Nothing but blue skies ahead for Air NZ?
Sell in May and go away.
That’s the age-old adage, but does it still hold true?
Some say yes, but with qualifications.
The Wall Street maxim, made popular by The Stock Trader’s Almanac, says investors should sell shares in May and re-enter the market in November, based on the historical tendency of stocks to underperform between May and October compared with the November to April period.
Mark Lister, investment director at Craigs Investment Partners, says the theory has its pitfalls, yet it can’t be fully ignored.
The saying mostly applies to the US, but as America has the world’s biggest stock market, what happens there is always relevant to other markets around the world - including New Zealand’s.
“It’s something that we have to be aware of because most KiwiSaver funds and New Zealand investors have a fair whack of their holdings over there anyway, so they are probably watching US markets,” Lister says.
“If you had a bit of a sell-off over the next few months in the US we would follow that, even if only from a sentiment perspective, so it’s definitely something to bear in mind,” he said.
“History does tell you that it does tend to work.
“Seasonally, the strongest months of the year in US tends to be through that November-April period.
“The weakest months tend to be the likes of September, June, August and May.
“If you look at rolling six-month returns, or if you cut all the years into May-October, then November-April periods, then you will see a clear trend,” he said.
However, Lister says it is dangerous to follow that historic seasonal pattern because every year is different.
“You might get proven wrong and be caught short, because it doesn’t happen every year.”
Markets generally could be in for a bumpy ride over the next few months, he says.
For the local market, there has been no shortage of challenges given the current economic slowdown.
“We have seen a string of profit downgrades in the local market, with high inflation and high interest rates and a central bank that is reluctant to cut rates too quickly,” Lister said.
“All of that is putting pressure on the local economy and the local market.”
In sharp contrast, the US market has surged by 25 per cent in the last 12 months.
“It’s had a cracking run, but sentiment now is turning a little bit more serious,” Lister says.
“It’s not a case of panic stations or moving to the sidelines, but for me, it means opportunities for investors because I’m quite positive on what I see coming in the next 12 months, rather than the next three.”
But for the US, it’s been so far, so good, with three-quarters of companies reporting their latest results as having beaten market expectations.
Devon Funds sees some light on the horizon for Air New Zealand, which is now facing headwinds and a downgraded profit outlook.
The days of “supersonic” passenger demand with airfares rising accordingly and turbo-charged earnings have passed, says Greg Smith, head of distribution at Devon.
Volatile jet fuel costs on the back of wars and geopolitical tensions have made the journey more testing.
The airline sector has dropped about 30 per cent during the past five years, while global equity markets have risen strongly, with the S&P 500 up over 70 per cent in this time.
Air NZ has also lagged the S&P/NZX 50 index, which will not have gone unnoticed by its big retail investor base (who increased their position via the $1.2 billion capital rise in 2022) and the Government, given its 51 per cent stake.
Air NZ’s share price is down nearly 20 per cent year to date, with recent weakness driven by a downgrade to earnings forecasts, says Smith.
The airline is grappling with engine issues, a sagging economy and the prospect of higher airport charges.
However, Air NZ has a dominant market position, and while the airline is beholden to engine manufacturers, these issues should be resolved in the next 12-18 months.
By this time, Covid-related credits will also largely be in the rear-view and some middle ground may also be found on landing charges, says Smith.
“Air New Zealand has plenty of headwinds to navigate but is also led by one of the most respected business leaders globally: ex-Walmart chief executive Greg Foran.”
Air NZ trades at a price earnings multiple of 13 times, more than double that of the global airline sector.
Investment research firm Morningstar says all multi-sector KiwiSaver funds produced positive returns over the March quarter, with funds that contained risk assets benefiting the most.
Key highlights from Morningstar’s March quarter survey included:
The average multi-sector category returns ranged from 2.0 per cent for the conservative category to 8.8 per cent for the aggressive category.
As for default funds, Booster made an appearance at the top of the table with the best return of the quarter.
QuayStreet continues to perform well across many periods in the conservative and balanced categories.
Milford has consistently high-performance within the moderate, balanced and growth categories over the long term, though it has been struggling a little recently, Morningstar said.
Morningstar said it is appropriate to evaluate performance of a KiwiSaver scheme by studying its long-term returns.
Over 10 years, the aggressive category average has given investors an annualised return of 9.1 per cent, followed by growth (8.4 per cent), balanced (6.8 per cent), moderate (4.8 per cent) and conservative (4.3 per cent).
Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.
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