% Housing NZ 0% 2020 4.95%

NZLGFA 3.5% 2033 2.54% Danaher Corp 0.45% 2028 1.71% ANZ 1.2% 2020 3.93%

Westpac 2.22% 2024 2.50% McDonald's 3% 2024 1.60% ANZ 1.2% 2020 3.93%

ANZ Bank 3.03% 2024 2.25% Crown Castle 2.25% 2031 1.56% NZ Treasury 0% 2020 3.93%

Commonwealth of Australia 1.75% 2051 2.22% Bank of America 1.898% 2031 1.52% Contact CD 2020 3.92%

ING Group 1.45% 2024 2.21% John Deere 1.75% 2024 1.46% Christchurch City 0% 2020 3.92%

ASB Bank 1.83% 2024 2.16% Bayer 0.75% 2027 1.42% Auckland Airport CD 2020 3.92%

ANZ Bank Float 2024 2.07% Dell 5.85% 2025 1.40% TSB Bank CD 2020 3.14%

Macquarie Group Float 2025 1.96% Nordea Bank 0.5% 2027 1.35% Transpower 0% 2020 3.14%



Top Security Holdings (as a percentage of the Fund’s Net Asset Value)

Equity Funds

Global Equity Fund Trans-Tasman Equity Fund Dynamic Fund

Apple 4.40% Fisher & Paykel Healthcare 9.64% Evolution Mining 4.42%

Amazon 4.20% a2 Milk Company 8.16% Bapcor 3.82%

Microsoft Corp 4.08% CSL 4.78% Collins Foods 3.79%

Alphabet 3.90% Mainfreight 3.85% HUB24 3.76%

Paypal Holdings 2.93% Xero 3.65% Saracen Mineral Holdings 3.39%

Alibaba Group 2.73% Spark New Zealand 3.33% Sealink Travel Group 3.09%

S&P Global 2.51% BHP Group 3.12% EQT Holdings 2.93%

Transunion 2.46% Infratil 3.01% IPH 2.84%

Thermo Fisher Scientific 2.43% Auckland Airport 2.88% Fisher & Paykel Healthcare 2.79%

Danaher 2.43% Ryman Healthcare 2.81% EML Payments 2.71%


Milford and Milford staff have approximately $28.0 million invested across our Investment Funds as at the end of July 2020.


Investment HighlightA pivotal player in the response to COVID-19

Since the first case of COVID-19 was reported in Wuhan, China in December last year, it has had a devastating effect around the world. At the time of writing this, there have been 17.8 million confirmed cases, and sadly, 683,000 deaths1 in the COVID-19 pandemic. There are many companies that are contributing to the global fight against COVID-19, but one that stands out is Thermo Fisher Scientific (TMO), one of the largest global companies in the Lifesciences Industry, which found itself perfectly positioned to play a significant role in the global response to COVID-19.

Dr Deb LambieGlobal Equities Analyst

From the start, TMO’s electron microscopes were used to characterise the pathogen and uncover the three-dimensional structure of the coronavirus spike protein, which proved key in understanding how to target the virus. Twelve hundred boxes of TMO’s reagents and assays were fast tracked so researchers could rapidly develop diagnostic tests, which meant that by the time the World Health Organisation declared COVID-19 a pandemic in March, the work to understand and test the virus was well underway.

TMO’s real time PCR diagnostic test, which diagnoses the virus in 4 hours, was authorised by the FDA for emergency use in the US and received the CE mark for use in Europe. Now over 50 countries are using the test, and TMO has manufacturing capacity to produce more than 10 million COVID-19 diagnostic tests per week.

In addition, TMO is a provider of personal protective equipment, has modified its production lines to make components for ventilators and produce hand sanitiser and is partnering with pharmaceutical and biotechnical customers who are working to develop COVID-19 treatments and a vaccine – management have cited they are working on more than 200 Covid-related projects globally.

TMO’s ability to play a pivotal role in the COVID-19 response has directly translated into resilient earnings in the face of other significant headwinds, with many academic and government laboratories being shut down around the globe. In TMO’s most recent quarterly earnings result, the company demonstrated revenue growth of 10%, and management signalled they are expecting this momentum to continue into the next quarter, guiding to 15% year on year revenue growth.

1. As at 31 July 2020.

Disclaimer: This article is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser. Past performance is not a guarantee of future performance.

This strength in earnings is not new for TMO, over the last 5 years, it has outperformed the MSCI World Index by ~17% annually and since we purchased the shares in July 2019, they are up 44%.1

This company’s commitment to making the world a ‘healthier, cleaner and safer place’ is visible now more than ever. TMO is a company that we are proud to have in our Funds.

This scanning electron microscope image (right) shows the novel coronavirus (yellow) among human cells (blue, pink and purple). Note that colour has been added to the image to better show the virus and its environment.

Disclaimer: The Milford Monthly Review has been prepared by Milford Funds Limited. It is based on information believed to be accurate and reliable although no guarantee can begiven that this is the case. No reproduction of any material either in part or in full is permitted without prior permission. For more information about the Funds please refer to the ProductDisclosure Statement or the latest Quarterly Fund Update.

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