February started with the Federal Reserve hiking rates by 25bps to 4.75% with the market pricing in additional rate hikes for March and May. The other major central banks- The Bank of England and European Central Bank- also raised rates during the month. The equities market declined during the month following a strong market rally in January. Emerging market equities underperformed developed markets due to the stronger dollar and increased tensions between China and the U.S. SA equities also underperformed due to the greylisting by the Financial Action Task Force. The fund was down 1.4%* outperforming MSCI World which was down 2.4%* because the fund remained conservative with our overall equity exposure.
*Returns are in USD
Worst performers in the fund were Medical Properties and Nintendo. Medical properties Trust released their Q4 2022 and FY22 results and beat estimates which resulted in their share price falling. The REIT reported an impairment of $171m related to four underperforming properties which are leased to Prospectus Medical Holdings; this resulted in the company reporting a net loss. Nintendo’s share price fell following their financial results for the first nine months of FY23. Sales were down 1.9% to ¥1.3trn, operating profit was down 13.1% to ¥410.5bn and their net profit was down 5.8% to ¥346.2bn. The Switch business started off well due to Pokemon Scarlet and Pokemon Violet, as well as their new title, Splatoon 3. Due to the chip shortages and other component supplies which negatively impacted production, hardware units sold was down 21% for the reported period. While total software sales were down 4% to 171.1 million units as hardware sales impacted this part of the business. What most probably disappointed investors was the cut in their forecast for expected units to be sold for the full fiscal year. The company expects to now sell 18 million Switch consoles (their best-selling home consoled), down from their previous 19 million forecast. They also cut their software units sold from 210 to 205 million units which will result in lower sales.
Best performing stocks was Aristocrat and Edwards Lifescience. The slot machine manufacturer, Aristocrat, announced that they will be extending their share buyback program with a further A$500m which has been approved by the board for a further 12-month period. In May 2022, they announced a $500m share buyback program which they’ve almost completed already. Edwards Lifescience released their Q4 FY22 earnings end of Jan but their positive sentiments around outlook helped with the performance of the share price. The CEO stated that “the healthcare environment is gradually improving” and as a result, FY23 sales growth is expected to be between 9- 12% to $5.6bn to $6bn. There are more elderly individuals in developed market and cardiovascular diseases is still one of the biggest health burdens, and Edwards is well positioned to offer solutions to this and growth the number of patients they serve. Q4 sales remained flat due to the headwinds they faced during the quarter. Their biggest segment TAVR, remained flat with their market position and average selling price remaining stable. They introduced a new product in the U.S. during the period called the Sapien 3 Ultra Resilia Valve which is used on patients who have heart valve issues.
There are key global economic events in March which we’ll be keeping an eye on. This includes the non-farm payroll, CPI numbers and FOMC decision on the 22nd because this will impact equity performances. The U.S. yield curve remains inverted which means that the risk of a recession is still present.