Players in the Herald’s Brokers’ Picks game are back in black at the halfway point in the year - just.
After a bearish 2022 with most of our brokers in the red, the picks for 2023 included more blue chip NZX firms and the results reflect that, falling broadly in line with the 2.3 per cent return on the NZX-50 (across the first half of the game, December 19 - June 19).
It is subdued stuff but still something of a relief relative to the big falls last year which saw the NZX50 down more than 15 per cent across our game period.
Christian Bell, Jarden Vice President, Equity Research, noted that the NZX was broadly in line with most international indexes other than the tech-heavy US Nasdaq.
“The New Zealand market is behind US but consistent with Aussie and UK market peers,” he said.
The key variance was the defensive nature of the NZX and the lack of tech or AI exposure.
Excitement about the potential of AI has seen a tech stock bull market in the US with the Nasdaq Index up 36 per cent across the game period. The S&P 500 was up 14.2 per cent.
“It’s been another difficult year for investors, with the market going mostly sideways, and being up ever so slightly after the first six months, said Mark Lister, Investment Director at Craigs Investment Partners.
“But still, after last year I think investors will be happy ... up is up, after all.”
Top of the bunch at the halfway point of the game was Forsyth Barr which had its five stock picks up a modest 4.2 per cent, with Infratil the best performer, up 13 per cent.
“It’s been another tough period for the local market where relative performance has been as much about avoiding the disappointments as it has been about picking the winners,” said Forsyth Barr’s Head of Research Andy Bowley.
“Infratil continues to be a reliable performer, having backed up positive shareholder returns in each of the past six years, and 13 of the last 14.”
Infratil had recently completed the acquisition of One New Zealand Limited, whilst also getting good growth in renewables and data centre business units, noted Grant Davies at Hamilton Hindin Greene, who also had it in his picks.
Tourism Holdings - up 4.4 per cent - was another positive pick in Forsyth Barr’s portfolio.
Of all the stocks to be picked in this year’s game was Mercury NZ, up 15.3 per cent, picked by MSL Capital Markets.
On picking Mercury in December, Andrew McDouall at MSL Capital Markets said:
“With increasing generation diversity and a very wet North Island, generation output is expected to power Mercury’s earnings in the year ahead.”
That weather certainly hasn’t let up.
MSL is sitting in the second spot on the Brokers Picks league table - up 2.8 per cent.
Other positive picks for MSL were retirement village operator Arvida - up 10 per cent and Air New Zealand up 3.9 per cent.
MSL’s results were dragged down by a tough year to date for NZ Rural Land Company.
While the rural sector is generally doing it tougher this year, on higher costs and low commodity prices, property broadly is showing signs of rebounding from cyclical lows.
That’s reflected in returns for retirement village operators like Arvida and Ryman Healthcare.
Ryman doesn’t feature in any of the Brokers’ Picks this year but is one of the NZX50′s top performers with returns of close to 30 per cent in the year to date.
Edward Glennie, Investment Strategist at Hobson Wealth, also noted broadly the picks in the game this year are more cautious and leaned towards solid blue chips.
“Coming into the game this year were definitely more conservative,” he said.
Hobson’s best performer was Fletcher Building, up 12 per cent.
Fletcher Building had its investor day recently and the mood in the room was upbeat, Glennie said.
Both Hobsons and Craigs saw their game portfolios dragged down by rough returns for medical equipment supplier EBOS.
“EBOS is the one that hasn’t gone as planned after we saw a rare misstep from the company with the surprise loss of a large contract,” said Craigs’ Lister.
“EBOS is still a very good business with a stellar track record, so we’re inclined to give it the benefit of the doubt.”
Jarden currently sits at the tail of the pack so far this year, dragged down by a big fall in value for biotech stock Pacific Edge (down 81 per cent) and Delegat Group (down 15 per cent).
Shares in cancer diagnostics company Pacific Edge slumped in June after American health insurer Medicare’s coverage of its Cxbladder tests was expected to stop in July.
Looking to the second half of 2023, there were plenty of challenges but also some cause for optimism, Lister said.
“Inflation is slowing, interest rates are closing to peaking, migration has picked up and we’re starting to see the labour market ease a little,” he said.
“I think the housing market decline is largely behind us, and some stability there will add to confidence. The election is creating some uncertainty, but we should see a pickup in activity once we put that behind us.”
But Jarden’s Bell added a note of caution.
He expected house price sentiment to be a key thematic for the rest of the year.
“We also think allocation away from equities and earnings risk from a slowdown in growth prospects will continue to be a feature.”
Disclaimer - It’s a game
Readers should recognise that the results of the Brokers’ Picks are skewed by some features of the game. The figures exclude brokers’ fees. Percentage changes are total shareholder return (share price performance and dividends) for the game period, sourced from Iress.
Brokers are asked to choose securities that will give the best short-term performance. If they had been asked to choose, for example, a five-year term, the results might be different. The survey does not allow brokers to review choices during the year. The survey implies a one-size-fits-all approach. It takes no account of individual circumstances such as an investor’s appetite for risk, needs for income or tax circumstances.
This year we also introduced a minimum liquidity rule to ensure stocks chosen in the game are well traded throughout the year.
The views expressed do not constitute personalised financial advice and are not directed at any person. Some shares picked may include shares held by the company’s directors and staff. Finally, past performance is no guarantee of future performance.
Liam Dann is Business Editor at Large for the New Zealand Herald. He is a senior writer and columnist as well as presenting and producing videos and podcasts. He joined the Herald in 2003.