Nikko Asset Management has ploughed back into the NZ stock market moving its $83 million Concentrated local equities fund from almost 20 per cent cash to zero in less than two months.
Stuart Williams, Nikko NZ head of equity, said the manager’s more sedate $250 million Core local shares fund was also now fully-invested after sitting in the upper range of its maximum 5 per cent cash allocation earlier this year.
However, Williams said the shift back into the market was the result of Nikko’s investment process rather than reflecting a macro view of the global economy.
“You have to look through the daily volatility,” he said. “Looking at the companies we like, we decide whether they represent good value… [decreasing cash holdings] has been a result of that bottom-up approach.”
While both the Nikko NZ equity funds can invest in Australian stocks, Williams said the portfolios currently favour local shares. The Core and Concentrated funds have about 8 per cent and 26 per cent, respectively, in ASX stocks.
In a report published last week, he said the relative outperformance of New Zealand (down 4.8 per cent in the year-to-date compared to losses ranging from 8-20 per cent on other developed world bourses) was supported by fundamental factors.
“[The NZ share market] is generally more defensive in nature; it is reasonably well diversified; and it has a current dividend yield of 6.2% (gross),” the report says. “In addition, NZ has high-quality market structures and is well regulated, which is positive for company profitability and therefore returns.”
Williams said the recent bout of volatility has enabled to Nikko to load up on some existing portfolio favourites at good prices, add new companies, as well as revisiting stocks it may have owned in the past.
“Because the market has been so weak overall, [buying shares] hasn’t felt good on some days,” he said. “But if you’re a bottom-up manager you have to back yourself. Investors aren’t giving us money to have 45 per cent in cash.”
While the Nikko Concentrated fund has a loose mandate allowing it to invest up to 100 per cent in any of NZ shares, Australian equities or cash, Williams said it peaked at just over 40 per cent cash prior to the GFC.
“If an active fund manager is generally worried about their ability to perform then they should give the money back to clients – or they shouldn’t charge active fees,” he said. “How long does an active manager have to hold cash before it gets embarrassing?”
The Nikko Concentrated fund, which targets a maximum of 15 stocks in its portfolio, was down about -2.9 per cent for January but up 12.3 per cent for the 12-month period, the latest Aon Hewitt Investment Update shows.
Meanwhile, the Core fund, with a target portfolio of 35 holdings, returned -2.8 per cent for the month and 9.7 per cent over the 12 months to the end of January.